Do I Need To Pay A Down Payment To Get A Small Business Loan?

If you’re a small business owner, you already know that growing, taking care of emergencies, and even just handling day-to-day operations takes capital — and lots of it. Sometimes, when expenses can pile up, it makes sense to consider turning to a small business lender for a helping hand.

After you’ve calculated the amount you need, selected a lender, and started the application process, however, you may hit a financial roadblock: you need ready money to put a down payment on the loan.

To obtain a small business loan — especially for a large amount — lenders often require the borrower to pay a percentage out-of-pocket as a down payment. But why is this required? It seems a bit counterintuitive, after all. You’re borrowing money because you need more, but you have to pay money up front to actually receive the loan.

Is there a way around this apparent Catch-22? What loans require down payments, and what are your options if you don’t have the funds to pay the down payment? Read on to find out more.

Why Lenders Require A Down Payment

If you’ve ever taken out a large loan before, you’re already familiar with down payments. Car loans and mortgages are two examples of loans that require down payments. Let’s say that you go to the car dealership to purchase a car for $30,000. A 10% down payment is required. This means that you will pay $3,000 out of pocket, while the lender will loan you the remaining $27,000 to be paid over the next several years.

Down payments work the same way for business loans. But why do lenders require it?

Requiring a down payment is just one of the ways that lenders lessen their risk. When you make a down payment, you’re investing your own money, which demonstrates to the lender that you’re serious about the loan and more likely to pay it back. It will also be easier for the lender to recoup at least part of their money in the event of a default. If an asset must be repossessed to pay off the debt, the lender will not have to sell the item for full value in order to recoup their investment.

Of course, down payments aren’t just good for lenders — they benefit you, too. By putting up a down payment, you’re able to lower the amount of money that you borrow. This means that not only will your monthly payments be smaller, but you also will save on interest over time, making the loan more affordable over the long term.

Do All Loans Require A Down Payment?

Most larger business loans — including commercial mortgages, commercial auto loans, and equipment loans — do require a down payment in order to get approval for funding.

Whether a down payment is needed at all — and, if so, the required amount — will often vary based on the creditworthiness of the buyer. For example, a borrower with a solid history may qualify for a “zero down” offer or very low down payment, whereas a borrower with a troubled credit history may be required to pay a down payment to be approved for the loan.

One thing to consider is that when there is a minimum down payment requirement, it’s a wise move to put more money down, if possible. As previously discussed, this means you’ll need to borrow less money, leading to lower payments and long-term interest savings.

How The Cost Of A Down Payment Is Determined

There are a few factors that determine the cost of a down payment. The first is the lender’s policies. Lenders may automatically require a down payment for specific loans or loans that exceed a certain amount.

Credit history also plays a role in the amount of the down payment. Down payment requirements are often lower for borrowers with high credit scores and solid credit histories. In some cases, these borrowers may even qualify for no-down payment offers. Borrowers with low scores may be required to make a down payment before even being considered for a loan.

Collateral may also play a role in the amount of the down payment. If sufficient collateral has been put up to cover the loan in case the borrower defaults, a down payment may not be required. For other loans with no specific collateral requirements, a down payment may be required based on the amount of the loan and the creditworthiness of the borrower. This also holds true for loans where the assets being purchased with loan proceeds (such as vehicles, real estate, or equipment) serve as the collateral.

Typical Down Payment Requirements

Whether a loan requires a down payment is based on a number of factors, including the type of loan selected. For some loans, a down payment is always required but may vary based on the profile of the borrower and other considerations, such as the amount of the loan. For other loans, a down payment may not be required at all.

Loan Type Typical Down Payment Requirement

Bank Loans & Lines of Credit

0% – 20%

Online Loans & Lines of Credit

None

SBA 7(a) Loans

10% – 20%

SBA CDC / 504 Loans

10% – 30%

Business Acquisition Loans

10% – 20%

Commercial Real Estate Loans

10% – 30%

Equipment Loans

0% – 20%

Invoice Financing

None

Bank Loans & Lines of Credit

Business loans from a bank are typically reserved for the best borrowers. Even so, banks want to protect themselves from risk as much as possible, which is why a down payment to receive a loan is required, especially for higher loan amounts.

The typical down payment requirement for a bank loan is 10% to 20%. The down payment amount will be based upon the amount borrowed, how the loan funds will be used, the borrower’s credit history, and how the loan will be collateralized.

