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Securing financing is often a critical step for aspiring entrepreneurs and small business owners in realizing their business goals. Whether launching a new product line or expanding to a new customer base, access to capital can make all the difference. However, it’s important to note that not all small businesses require massive sums of money to achieve their objectives. According to the 2023 Report on Employer Firms, a staggering 60% of businesses with employees have outstanding business loan debt of $100,000 or less.
The good news is that many lenders offer small business loans, including traditional banks, credit unions, and online lenders. However, each lender may offer different loan terms, interest rates, and requirements for approval. When shopping for a small business loan, it’s important to consider factors such as the lender’s reputation, willingness to work with your credit history, and the specific terms of their loan offer. By researching and carefully evaluating your options, you can increase your chances of securing the financing you need to take your business to the next level.
What is a small business loan?
Small business loans are financial products that help new and established companies access capital to fund various business needs. Whether you need to purchase inventory, invest in new equipment, build an expansion, or cover unexpected expenses, a small business loan can provide the necessary funds. The options for obtaining a business loan are diverse, including traditional banks, online lenders, and government agencies.
Each lender has its own requirements, interest rates, and terms, so it is important to research and compare multiple options before making a final decision. The best business loan for your company will depend on various factors, including how much capital you require, the qualifications of your business, and how quickly you need the funds. By selecting the right loan, you can provide your company with the necessary resources to grow and succeed.
Best small business loans
These are the best loans for small businesses:
SBA loans
Small Business Administration (SBA) loans are a type of business loan that is partially guaranteed by the SBA and offered through SBA-approved traditional and online lenders. SBA loans are a great financing option for businesses that cannot qualify for traditional financing due to a lack of collateral, credit history, or other reasons.
One of the advantages of SBA loans is that they offer lower interest rates compared to many other financing options available to business owners. The SBA sets maximum interest rate limits that lenders can charge, which is currently up to 16.5 percent. This means that business owners are protected from paying high interest rates and can save money on loan repayments, making it easier for them to grow their businesses.
SBA loans are available in several different types. Each type of loan has its own unique features and requirements, so it’s important to research and choose the right loan option for your specific business needs.
One of the most popular loan programs is the SBA 7(a) loan, which can be used for various business expenses, including working capital, inventory, equipment, and real estate. The maximum loan amount for an SBA 7(a) loan is $5 million.
Another SBA loan program is the SBA 504 loan, specifically designed for real estate and equipment financing. This loan program can also be used for construction, renovation, and leasehold improvements. The maximum loan amount for an SBA SBA 504 loan is $5.5 million.
If you need a line of credit to cover expenses from specific work or construction projects or to handle seasonal cost hikes, the SBA offers a program called CAPLines. CAPLines are SBA-backed business lines of credit that can be used for various purposes, including inventory, accounts receivable, and labor costs. The maximum loan amount for a CAPLines loan is $5 million.
How to qualify for SBA business loans
If you’re looking to secure a business loan from the Small Business Administration (SBA), you must meet several requirements. First, you must be a for-profit business located in the United States. Additionally, your business must be considered ‘small’ according to the SBA’s size standards – these vary by industry, so you’ll need to check the SBA’s guidelines to be sure.
It’s also important to note that SBA loans are typically reserved for businesses that cannot qualify for traditional, non-SBA loans. You’ll need to demonstrate that you’ve made a good-faith effort to secure other financing options before turning to the SBA for help.
Another key consideration is your ability to repay the loan. The SBA will want to see that your business is financially stable enough to make regular loan payments. You’ll need to provide documentation like tax returns, financial statements, and cash flow projections to demonstrate your ability to repay the loan.
Finally, you’ll need to meet certain requirements set by the lender you’re working with. This may include having a good credit score, a certain amount of time in business, and a minimum level of revenue. Be sure to check with your lender to determine their specific requirements before applying for an SBA loan.
OnDeck
OnDeck is a reputable lender that offers two types of short-term business loans, namely business lines of credit and term loans. The company caters to small business owners with fair credit and little experience. To qualify for a loan, you need a personal credit score of at least 625 and just one year of business history.
One of the best things about OnDeck’s loans is their short terms, which range from 18 to 24 months. Compared to other lenders that offer maximum loan terms of between six and 18 months, OnDeck’s 24-month terms are quite generous.
Another advantage of OnDeck’s loans is that they are accessible to businesses with modest financing needs. The loan amounts start at $5,000 for a term loan and $6,000 for a business line of credit. This makes it suitable for small businesses that require quick and hassle-free access to funding.
OnDeck is a great option for small business owners who require short-term loans. However, it is important to keep in mind that the convenience of accessibility comes with a tradeoff – OnDeck charges high-interest rates starting at 29.90 percent. This is significantly higher than other lenders offer, which typically start in the 6 percent to 8 percent range as long as you have a strong credit history.
Therefore, while OnDeck may be a good option for those who have difficulty qualifying for loans through traditional lenders, it is important to weigh the high-interest rates against the benefits of accessibility before making a final decision.
Overall, OnDeck is an excellent option if you need short-term financing for your business and don’t want to jump through too many hoops to get approved. It is a safe and reliable way to get the funds you need to grow your business.
How to qualify for OnDeck business loans
If you’re interested in applying for an OnDeck loan, there are a few eligibility requirements to keep in mind.
- To be eligible for an OnDeck loan, your business must have been operational for at least one year.
