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LOANS

What is a small business loan?

Small business loans play a critical role in supporting both new ventures and established companies, providing them with essential access to capital for a range of business needs. These loans serve as a lifeline, enabling business owners to purchase inventory, invest in state-of-the-art equipment, expand their operations, or navigate unforeseen financial challenges.

Entrepreneurs seeking small business loans can explore a variety of options, including traditional banks, credit unions, online lenders, and government agencies. Each lender offers unique terms and opportunities tailored to the diverse needs of businesses.

Selecting the most suitable business loan for your company requires a thoughtful assessment of multiple factors. Considerations such as the funding amount required, the eligibility criteria of your business, and the urgency of obtaining funds should guide your decision-making process. By conducting a thorough evaluation, you can choose the best business loan option that aligns with your specific needs, providing the financial resources required to drive your business forward.

Type of Loans We Offer

Small businesses have access to a variety of financing options.
The type of business loan you choose will depend on your specific needs and eligibility criteria.
Here are some of the most common types of business loans:

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A Rollover business loan is like having a financial safety net for your business. Initially, you receive a lump sum amount to address your immediate needs. What makes it intriguing is the flexibility it offers: you can add more funds anytime without changing your repayment structure. So, whether you need extra capital for expansion or unforeseen expenses, you can tap into your loan without altering your current payment plan. It's like having a reliable partner that adapts to your business's evolving needs while keeping things simple and predictable.

A merchant cash advance (MCA) gives you a lump sum of cash upfront against your future sales. You repay the merchant cash advance through a percentage of daily or weekly credit card sales.

While this type of funding can deliver cash fast, it tends to be a more costly way to borrow money for your company.

· Minimum credit score: 500
· Time to funding: Same day to three months

Business term loans provide a lump sum of cash upfront, paid with interest in fixed weekly or monthly installments.

Short-term business loans have repayment terms around 3 to 24 months and are commonly available from online lenders.

Long-term business loans, usually offered by traditional banks, can last 10 years or more.

· Credit score: 500
· Time to funding: Same-day to 3 months

Working capital loan is an umbrella term for financing that covers short-term operating expenses, like payroll or cash flow gaps.

Working capital loans come in various forms, like working capital lines of credit, term loans and cash advances.

· Minimum credit score: 600
· Time to funding: 1 to 14 business days

Similar to a credit card, a small business line of credit allows you to borrow up to your credit limit as often as needed.

You typically only pay interest on the amounts you borrow, although some lenders charge additional maintenance or withdrawal fees.

Lines of credit are best for recurring expenses like rent, inventory purchases or seasonal fluctuations in income..

Business credit cards can help track business expenses and unlock cash back or travel rewards while monitoring employee spending.

To avoid paying a high annual percentage rate, pay off your credit card statement balance in full by the due date.

Are you in need of quick cash? Consider a car title loan, where you can use your vehicle's title as collateral to secure a loan amount. By temporarily transferring ownership of your vehicle to the lender, you can access the funds you need, with the lender holding onto the car title until the loan is repaid in full. Reach out to learn more about this financing option.

Invoice factoring allows businesses to sell unpaid invoices to a factoring company in exchange for a cash advance.

This can be a good option for cash-strapped businesses or those with poor or limited credit, but you can typically get only 70% to 90% of your invoice face value.

Invoice factoring can also get expensive, with factoring rates going as high as 8.25%.

Equipment financing offers businesses the flexibility to acquire essential machinery, vehicles, or technology without making large upfront payments. This type of financing allows businesses to spread the cost of equipment over time, conserving capital for other operational needs. Whether through loans or leases, equipment financing enables businesses to stay competitive by accessing the tools necessary for sustained growth and efficiency.

Business loan requirements

When applying for a business loan, it’s important to ensure that your business and credit history demonstrate stability. Here are some common business loan requirements that you may need to fulfill to secure approval for small business financing:

Time in Business

To bolster your chances of borrowing, demonstrating a track record of consistent revenue over the past one to two years can greatly strengthen your position with lenders. A consistent revenue stream over a longer period tends to be more favorable than sporadic revenue over a short span.

Credit Score

Lenders use your credit score to assess your reliability as a borrower. Generally, a good to excellent credit score in the mid-600s or higher is preferable for obtaining a business loan, although some lenders may accept lower scores, potentially as low as 500. While a business credit score of at least 80 is typically preferred, certain lenders may rely solely on your personal credit score during the loan review process.

Cash Flow

Presenting a business cash-flow projection that outlines the inflow, outflow, and remaining funds is crucial. Lenders appreciate evidence that you have a clear understanding of your business’s monthly financial movements.

Collateral

Collateral serves as an asset that lenders can reclaim if loan payments cannot be met. It can include real estate, equipment, accounts receivable, and even cash. Some business owners may opt to use their personal assets, such as their homes, as collateral for a business loan.

Fixed Charge Coverage Ratio

This ratio assesses your company’s ability to cover fixed expenses, including debts and interest. Lenders leverage this metric to evaluate the viability of approving a business loan application.

Working Capital

Working capital denotes the available funds for funding daily business operations. Calculating your working capital involves deducting the business’s short-term liabilities from current assets that can be readily converted to cash.