Business lines of credit from a bank are different in that a down payment is not required. Secured lines of credit may require collateral but will not require a down payment. Learn more about collateral requirements for business loans. A personal guarantee or blanket lien may be required in place of specific collateral for some loans.

Online Loans & Lines of Credit

More business owners are turning to online loans because they are convenient to apply for, are funded quickly, and have qualification requirements that are less strict than conventional loans.

Online loans and lines of credit are also a top choice for business owners for another reason: they do not require a down payment. However, for most loans, collateral or a personal guarantee will be required to secure the loan. Learn more about personal guarantees before applying for your next loan.

Looking for a reputable online lender? The following lenders offer good rates and terms for online loans and lines of credit:

Lender Borrowing Amount Term Interest/Factor Rate Req. Time in Business Min. Credit Score Next Steps

$5K – $500K 13 – 52 weeks x1.029 – x1.1872 9 months 550 Apply Now

$5K – $500K 3 – 36 months x1.003 – x1.04/mo 12 months 500 Apply Now

$2K – $5M Varies As low as 2% 6 months 550 Apply Now

$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

SBA 7(a) Loans

The Small Business Administration 7(a) program provides loans to small businesses through intermediary lenders. These loans are very popular because of their high limits (up to $5 million), low interest rates, and flexible terms.

Like other lenders, SBA intermediaries will require a down payment that is sufficient to mitigate risk. Intermediary lenders typically require a down payment of 10% to 20% for 7(a) loans. The down payment amount is based on the borrower’s credit history, the amount of the loan, and the amount of collateral, if any, that is used to secure the loan.

SBA CDC / 504 Loans

SBA CDC/504 loans are loans that are used for the purchase or improvement of commercial real estate. With these types of loans, a borrower works with two lenders – an SBA-approved Certified Development Company and a traditional lender like a bank.

The CDC provides 40% of the total project cost as a loan, while the second lender loans 50% of the total cost. This leaves the borrower with the remaining 10% to be paid as a down payment. Based on the credit profile of the borrower and the amount funded, an additional 10% to 20% may be required by some lenders.

Business Acquisition Loans

When money is borrowed to acquire a business, a down payment is required. Again, it all comes down to the risk posed to the lender. Low-risk borrowers with stellar credit scores and high-value collateral can often receive down payments for business acquisition loans as low as 10%.

However, loans for borrowers with lower credit scores, loans of higher amounts, or loans that aren’t fully collateralized may require higher down payments up to 20%.

Commercial Real Estate Loans

Commercial real estate loans are used to purchase land or property for commercial use. A commercial real estate loan is similar to a personal mortgage, including the need for a down payment.

Many lenders require a minimum 10% down payment for commercial real estate loans. However, requirements vary by lender, so in some cases, up to 30% of the purchase price may be required as a down payment.

With commercial real estate loans, the lender considers the loan-to-value, or LTV, ratio. This means that the lender looks at the appraised value of the property compared to how much the borrower is requesting. A higher LTV poses more risk for the lender, especially when the borrower doesn’t have a solid credit history. To lessen this risk, a higher down payment may be required to lower the LTV.

The SBA CDC/504 loans discussed previously offer an alternative if you’re looking to purchase commercial real estate with a lower down payment.

Equipment Loans

An equipment loan is a type of financing that is used to purchase equipment and machinery needed for a business to continue or expand operations. Equipment loans may require a down payment, although there are options available for 100% financing with no down payment required. Equipment that holds its resale value will most often qualify for very low or no down payments. Because it serves as the collateral and can be repossessed and sold if the loan goes into default, there is less risk for the lender.

However, depending on the amount of the loan needed and other factors, including credit history, an equipment loan may require a down payment of up to 20% of the total value of the equipment.

Think equipment financing is right for you? Check out these lenders:

Lender Borrowing Amount Term Interest/Factor Rate Additional Fees Next Steps

$2K – $5M Varies As low as 2% Varies Visit Site

$5K – $500K 24 – 72 months Starts at 5% Yes Compare

Up to $250K 1 – 72 months Starts at 5.49% Varies Compare

Invoice Financing

With invoice financing, lenders provide an advance on cash for unpaid invoices. This type of loan is best for businesses that have cash flow issues due to unpaid invoices.