- Your business needs to have a minimum annual revenue of $100,000.
- Your personal credit score needs to be at least 625.
- You must have a business bank account.
- OnDeck does not offer loans to businesses in Nevada, North Dakota, or South Dakota.
Wells Fargo
Wells Fargo is among the most prominent names in the banking and business loan industry. The financial institution offers a range of financing options to help businesses achieve their goals and expand their operations. For instance, Wells Fargo provides an unsecured business line of credit that can offer businesses with a minimum of two years of experience credit limits ranging from $10,000 to $150,000.
If you’re a startup with a strong credit score, you may be able to qualify for an SBA-guaranteed business line of credit, which can offer credit limits of up to $50,000. The best part about both BusinessLine and SBA-backed Small Business Advantage line of credit is that they immediately enroll you in Wells Fargo’s business rewards program, providing you with various benefits and discounts.
Both financing options come with a Mastercard, allowing businesses to directly access money from their available credit. This feature can be especially helpful for businesses that require quick access to funds for unexpected expenses or emergencies. By choosing Wells Fargo, businesses can take advantage of flexible financing options and enjoy the convenience of a Mastercard that can be used anywhere.
For businesses with a well-established revenue stream of at least $2 million, the Wells Fargo Prime Line of Credit is an option. This credit line is designed to offer credit limits that can go as high as $1 million. However, it’s important to note that the Prime Line of Credit’s other two options may provide less than the usual $250,000 for a standard line of credit. So, if your business is looking for a larger credit limit, the Wells Fargo Prime Line of Credit could be a viable solution to consider.
How to qualify for Wells Fargo business lines of credit
There are a few key requirements to qualify for business lines of credit offered by Wells Fargo. Firstly, you’ll need a credit score of 680 or higher. This is an important factor that lenders generally look at to assess your creditworthiness.
If you’re a startup, you may still be able to qualify for a business line of credit through Wells Fargo’s Small Business Advantage Line of Credit, which is backed by the Small Business Administration (SBA). Note that this program is specifically designed for small businesses, so you’ll need to meet certain eligibility criteria to qualify.
For Wells Fargo’s other credit lines, you’ll typically need to have been in business for at least two years before you can apply. This is because lenders want to see a track record of financial stability and responsible borrowing before they extend credit to a business.
Finally, it’s important to note that collateral or a personal guarantee may be required to secure a business line of credit with Wells Fargo. This means that you’ll need to pledge assets or agree to be personally responsible for the debt if your business is unable to repay it.
Fundible
Fundible is a financial institution that offers a variety of loan options designed to cater to the needs of business owners, regardless of their credit score. Whether you’re looking for direct lending or partnering with one of their affiliate lenders, Fundible has got you covered.
One of the most notable features of Fundible is its accessibility. Even if your personal credit score is in the 400 to 500 range, you can still apply for a business loan with Fundible. The lender understands that a low credit score doesn’t necessarily mean that you’re not a reliable borrower, so they offer financing options for everyone.
Fundible offers several types of loans, including equipment financing, invoice financing, bridge loans, and business lines of credit. The loan amounts range from $10,000 to $10 million, depending on your needs and the type of loan you choose.
If you’re looking for a bad credit business loan, Fundible’s equipment financing and invoice financing options could be a great fit for you. These loans are secured by the equipment or invoice itself instead of relying solely on your credit score. Bridge loans and business lines of credit are also available, with funding up to $1 million and $500,000, respectively.
No matter which option you choose, Fundible’s starting rates are low, making it affordable for business owners looking to get financing without breaking the bank. With its flexible terms and accessible requirements, Fundible is an excellent choice for entrepreneurs looking to take their business to the next level.
Compared to other online lending platforms, Fundible has a relaxed credit criteria, which means that borrowers with lower credit scores may still be eligible for a loan.
Most online lenders typically require a minimum personal credit score of 600, while traditional lenders have a higher threshold of 670 and up. Fundible’s more lenient approach may make it a more accessible option for borrowers who do not meet the strict credit standards of other lenders.
How to qualify for Fundible business loans
If you’re looking to apply for a business loan through Fundible, there are certain criteria that you need to meet to qualify. The minimum requirements for eligibility include a personal credit score of 450, a minimum of 6 months in business, and at least $96,000 in annual revenue.
However, if you want to increase your chances of being approved for a loan, you’ll want to aim for the ideal criteria. This includes having a personal credit score of at least 600 and $200,000 to $250,000 in annual revenue. Meeting these criteria can help demonstrate to lenders that you have a strong financial standing and are a reliable borrower.
It’s worth noting that meeting the minimum or ideal criteria doesn’t guarantee approval for a Fundible business loan. Other factors, such as your business’s industry, cash flow, and debt-to-income ratio, will also be considered by lenders when reviewing your application. Nonetheless, ensuring that you meet the minimum or ideal criteria can help set you on the path towards securing the funding you need to grow your business.
SMB Compass
SMB Compass is a reliable and trusted online lender that offers a wide range of business loans to cater to the diverse financial needs of businesses. Whether you are looking for a term loan or a business line of credit, SMB Compass has got you covered.
If you have a strong credit score, you can enjoy some of the best interest rates in the industry. The term loans start charging interest at just 6.99 percent, significantly lower than many other online lenders offer. Moreover, SMB Compass offers loans ranging from $25,000 to $5 million with terms up to 25 years, giving you the flexibility to choose a loan that best fits your business needs.