What to consider before getting a business loan

The pathway to securing a business loan varies based on the lending institution and the nature of funding required. Addressing the questions below will assist in pinpointing the most suitable small business financing solution for both your immediate and future requirements:

Is it to purchase a vehicle for launching your new food truck venture? Perhaps you're aiming to acquire commercial real estate to facilitate an expansion to another location in town? Or, are you in need of some immediate cash to bridge financial gaps during the off-season?

Examine your business budget closely to determine your affordability. Various business loans offer different repayment schedules, ranging from monthly installments spread over extended periods to more frequent, weekly or daily repayments. Remember, business loans constitute a debt obligation that necessitates repayment. Therefore, it's crucial to ensure that your business's financial health is robust enough to accommodate the additional repayment burden without strain.

Before you decide to apply, take the extra time to shop around. Compare offers to get the best rates. This extra bit of legwork may reduce your interest or fees in the long run. Read small business lender reviews to ensure you are working with a reputable lender.

How to compare small business loans

To select the ideal business loan, it's important to analyze several key aspects of the loan offers:

Interest Rate: Determine if the interest rate is fixed or variable. In cases where a factor rate is applied, converting this to an annual percentage rate (APR) will provide a clearer basis for comparison. Additionally, assess the total amount of interest you will incur over the life of the loan.

Repayment Term: Consider the initiation timing for repayments and your preference for the frequency of payments—be it daily, weekly, or monthly. Also, evaluate if there is flexibility to postpone payments during financial downturns.

Time to Fund: Assess how long the application and funding process will take. Traditional bank loans may require a few weeks to several months for approval and funding, whereas online lenders often have a quicker turnaround, sometimes delivering funds within one to three business days. Remember, the fastest options may not always offer the best financial terms.

Additional Fees: Pay attention to the fine print for any additional charges, such as origination fees, late payment fees, and penalties for prepaying the loan.

Before Finalizing Your Loan

After receiving approval, the closing process includes a review of documentation that outlines the terms of your loan. The business loan agreement is a legally binding document that specifies your interest rate and repayment schedule. It's crucial to fully comprehend the lender's requirements and how the terms impact your business's financial future. By signing the agreement, you commit to all its conditions, including the stipulations for late payments or inability to repay the loan.

Criteria for Selecting the Best Small Business Loans

In our review of leading small business lenders to identify the top choices, the following criteria were essential:

Loan Amounts: We looked for lenders providing funding options ranging from $500 to $15.5 million.

Minimum Time in Business: Selected lenders required no more than two years of business operation for eligibility.

Minimum Credit Score: We focused on lenders accepting personal credit scores below 680.

Rates and Terms: Our priority was lenders offering competitive fixed rates, minimal fees, and flexible repayment terms.

Time to Funding: We sought lenders capable of providing funds promptly, with options for same-day loans being particularly attractive.

Repayment Experience: The lender's reputation and business practices were key considerations. We favored lenders that report to major credit bureaus, provide excellent customer service, and offer additional benefits to customers such as rewards programs or business coaching.

How we chose the best small business loans

We conducted a thorough review of top small business lenders to identify the best small business loan provider. For a lender to be considered among the best, it had to meet the following criteria:

Loan amounts: Funding options ranging from $500 to $15.5 million.

Minimum time in business: No more than two years in business required.

Minimum credit score: Personal credit score requirements below 680.

Rates and terms: We prioritize lenders with more competitive fixed rates, fewer fees and more flexible repayment terms.

Time to funding: Options for same-day loans.

Repayment experience: We consider each lender’s reputation and business practices, favoring lenders that report to all major credit bureaus, offer reliable customer service and provide free perks to customers, like rewards progress or business coaching.

Frequently Asked Questions

How do small business loan work?

Business owners can take out small business loans — anywhere between $500 and $15.5 million — to finance expenses like payroll financing, inventory, equipment and other costs. Repayment terms could be as short as three months or as long as 25 years. Both traditional financial institutions and alternative online lenders offer small business loans.

Are the small business loans for bad credit?

Yes, bad credit business loans are available for business owners with personal credit scores as low as 500. However, these loans tend to come with higher interest rates and less flexible repayment terms.

Are I personally liable for a small business loan?

A personal guarantee requires you as the business owner to be personally responsible for the company’s debt in case of default. A personal guarantee is fairly common on small business loans because it lowers the risk for a lender. But as the business owner, it may limit any protections your business structure offers.

How can I get a startup business loan with no money?

Online lenders may be the best option to get a startup business loan with no money. Unlike brick-and-mortar banks that often have stricter eligibility requirements, some alternative lenders will work with you after about six months in business. If you can’t find a suitable lender providing business loans for new businesses, you can consider alternative options like crowdsourcing, self-funding or grant funding.

What credit score is needed for a business loan?

Each lender will have its own criteria based on the loan type. In general, you need a personal FICO Score of at least 500 and a business credit score of 80 to get a small business loan. But the lowest business loan interest rates are typically reserved for borrowers with higher credit scores. You can check and monitor your credit score for free with LendingTree Spring.

How much income do I need to get a business loan?

Most lenders look for minimum monthly or annual revenue when you apply for a loan. It’s common to expect a minimum annual revenue requirement of $50,000 or more for unsecured loans. However, you may be eligible for a business loan with a lower annual revenue if you can provide collateral.

What should I do of I'm rejected for a small business loan?

If you were rejected for a business loan, revisit the reason why. Focus on improving your personal credit and business credit scores. If you haven’t operated in business long enough, wait a bit. In the meantime, consider a small business credit card or a personal loan to access capital for any immediate business needs.

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