With invoice factoring, the lender provides you with a percentage of cash up front. Once the lender collects payment from the customer, the remaining percentage is paid to you minus any fees and interest collected by the lender.

Invoice discounting is similar. However, most of the unpaid invoice is advanced to you up front. Once you are paid by the customer, you pay back the advanced funds, along with any fees and interest charged by the lender.

With invoice factoring and invoice discounting, the unpaid invoices act as the collateral. Because the collateral reduces the risk for the lender, there are no down payments required for this type of loan.

What To Do If You Can’t Afford A Down Payment

You need a loan in order to expand your business, but you can’t afford the down payment – now what? Fortunately, there are a few steps you can take when you’re struggling to come up with the funds to make the down payment.

The first thing you can do is consider different loans to find options with lower down payment requirements. SBA loans typically have lower down payment requirements than loans from banks. If you meet the qualification requirements, consider applying for SBA loans, which also have very competitive rates and terms.

You can also explore loan options that don’t require a down payment, such as online loans and lines of credit. Remember, though, paying a down payment will help reduce the amount that you borrow, the monthly payment, and the overall cost of the loan.

Another strategy involves credit cards, but not in the way that you might think. While you can certainly choose to put a down payment on a credit card, this isn’t a wise financial move. Interest charges will rack up as long as there is a balance, keeping the business in debt. Instead, this strategy involves paying off your credit cards and other debts. Once old debts are paid off, the money being used to pay balances, plus interest, can then be applied toward the down payment.

If the financing need isn’t immediate, you can also consider saving the money. You can put money in a savings account or into certificates of deposits, money market funds, or other short-term investment vehicles.

If a low credit score is an issue that contributes to a high down payment, pull your free credit report and score and get to work building your credit profile to qualify for lower down payments — along with improved interest rates and terms — in the future.

While it’s possible to use credit cards or other borrowed funds to pay your down payment, this ultimately just adds to your business debt, so it’s best to avoid these methods if possible.

Final Thoughts

A down payment for a small business loan may seem like an inconvenience, but this requirement is put in place to protect the lender. The good news is that the lender isn’t the only one that will benefit. Having a solid down payment for your business loan will help you save money over the long-term in interest fees, while also reducing your monthly payments and lowering your debt — all keys to smart, responsible borrowing.

Looking for a business loan? Start here.

Lender Borrowing Amount Term Interest/Factor Rate Req. Time in Business Min. Credit Score Next Steps

$5K – $500K 13 – 52 weeks x1.029 – x1.1872 9 months 550 Apply Now

$5K – $500K 3 – 36 months x1.003 – x1.04/mo 12 months 500 Apply Now

$2K – $5M Varies As low as 2% 6 months 550 Apply Now

$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

The post Do I Need To Pay A Down Payment To Get A Small Business Loan? appeared first on Merchant Maverick.

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How To Get A Small Business Loan: The Step-By-Step Guide

It doesn’t matter what type of small business you own. You automatically have something in common with every other small business owner: you need money to function. Without money, your business isn’t going to be successful. Without money, you can’t pay your employees or even yourself. Without money, you’ll never be able to grow and scale your business.

Most small business owners know the importance of capital, which is probably why you’re here. You need money, and you’re considering a small business loan. However, like any smart business owner knows, taking on debt without knowing the facts can be dangerous. Accepting a high-interest loan, taking money without having a clear plan for how to use it, or otherwise being irresponsible with borrowing can lead to unpaid debt, collections, or worse, the bankruptcy and closure of your business.

While this isn’t meant to scare you, it is intended to show you the importance of borrowing with prudence and foresight. In order to borrow responsibly, it’s important to understand the small business loan process. Many owners don’t know where to begin.

  • How hard is it to get a small business loan?
  • How big of a loan can I get for my business?
  • What do I need for a small business loan?

If you’ve asked yourself any of the above questions, this guide is for you.

You are taking the critical first step to making the smart, responsible choice when it comes to small business loans. This guide will walk you step-by-step through the small business lending process to help you determine whether taking out a loan is truly best for your business. Whether you’re wondering how to get a small business loan to start a business or how to get a business loan without collateral, this guide will help you every step of the way. Read on to find out more.

1) Determine How You Will Use The Money

How do you get a small business loan? The primary action you should take before even thinking about filling out a loan application should be to determine how the business loan proceeds will be used. In other words, why do you need a loan?