Similarly, if you are looking for a business line of credit, SMB Compass offers competitive interest rates starting at 7.99 percent. With credit limits ranging from $10,000 to $5 million, you can access the funds you need to grow your business without any hassle.
It’s worth mentioning that finding low-interest business loans in the online lending space is not that easy. Many lenders tend to charge interest rates in the double digits, making it challenging for small businesses to get the financing they need. However, SMB Compass stands out from the crowd by offering some of the most affordable and competitive rates in the market.
SMB Compass offers various types of loans, each with its own set of eligibility criteria. To be eligible for a term loan, you must have a personal credit score of at least 680, be in business for at least six months, and have an annual revenue of at least $500,000.
On the other hand, if you’re applying for a line of credit, you’ll need to meet the following requirements: a minimum credit score of 600, a minimum annual revenue of $100,000, and at least two years in business. It’s important to note that these are just the minimum requirements, and other factors such as your business’s financial history, cash flow, and industry will also be taken into consideration when determining your eligibility for a loan.
How to qualify for SMB Compass business loans
To qualify for SMB Compass business loans, there are certain requirements that need to be met. The specific criteria can vary depending on the type of loan you are applying for, but the minimum requirements are as follows:
- Business tenure: The business should be operational for at least 6 months.
- Annual Revenue: The business should have at least $100,000 annual revenue.
- Personal credit score: The borrower should have a personal credit score of 600 or above.
It is important to note that meeting these minimum requirements does not guarantee loan approval. Other factors, such as your industry, business plan, and financial history, will also be considered during the loan application process.
Accion Opportunity Fund
Accion Opportunity Fund is a nonprofit organization dedicated to supporting small businesses by providing them with funding opportunities that they may not be able to access from traditional lenders. The organization offers low-interest loans to small business owners, with loan amounts that can go up to $250,000. The APRs for these loans range from 5.99 percent to 18.99 percent, and they are designed to be affordable and accessible to small business owners.
Accion Opportunity Fund does not just provide funding, however. The nonprofit organization also aims to strengthen small businesses by offering free mentoring and online education. This means that small business owners can get valuable guidance and support from experienced mentors and access to online courses and resources that can help them grow their businesses.
The organization is committed to promoting diversity and inclusion, and it welcomes minority business owners, including individuals with only an Individual Taxpayer Identification Number (ITIN). By providing funding and support to small businesses, Accion Opportunity Fund aims to help these businesses thrive and contribute to their local communities.
How to qualify for Accion Opportunity Fund business loans
If you’re a business owner turned down for a traditional business loan, you may want to consider Accion Opportunity Fund as an option. This lender is dedicated to serving individuals who are often overlooked by traditional lenders, including people of color, women, and low-to-moderate income business owners. In fact, these groups make up a whopping 90 percent of its clientele.
One of the things that sets Accion Opportunity Fund apart from other lenders is its willingness to look beyond just a borrower’s credit score. While a credit score of 550 or above is preferred, the lender understands that there are other factors that can impact a business owner’s financial situation. As such, they may still be willing to work with borrowers with lower credit scores as long as they can demonstrate consistent cash flow and a proven track record of success over several years in business.
Whether you’re just starting your business or you’re looking to take it to the next level, Accion Opportunity Fund may be able to provide you with the funding you need to succeed. With a focus on fairness, safety, and accessibility, this lender is committed to helping all types of entrepreneurs achieve their dreams.
Credibly
Credibly is a reputable fintech lender specializing in providing working capital loans to businesses. In addition to working capital loans, you can also get other types of loans through its lending network. With Credibly’s working capital loan, you can borrow anywhere from $5,000 to $400,000 and choose a repayment period of six to 18 months. This loan type has quick repayments, which means you can pay it off quickly and move forward with your business.
If you’re looking for another option, you can consider Credibly’s merchant cash advance (MCA), which is a loan that you repay based on your future expected debit or credit card sales. This option is perfect for businesses that have a high volume of card transactions. The MCA loan terms range from three to 18 months, allowing you to choose a repayment schedule that works best for you.
While Credibly has its advantages, there are some downsides to be aware of. One of the downsides is that the company charges factor rates instead of interest rates. A factor rate is a fee that is applied to the entire loan, as opposed to interest rates which are charged on the principal amount as you go.
The factor rate is a fixed fee that is calculated based on the initial loan amount and is added to the total cost of the loan. Therefore, the fee is not reduced even if you pay off the loan early. This means that the longer you take to pay off the loan, the more you will end up paying in fees.
On the other hand, interest rates are charged on the money you owe at a particular time. If you repay the loan early, you can avoid paying interest on the remaining balance. This is a significant advantage, as it allows you to save on interest fees and pay off the loan faster.
It’s important to understand the difference between factor and interest rates when considering a loan from Credibly or any other lender. While factor rates may seem simpler to understand, they can be more expensive in the long run, especially if you plan to pay off the loan early.
How to qualify for Credibly business loans
To qualify for Credibly business loans, you need to meet the following criteria. Firstly, your business should be operational for at least 6 months, which means that you should have a track record of generating revenue during this period. Secondly, you should have a personal credit score of 550 or above, which reflects your creditworthiness and your ability to repay the loan.
Additionally, your business should have a minimum of $25,000 in monthly revenue, which translates to at least $300,000 annually. This is to ensure that you have the financial capacity to repay the loan in a timely manner. You should also have a business bank account showing a consistent revenue flow. Lastly, you should not have any bankruptcies within the last 3 years, as this can indicate financial instability.
