Small Business Loans Options and Products to Consider.
Small Business Loans Options: Small business owners who need financing have many options and these products depends on your needs, and terms, rates and qualifications vary by lender.
To help you find the right product for your company’s needs, we made a list of the most common business financing options and products.
Business Term Loan
Term loans are traditional small business loans where you receive a lump sum of cash and repay it in regular installments, with interest, over a set term. They come in various loan amounts and can be used for a variety of purposes
You can get cash upfront to invest in your business.
Typically has higher borrowing amounts.
Fast funding if you use an online lender rather than a traditional bank; usually few days to a week versus up to several months.
May demand a personal guarantee or collateral — an asset like real estate or business equipment that the lender can sell if you default.
Costs can vary; term loans from online lenders usually carry higher costs than those from traditional banks.
Business Line of Credit
A business line of credit is very similar to a credit card since it lets you borrow money when you need to, up to a limit, and you only have to make payments (plus interest) on the amount that you borrow.
A flexible way to borrow.
Typically unsecured, so no collateral is required.
May have additional costs, such as maintenance fees and draw fees.
Strong revenue & credit required.
Invoice factoring lets you sell your unpaid invoices to a company in exchange for immediate access to 80% to 85% of your invoice amounts. Once the company receives the payments, they pay you the remaining amount minus fees and interest.
Fast cash for business.
Easier approval compared to traditional funding options.
Costly compared to other options.
You lose control over the collection of invoices.
SBA loans are term loans for businesses that are backed by the federal government. Though these loans are harder to qualify for than traditional term loans, they typically come with a low interest rates and flexible repayment terms.
Some of the lowest rates in the market.
High borrowing amounts up to 5 million U.S Dollars.
Long repayment terms.
Hard to qualify.
Long & rigorous application process.
With equipment financing, you can borrow money to help pay for a new vehicles, appliances, computers, or anything your business needs. The equipment serves as a collateral and you repay it in regular installments with interest.
You own the equipment and you build equity in it.
You can get competitive rates if you have a strong credit and business finances.
You may have to come up with down payment.
Equipments can become outdated more quickly than the length of your financing.
Merchant Cash Advance
With a merchant cash advance, you receive a lump sum of cash up front and pay it back (plus a fee) via a daily or weekly withdrawal of a percentage of the credit card and debit card sales you make in your business.
Get fast cash.
Some of the highest borrowing costs up to 350% in some situations.
Frequent repayments can create cash flow issues.
Invoice financing lets you can receive money up front up to the total amount of your unpaid invoices. When you receive payments for your invoices, you repay the amount borrowed plus a factor fee of about 10% to 30%.
Your customers won’t know that their invoice is being financed.
It is expensive compared with other options.
You are still responsible for collecting the invoice payment.
Small Business Loans FAQ
1. How Do I Qualify for a Small Business Loan?
The qualification requirements to get a small business loan depends on the lender, but lets take a look at some common criteria.
Most banks and credit unions will expect you to have an excellent credit and will only lend to you if your credit is above 600 or 700. Online small business lenders are usually more likely to lend to people who have personal credit scores that are below 600.
Many lenders have requirements around how long you have been in business with their lowest cutoff often being 2 years. This is a requirement for some since lenders are wary of lending to companies without a track record.
Some small business lenders have requirements about how much revenue your company earns yearly. This amount will vary between lenders.
Some lenders would prefer to lend to companies that have a certain number of employees.
2. How Do I Get a Small Business Loan?
To apply for a small business loan, you must have your personal information and your business information on hand.
You may also have to provide:
Personal & business bank statements
Balance & income statements
Personal & business tax returns
Resume of your business experience
Financial projections for your company
Traditional banks will most of the time require you to fill out a written application, although some will allow you to apply online.
When you apply with an online small business lender, the application is usually shorter and easier to complete and they require less information and fewer documents. Documents can be scanned and uploaded online, giving room for potentially quicker approval processes.
3.How Can I Improve My Chances of Approval for the Best Small Business Loans?
There are a lot of things that you can do in order for you to improve your chances of getting approved for the best small business loans.
– Build Credit
Building your business credit is one of the ways of improving your chances of approval. You can do this by taking out credit in your business’ name right after you start the business. While you will have to co-sign for a business credit card, having one will start the process of establishing your business credit history.
– Create a Clear Business Plan
Have a clear business plan. Having all of your historic and projected financial information available to share with a potential lender can speed up process. This will make you look professional and allows the lender to better understand your business’ needs and potential.
A good business plan can include:
A description of your company
Biographies of the management team
Analysis of the industry
Description of the service or product that you provide
Plan of operations
Promotional and marketing strategy
– Compare Your Options
Be sure to compare small business loans. If a traditional bank or credit union turn you down, it doesn’t mean you can not get approved else where. While online small business lenders are good options, remember that you will have to pay a premium in the form of higher interest rates if you have bad credit or present increased risk