There are a variety of legitimate reasons for business owners to take out a small business loan:

  • To upgrade facilities with the purchase of new equipment.
  • To buy land.
  • To purchase office space or buildings.
  • To refinance high-interest debt.
  • To hire new employees.
  • To cover payroll.
  • To purchase inventory or supplies that may be needed due to seasonal increases.
  • For working capital.
  • To start a new business.
  • To fund a start-up project.
  • To acquire another business.
  • To buy a franchise.

A small business loan can provide capital for just about any business expense. It is up to you to determine what expenses you have, how the funding will be used, and whether or not this will contribute to the growth of your business. A small business loan should only be used to benefit the business over the long term.

2) Decide How Much You Need…

Once you’ve determined why you need a small business loan, the next step is to figure out exactly how much you need. Taking out a loan for an excessive amount of money that’s not needed could result in unnecessary extra fees and interest payments.

Figuring out how you will use the money will help you determine how much you need. Run through calculations of your potential expenditures. Consider all scenarios when making these calculations. Do your research. For example, if you’re looking to expand your facilities with the purchase of commercial real estate, look at comparable properties online to get an idea of how much you will need to borrow. If you plan to purchase new equipment, compile a list or spreadsheet of related costs to give you an overview of how much money you need.

Not only will this help you save on interest by not overborrowing, but it is also necessary for the application process. Lenders will want to know why you want to borrow the money. Doing your research ahead of time and having a logical response for how much you need and why you need it is a critical step in applying for a business loan.

3) …And How Much You Can Afford To Borrow

merchant cash advance industry

While calculating the amount of your loan is important, also remember that there are limitations on how much you can borrow. To understand how to get a small business loan from a bank or other lender, you need to know the various calculations used throughout the loan process to determine how much you can afford to borrow.

One of the first things that will be considered is the Debt Service Coverage Ratio, or DSCR. This number is determined by dividing your annual net operating income by the annual debt payments of your business. The resulting score is used as a metric for determining loan amounts and terms.

Debt Service Coverage Ratio = Annual Net Operating Income / Annual Debt Payments

The DSCR of your business should be higher than 1. This shows lenders that you will be able to make your loan payment even with other debts.

For example, if the annual net income of a business is $150,000 and annual debt payments are $100,000, the DSCR would be 1.5, showing the lender that the business can afford to pay the principal and interest on a loan because income exceeds debt payments.

Another calculation used by traditional lenders is the Debt-To-Income Ratio, or DTI. This formula is used to show the relationship between the debt of the business owner and the owner’s monthly income. To calculate DTI, total monthly debt is divided by gross monthly income.

Debt-To-Income Ratio = Total Monthly Debt / Gross Monthly Income

Let’s say the business owner brings in $5,000 per month in income. The business owner’s monthly debt payments total $2,000. Plugging this into the formula shows that the DTI is 0.4 (or 40%).

In this example, the DTI is a bit high. Ideally, DTI should be around 36% or lower. While some lenders will still finance business owners with higher DTIs, approval may be more difficult and terms may not be as favorable.

Finally, it is important to understand your return on investment, or ROI. This simply means that the total cost of the loan, including interest and fees, is less than the profits that will come in as a result of getting the loan. For example, let’s say you need a loan to hire more employees. With more employees, you will be able to complete more work for your customers and make more money. Over time, this increased productivity will more than pay for the loan.

Understanding the lending process and whether you can afford to take on a business loan is a critical step to take before accepting a loan offer. Read on to learn more about how you can determine if your business can afford to take on a small business loan.

4) Check Your Credit Score

free credit score monitoring service

As with any other loan, a small business loan requires you to have a strong credit score in order to receive the best rates and terms. Before applying for a loan, you need to have an understanding of your credit score and know what’s on your report.

You can get started by obtaining your free credit report online. Read through your report thoroughly to check for any errors that may need to be disputed through the credit bureaus. Take note of any negative items, including but not limited to collections, charge-offs, missed or late payments, or a high number of inquiries. Negative marks will need to be explained to your lender.

How Do I Improve My Credit Score?

Uh-oh. You’ve pulled your credit report and score, and it’s not where it needs to be to get an affordable small business loan. Don’t worry; this shouldn’t be seen as a roadblock, but instead, as an opportunity to boost your credit and understand your finances while putting you on the path to responsible borrowing.