Types of small business loans
Small businesses often require financing to grow, expand or cover unexpected expenses. Fortunately, there are a variety of business loans available to suit different needs and circumstances. These loans come with varying terms, ranging from short-term loans that typically need to be repaid within a few months, to longer-term loans that may have repayment periods of up to 25 years.
You can get small business loans from various sources, including traditional brick-and-mortar banks, credit unions, online lenders, and even the U.S. Small Business Administration. Each type of lender has its own requirements and application process, and it’s important to carefully consider the terms and conditions of each loan before making a decision.
Some common types of small business loans include term loans, lines of credit, equipment loans, commercial real estate loans, and business credit cards. Each of these loan has unique features and benefits, and the right choice will depend on factors such as the business’s financial situation, credit history, and long-term goals.
Term loans
Business term loans are financing that provides a lump sum of cash upfront, which is paid back with interest in fixed monthly or weekly installments. These loans can be short-term or long-term, depending on your business needs. Short-term business loans typically have repayment terms of a few months to a year or more and are commonly available from online lenders.
They are ideal for businesses that need quick access to cash to cover unexpected expenses or to bridge a temporary cash flow gap. On the other hand, long-term business loans are usually offered by traditional brick-and-mortar banks and can last 10 years or more. They are designed to help businesses finance long-term investments, such as equipment purchases or real estate. Although long-term loans have lower monthly payments, they usually have higher interest rates than short-term loans.
Line of credit
A line of credit is a form of funding that allows businesses to borrow a certain amount of money from a lender, which can be drawn upon as needed. It’s similar to a credit card, but with a higher credit limit and lower interest rates. Businesses are only required to pay interest on the amount they borrow, not the entire line of credit.
Lines of credit are best suited for recurring expenses such as rent, utility bills, and inventory purchases. They can also be useful for managing seasonal fluctuations in income, as businesses can borrow money during slow periods and pay it back when revenue starts to pick up. Unlike traditional loans, lines of credit are a flexible form of financing that can be used for a variety of business needs.
Equipment financing
Equipment financing, also commonly referred to as equipment loans, is a type of business financing that allows businesses to acquire the necessary equipment, machinery, vehicles or other assets required to operate or expand their business operations. The financing is typically secured by the equipment itself, which serves as collateral for the loan.
This type of financing is especially useful for businesses that require expensive or specialized equipment, but lack the sufficient capital or resources to purchase the equipment outright. With equipment financing, businesses can acquire the equipment they need while spreading out the payments over a period of time, which can help improve cash flow and liquidity. Additionally, equipment financing may offer tax benefits, as the interest paid on the loan may be tax-deductible.
Commercial real estate loans
Commercial real estate loans can be a great financing option for large companies that need funds to purchase materials, finance equipment, or construct property for business purposes. These loans are quite similar to home mortgages, but they usually require a higher upfront down payment, as they involve more substantial amounts of money.
Commercial real estate loans can be secured by a variety of properties, including office buildings, retail spaces, industrial warehouses, and more. The terms and conditions of these loans may vary widely depending on the lender, the borrower’s credit history, and the type and value of the property being financed. However, in general, commercial real estate loans offer a flexible and convenient way for companies to access the funds they need to grow and expand their operations.
SBA loans
Small Business Administration (SBA) loans are a popular funding option for entrepreneurs looking to start or expand their businesses. These loans are guaranteed by the U.S. government agency, SBA, and offer long repayment terms with comparatively low interest rates.
There are two types of SBA loans: the SBA 7(a) loan and the 504/CDC loan. The SBA 7(a) loan is the most commonly used loan program and provides up to $5 million for various business purposes such as working capital, furniture, fixtures, and equipment. On the other hand, the 504/CDC loan is more commonly used for purchasing equipment or real estate.
It’s important to note that when applying for an SBA loan, you’ll have to go through a bank or online lender, not directly through the SBA. The lender will evaluate your creditworthiness and financial stability before approving your loan application. If approved, the SBA will guarantee a portion of the loan, which reduces the lender’s risk and allows them to offer lower interest rates and longer repayment terms.
Microloans
Microloans are a type of loan that is intended for small businesses and entrepreneurs who require a sum of $50,000 or less. These loans are particularly beneficial for startups or business owners who may face barriers to accessing other forms of financing, such as women or people of color.
The Small Business Administration, along with numerous nonprofit and community organizations, offer microloans to support small businesses. Microloans can be used for various purposes, including purchasing equipment, inventory, supplies, or working capital. These loans usually have more flexible repayment terms and lower interest rates compared to traditional bank loans, making them an ideal option for small businesses looking to grow and expand.
Working capital loans
A working capital loan is a type of financing that helps businesses cover their day-to-day operational expenses. These expenses can include payroll, rent, inventory, and other costs associated with running a business. Unlike long-term loans, working capital loans are designed to provide short-term funding solutions for businesses that need to bridge cash flow gaps.
Working capital loans can come in different forms, such as working capital lines of credit, term loans, and cash advances. A working capital line of credit is a flexible financing option that allows businesses to access funds up to a predetermined limit. Term loans, on the other hand, provide a lump sum of cash that is repaid over a fixed period of time. Cash advances are another type of working capital loan that provides businesses with quick access to cash in exchange for a percentage of future sales.
Overall, working capital loans are an essential tool for businesses that need to manage their day-to-day expenses and maintain their cash flow. By providing quick access to cash, working capital loans can help businesses stay afloat during tough times and take advantage of new opportunities for growth.
Invoice factoring
Invoice factoring is a financing arrangement that enables businesses to sell their unpaid invoices to a factoring company in exchange for a cash advance. This can be a viable option for businesses that are strapped for cash or have poor or limited credit, as it allows them to receive immediate cash flow without having to wait for customers to pay their outstanding invoices.
However, it is important to note that factoring companies typically only advance a percentage of the invoice face value, usually ranging from 70% to 90%. This means that businesses may not receive the full amount owed to them, and may need to factor multiple invoices to receive the amount of cash they need.
Furthermore, factoring can be an expensive financing option, with factoring rates ranging from 1% to 8.25% per month, depending on the creditworthiness of the business and the length of the factoring period. Businesses that choose to factor their invoices should carefully consider the cost of factoring and weigh it against the potential benefits, such as improved cash flow and the ability to access financing without relying on traditional lenders.
Franchise loans
If you’re looking to become a franchisee, you’re likely aware that owning a franchise can be an excellent way to achieve your goal of business ownership more quickly and with less effort than starting a business from scratch. However, even though you’ll have a proven business model and established brand recognition, you’ll still need capital to get started. That’s where franchise loans come in.
These loans can provide you with the funds you need to pay the upfront fee for opening a franchise, so you can hit the ground running and start generating revenue. It’s worth noting that while you’ll be the one taking out the loan through a lender, some franchisors may offer funding to new franchisees as well. So, if you’re considering becoming a franchisee, it’s worth exploring all your financing options to ensure you have the capital you need to succeed.
Additional business funding options
Apart from the conventional option of business loans, there are various other sources of funding that businesses can explore to meet their financial requirements. For instance, businesses can consider obtaining funds from alternative lenders, such as crowdfunding platforms, peer-to-peer lending networks, or angel investors.
Additionally, businesses can also opt for government grants and subsidies, venture capital firms, or even utilize their personal savings to fund their business ventures. By exploring these additional funding options, businesses can broaden their financial resources and increase their chances of securing the necessary funding to support their operations and growth.
Merchant cash advance
A merchant cash advance is a type of financing that provides businesses with a lump sum of cash upfront. However, the repayment process of the advance is quite different from a traditional loan. Instead of repaying the loan through fixed monthly payments, the repayment amount is deducted from a preset percentage of daily or weekly credit card sales.
This type of funding can be a great option for businesses that require cash quickly, as the application process is often straightforward, and approval can be obtained within a few days. However, it is important to note that merchant cash advances can be a very expensive method of borrowing. The repayment terms are generally short, and the interest rates can be quite high, resulting in a significant cost to the business over time. Therefore, careful consideration is needed before opting for a merchant cash advance.
Credit cards
Credit cards are a commonly used financial tool, both in personal and business settings. While you might be familiar with personal credit cards, business credit cards can also be very useful. They can help you track your business expenses, unlock travel or cash-back rewards, and monitor employee spending.
When it comes to using credit cards wisely, it’s important to remember that interest rates can be high. To avoid paying more than necessary, always pay off your statement balance in full by the due date. This will help you avoid accruing interest charges and keep your overall costs low. Additionally, be sure to compare different credit card offers to find one that best suits your needs and offers the most attractive terms and benefits.
Small business grants
Small business grants are a type of financial assistance offered by various entities such as the federal government, state governments, private corporations, and foundations. These grants are aimed at supporting small business owners in their efforts to establish and grow their businesses. Unlike loans, grants are free money that does not need to be repaid. However, the competition for these grants is quite intense as they are highly sought after by many small business owners.
To increase the chances of securing a grant, it is important to have a clear understanding of the application process and eligibility requirements. In addition to general small business grants, there are also specialized grants available to support minority-owned businesses and women-owned businesses. These targeted grants are designed to promote diversity and inclusivity in the business world.
Crowdfunding
Crowdfunding is an effective way to raise capital for your business. This approach involves soliciting funds from various sources, including family members, friends, and the public, to help launch your business. Crowdfunding can be particularly useful for startups or businesses that have difficulty securing traditional financing. The process allows you to test your business concept and gauge interest in your idea before investing significant resources.
However, keep in mind that crowdfunding platforms may charge commission fees for using their services, so it’s important to factor this into your budget. Additionally, it’s important to understand the different types of crowdfunding available, such as donation-based, reward-based, and equity-based, and choose the one that makes the most sense for your business objectives.
Personal loans
If you are facing difficulty in meeting the stringent eligibility requirements for a business loan, applying for a personal loan for business purposes might be a viable option. Personal loans are generally easier to obtain than business loans as they are based on your individual credit history and income. However, it is crucial to keep in mind that your personal credit score and assets may be at risk if you default on the loan.
Additionally, personal loans do not contribute to building your business credit, which is an essential factor in qualifying for future business loans and funding opportunities. Moreover, the interest paid on a personal loan cannot be claimed as a qualified business tax deduction, which can impact your overall tax liability. Therefore, it is advisable to evaluate the pros and cons of personal loans for business before deciding on the financing option that best suits your specific business needs.
Bootstrapping
Bootstrapping is a term used in the business world to refer to the practice of using your own financial resources to fund your business. This means that instead of seeking external funding from investors or banks, you rely on your own savings, personal loans, or credit cards to cover the costs of starting and running your business.
Bootstrapping can be an attractive option for startup businesses that don’t have access to traditional sources of funding, or want to maintain more control over their business. By using your own money, you can avoid giving up equity or control in your company, and you don’t have to worry about paying back interest or dividends to investors.
However, bootstrapping also comes with some risks. Since you are investing your own money into the business, you bear all the financial risk if the business fails. Additionally, if you don’t have enough money to cover all the expenses of starting and running your business, you may have to cut corners or delay important purchases, which could negatively impact your chances of success.
That being said, many successful businesses have started out with bootstrapping, and it can be a viable option for entrepreneurs willing to take on some risk and put in the hard work to get their business off the ground.
Business loan requirements
When you’re planning to apply for a business loan, it’s important to keep in mind that lenders will want to ensure that your business and credit history are stable. In order to evaluate your eligibility for a business loan, lenders will typically look at a variety of factors, including your credit profile, how long you’ve been in business, your capacity to take on debt, and any collateral you may have.
Your credit profile will be one of the key pieces of information that lenders will review. They will look at your credit score and credit history, as well as any outstanding debts or bankruptcies. If you have a strong credit profile, you may be more likely to be approved for a loan and receive more favorable terms.
In addition to your credit profile, lenders will also consider how long you’ve been in business. Typically, lenders prefer to work with businesses that have been operating for at least two years. This helps to demonstrate that your business is established and has a track record of success.
Your capacity to take on debt is another important factor that lenders will evaluate. They will look at your cash flow and revenue projections to determine whether you have the ability to repay the loan. In general, lenders prefer to work with businesses that have a stable source of revenue and can demonstrate that they will be able to make their loan payments on time.
Finally, lenders may also consider any collateral you may have. Collateral is any property or assets that you pledge as security for the loan. If you default on the loan, the lender may seize the collateral to recoup their losses. Examples of collateral may include real estate, equipment, or inventory.
Time in business
To increase your chances of securing a loan for your business, it’s important to understand that lenders will typically look at your company’s financial history. In particular, they will want to see that your business has a stable and consistent revenue stream over a period of time, usually around two years.
This is because a solid track record of revenue demonstrates that your business has the ability to generate consistent income, which in turn, reduces the risk for the lender.
On the other hand, if your revenue has been sporadic or inconsistent over the past six months, it may be seen as a red flag to lenders and could potentially hurt your chances of being approved for a loan. So, if you’re looking to borrow money for your business, it’s important to focus on building a strong financial history that shows consistent and reliable revenue over time.
Cash flow
A cash flow projection is a financial statement that outlines the inflows and outflows of cash in a business over a certain period of time. The purpose of a cash flow projection is to help business owners and managers anticipate and manage their cash flow, so they can make informed decisions about spending, investing, and borrowing.
The cash flow projection typically includes a breakdown of monthly cash inflows, such as sales revenue, loans, and investments, as well as monthly cash outflows, such as expenses, payroll, and loan payments. By tracking these inflows and outflows, a business owner can get a clear picture of their cash position at any given time, and can make adjustments as needed to ensure that they have enough cash on hand to meet their obligations and achieve their goals.
Lenders and investors often review a business’s cash flow projection to ensure that the business is financially stable and capable of meeting its financial obligations. A well-prepared cash flow projection demonstrates to lenders and investors that the business owner understands their cash flow and has a plan in place to manage it effectively.
Credit score
Your credit score plays a crucial role in determining your creditworthiness as a borrower. It represents your credit history and provides lenders with a quick and easy way to assess the level of risk involved in lending you money. In general, a good credit score is considered to be in the range of mid-600s or higher, although some lenders may offer loans to borrowers with scores as low as 500. However, it’s important to keep in mind that a higher credit score will often result in better loan terms and lower interest rates.
When it comes to getting a business loan, your credit score is a key factor that lenders consider. In addition to your personal credit score, lenders will also look at your business credit score, which is based on your business’s credit history. Ideally, your business credit score should be at least 80, although some lenders may rely on just your personal score when reviewing your loan application.
It’s worth noting that your credit score is not the only factor that lenders consider when evaluating your loan application. They will also examine your income, assets, debt-to-income ratio, and other factors to determine your overall creditworthiness. However, having a good credit score can make a significant difference in your ability to qualify for a loan and secure favorable loan terms.
Collateral
Collateral is a term used in lending agreements to describe an asset that the lender can legally seize in case the borrower is unable to make payments. It serves as a form of security for the lender and reduces the risk of default. Common forms of collateral include real estate, equipment, accounts receivable, and even cash.
In situations where a borrower is seeking a business loan, they may opt to use their personal assets, such as their homes, as collateral to secure the loan. In such cases, the borrower’s personal assets are at risk in the event of default, making it crucial to carefully assess the risks and benefits before agreeing to such an arrangement.
Fixed charge coverage ratio
The fixed charge coverage ratio of a business is a financial metric that assesses how effectively a company can meet its fixed expenses, including debts, interest, and other fixed costs. This ratio is used by lenders to evaluate the creditworthiness of a business and its ability to repay a loan.
It is calculated by dividing a company’s earnings before interest and taxes (EBIT) by its total fixed charges, which are the sum of its principal payments, interest expenses, and lease payments. A higher fixed charge coverage ratio indicates that a business is more capable of meeting its fixed obligations, which can improve its chances of getting approved for a loan.
Working capital
When applying for a business loan, one of the requirements that lenders will look at is your working capital. Working capital refers to the funds that you have available to finance your company’s day-to-day operations. It is an important indicator of your business’s financial health and can be calculated by subtracting your business’s current liabilities due within a year from its current assets that can be readily converted into cash.
Essentially, your working capital represents the cash that you have on hand to pay for your daily expenses, such as rent, salaries, and utility bills. Having a healthy level of working capital is crucial for any business, as it ensures that you have the necessary funds to cover your short-term obligations and keep your operations running smoothly.
Getting a business loan
Getting a business loan can be a complex process that varies depending on the type of financing you require and the lender you choose to work with. However, it doesn’t have to be overwhelming or confusing. To begin, you should take some time to answer a few fundamental questions that can help you streamline the loan application process.
These questions might include your business’s financial goals, your credit score, the amount of funding you need, and the purpose of the loan. By answering these questions, you can better determine which type of loan is best suited to your business and which lender is the right fit for your needs. This will help you navigate the process more efficiently and effectively, allowing you to secure the funding you need to achieve your business objectives.
Here are three easy steps to get a business loan:
Why do you need the funds?
What will the Loan be used for? Perhaps you’re planning to purchase a vehicle for your new food truck business, or maybe you’re looking to invest in commercial real estate so you can expand to another location across town. Alternatively, you may just need some quick cash to cover expenses during the off-season.
What you can afford?
When considering taking out a business loan, it’s important to take a close look at your business budget to determine what you can afford. You’ll want to consider the amount of money you’re borrowing and the repayment terms offered by the lender. Some loans may require monthly payments over a longer period of time, while others may require more frequent payments such as weekly or even daily.
It’s important to keep in mind that business loans are debts that must be repaid, so you want to be sure that your business is able to handle the extra payment before taking on any additional debt. Taking the time to carefully consider your budget and repayment options can help ensure that you choose a loan that is a good fit for your business and financial situation.
How can you get the best rates?
If you’re looking to secure a loan for your small business, it’s important to know how to get the best rates. Before you start the application process, take the extra time to do some research and shop around. By comparing offers from different lenders, you can increase your chances of securing a loan with favorable interest rates and fees.
To get started, you can use online tools to compare loan offers from different lenders. Be sure to consider factors like interest rates, fees, repayment terms, and eligibility requirements. You may also want to read reviews from other small business owners who have worked with these lenders in the past to get a sense of their reputation and customer service.
When comparing offers, it’s important to look beyond the interest rate alone. Some lenders may offer lower rates, but have higher fees or more stringent eligibility requirements. By carefully considering all of these factors, you can decide which lender is the best fit for your business. And by taking this extra bit of legwork, you may be able to save money on interest and fees in the long run.
Small business loan application checklist
When you decide to take on debt for your small business, applying for a small business loan is the next logical step. However, before you begin the application process, it’s important to understand the necessary documents you’ll need to gather. While the exact paperwork required may vary depending on the financing partner you choose, you’ll most likely need the following items:
- Personal and Business Tax Returns: You should gather at least two years of personal and business tax returns to show your financial history.
- Profit-and-Loss Statement: A recent profit-and-loss statement will show your business’s profitability and cash flow.
- Business Bank Statements: Past business bank statements will provide insight into your company’s financial transactions.
- Balance Sheet: A recent balance sheet will give lenders an idea of your business’s assets, liabilities, and equity.
- Legal Filings: Any legal filings related to ownership, such as articles of incorporation or partnership agreements, will be necessary.
- Existing Debts: Information on your existing debts will give lenders an idea of your current financial obligations.
- Business License: If applicable, you’ll need to provide your business license.
- Business Plan: A thorough business plan that outlines your objectives, strategies, and financial projections is essential.
- Certificate of Good Standing: A certificate of good standing from your state shows that your business is legally registered and in good standing.
Remember that the more prepared you are when applying for a small business loan, the better your chances of approval. By gathering these documents ahead of time, you’ll have a better chance of securing the financing your business needs to grow and thrive.
How to compare small business loans
When selecting the right small business loan, it’s essential to do your research and compare various options. There are several factors to consider before making a decision, including the interest rate, repayment term, time to fund, and additional fees.
The interest rate is a crucial factor to consider. You should find out whether the interest rate is fixed or variable and whether the lender charges a factor rate. You should also determine how much you will pay in interest charges over the life of the loan. This information will help you choose the most affordable option.
The repayment term is another critical aspect of small business loans. You need to understand when payments will begin and whether you prefer daily, weekly or monthly payments. This information will help you determine the loan’s affordability and whether it aligns with your business’s financial goals.
The time to fund is also crucial. You should find out how long the application process takes and how quickly the lender can fund your loan. Keep in mind that the fastest business loans may not always be the most affordable. Therefore, it’s essential to balance speed with affordability.
Finally, it’s crucial to read your loan contract’s fine print for extra fees such as origination fees, late charges, and business loan prepayment penalties. Understanding these fees will help you avoid unexpected expenses and choose the most cost-effective loan option for your business.
In summary, comparing small business loans based on the above factors will enable you to make an informed decision that aligns with your business’s financial goals and needs.
Before closing the loan
Once your business loan application is approved, the next step is the closing process. During this process, you will review and sign a legally binding document known as a business loan agreement. This agreement outlines the specific terms of your loan, including the interest rate and repayment schedule that you have agreed to with the lender.
It is important to thoroughly review and understand the loan agreement terms before signing. This is because once you sign the agreement, you are legally bound to all its terms and conditions. This includes any penalties or consequences that may arise if you fail to meet the terms of the agreement, such as making late payments or defaulting on the loan.
To ensure you fully understand the terms of the loan agreement, take your time to review it carefully. You can also seek the help of a financial advisor or legal professional to help you interpret the terms and their implications for your business’s financial future. Remember, signing the loan agreement is a significant commitment, so it’s important to approach it with caution and a clear understanding of the terms.
How do small business loans work?
Small business loans are a type of financing that business owners can use to cover a variety of expenses, such as payroll financing, inventory, equipment, and other related costs. These loans typically range from $5,000 to $500,000 or more. The repayment terms for small business loans can vary widely, with some lenders offering as short as three months while others providing repayment periods as long as 25 years.
Traditional financial institutions such as banks, credit unions, and other financial organizations are the primary sources of small business loans. However, in recent years, several online lenders have emerged as alternatives to traditional lenders, offering a quick and easy way to obtain financing with flexible terms and conditions.
It’s important to consider the interest rates, fees, repayment terms, and other factors when choosing a lender for your small business loan. By understanding the details of the loan, you can make an informed decision that best suits your financial needs and goals.
Are there small business loans for bad credit?
There are small business loans available for business owners with bad credit. In fact, some lenders offer loans to business owners with personal credit scores as low as 500. However, it is important to note that having a lower credit score may result in a higher interest rate being offered to you by the lender.
This is because lenders consider a lower credit score a higher risk, making it more difficult to secure a loan with a favorable interest rate. Despite this, options are still available for those with bad credit who need financing for their business.
Am I personally liable for a small business loan?
When you take out a small business loan, it’s important to understand whether or not you’ll be personally liable for the loan if your business is unable to pay it back. In most cases, lenders will require a personal guarantee from the business owner, which means that you will be held personally responsible for the debt in case of default. This is done to lower the lender’s risk and increase their chances of getting their money back if your business fails.
However, it’s important to note that by agreeing to a personal guarantee, you may be limiting the legal protections that your business structure offers you. In other words, if your business is set up as a limited liability company (LLC) or corporation, you may not be held personally liable for the company’s debts in other situations, but a personal guarantee could change that. It’s important to carefully consider the terms of any loan agreement and consult with a legal or financial advisor before agreeing to a personal guarantee.
How to get a startup business loan with no money?
If you are planning to start a business and don’t have enough capital to get it off the ground, getting a startup business loan can be a great option. However, it can be challenging to secure a loan for a new business without any revenue or collateral. In such a case, online lenders may be your best bet. Online lenders usually have more flexible eligibility criteria than brick-and-mortar banks, making it easier for startups to qualify for loans. Additionally, they often have faster approval processes and can transfer funds quickly.
Apart from online lenders, there are other options to consider when looking for funding for a new business. Crowdsourcing or crowdfunding is a popular way to raise money for a startup business. It involves collecting small contributions from many people through online platforms.
Self-funding is another option, which involves using your own savings or tapping into your personal credit to finance your business. Finally, grant funding is also available for certain types of businesses, especially non-profit ones. However, securing grant funding can be highly competitive and requires extensive research and preparation.
How much income do I need to get a business loan?
When you apply for a business loan, lenders typically consider your minimum monthly or annual revenue as an essential factor. While some traditional banks do not disclose their minimum revenue requirements, online lenders tend to be more transparent. Typically, you can expect a minimum annual revenue requirement of $50,000 or more for unsecured loans.
However, providing collateral might make you eligible for a business loan with a lower annual revenue. Note that collateral can be in assets such as equipment, property, or accounts receivable. Furthermore, the amount of collateral you need to provide may vary depending on the lender and the type of loan you seek. Therefore, it’s essential to do your research and understand the lender’s requirements before applying for a business loan.
What credit score is needed for a business loan?
When getting a business loan, the credit score requirements can vary depending on the lender and loan type. Generally speaking, to secure a small business loan, you will need to have a personal FICO Score of at least 500 and a business credit score of 80. However, it’s worth noting that the lowest interest rates on business loans are typically offered to borrowers with higher credit scores.
If your business does not meet these requirements, don’t worry! There are other options available to you. Online lenders, for example, may be more lenient with their credit score requirements. In any case, it’s important to research and compare different lenders to find the best fit for your business’s unique needs.
What should I do if I’m rejected for a small business loan?
If you have been denied a small business loan, it can be discouraging, but it is important to remember that it is not the end of the road. The first step is to revisit the reason for your rejection and try to understand why your application was denied. Lenders usually provide a reason for the denial, so check the loan rejection letter carefully.
Once you have identified the reason, focus on improving your personal credit and business credit scores, if applicable. This can include things like paying off outstanding debts, correcting errors on your credit report, and making sure you are making timely payments on all your bills.
If you haven’t been in business for long enough, you may want to wait a bit before reapplying for a loan. Lenders often prefer to work with businesses with a proven track record of success, so if you are a newer business, it may be beneficial to wait until you have established yourself a bit more.
In the meantime, you might consider alternative financing options such as a small business credit card or a personal loan to access capital for immediate business needs. These options can help you build credit and establish a relationship with a lender, which can be helpful when you are ready to apply for a business loan in the future.