There are several easy ways to boost your business credit score. If you haven’t already, run through your credit report and find any errors. Any erroneous information will need to be disputed with the credit bureaus. This information will be corrected or in some cases deleted, which can instantly boost your score.

Make sure to continue to pay your bills on time every month. Not paying your bills at all or even paying them late will make your credit score take a hit. If something has occurred that prevents you from paying, contact your creditors immediately. In many cases, a grace period is extended. Face your debts head on and never ignore your obligations – or calls from creditors.

To improve your score, you also want to make sure that you keep your credit utilization low. Your credit utilization should be 30% or lower. This means that of your available credit, only 30% or less has been used. If you have high credit utilization, work to pay off as much debt as possible in the shortest amount of time in order to bring your ratio down.

Finally, don’t fall victim to companies that offer to boost your credit score. These services often come at a high price and don’t do anything to your credit report that you can’t do yourself. Read on to learn more about raising your credit score.

Can I Get A Small Business Loan With Bad Credit?

How easy is it to get a small business loan with a bad credit score? While it is possible to get a small business loan with bad credit, the best rates and terms are available to business owners with the highest credit scores. Instead of wondering how to get a small business loan with bad credit (which often involves very high interest rates and fees), shift your focus to increasing your credit score.

While credit score requirements vary across lenders, it’s generally recommended to have a score at least in the high 600s in order to qualify for a business loan. Other options may be available for anyone with scores in the lower 600s or even the 500s, but these are often short-term loans with higher interest rates and lower maximum amounts.

5) Decide What Type Of Loan You Need (And Will Qualify For)

You’ve determined what loan amount you need and how you will use these funds. You’ve reviewed your credit report and score. Now, it’s time to determine the type of loan that will fit your needs, as well as the loans that you will be qualified to receive.

Term Loans

A term loan (or installment loan) is one of the most common types of small business loans. These traditionally-structured loans provide a specific amount of money at a specific interest rate for a set period of time. Interest rates for term loans can be fixed or variable and typically have a monthly repayment schedule. These loans are best for funding large investments, from hiring a team of employees to purchasing commercial real estate.

Term loans are typically the most difficult to qualify for and usually require collateral. Applicants should have a strong credit history, and most businesses that qualify will already be well-established, although loans for startup businesses are available as well.

Short-Term Loans

Short-term loans are loans that are meant to be repaid in one year or less. Sometimes, terms may be much shorter depending on the lender selected.

There are a few different situations where short-term loans may be the best choice. If there are cash flow issues, seasonal upticks that result in rising operational costs, or an unexpected business emergency, a short-term loan may be an option to consider.

These loans are often funded very quickly but are available in smaller amounts than term loans. The short-term loan process is often much easier than the process of applying for term loans, and the requirements (including credit score) are less stringent. However, these loans can come with much higher interest rates than their long-term counterparts, so this type of financing may be very expensive for a small business.

Business Line Of Credit

A business line of credit is similar to a credit card. A small business is provided with a credit limit. The business can spend up to the amount of the credit limit and can make multiple draws if needed. Interest is paid on the funds that have been spent. Payments are made on a scheduled basis.

A business line of credit can be used in many situations. Emergency expenses, purchasing inventory during a busy season, or cyclical cash flow shortages can be funded using a business line of credit. Getting approved is quicker and easier than applying for a term loan, and requirements, including credit score and time in business, are less strict. However, interest rates are typically higher. Because it’s easy to use lines of credit, it’s important to be responsible and only draw on the line of credit when necessary.

Startup Loans

A startup – or a business that has been in operation for less than 2 years – may find that obtaining credit is difficult. This is because the business doesn’t have the documentation to prove that it’s a successful, established business. Other entrepreneurs have big ideas but aren’t sure how to get a loan to start a small business.

In these cases, there are loans available for startup businesses. Startup loans can be used to fund new projects, for research and development, to purchase new facilities, and other expenses. Business owners that apply for startup loans won’t be required to show traditional documentation such as three years of business tax returns. However, a solid, detailed business plan and future financial projections will be required to prove that the business has the potential to be successful.

Equipment Loans

Businesses that need new equipment can take advantage of equipment financing. These loans are used exclusively for the purpose of purchasing equipment.

Equipment loans are similar to term loans in that the total cost of new equipment, plus interest, is broken down into affordable payments. Often, these loans are easier to obtain than traditional loans, especially for borrowers with lower credit scores.

Invoice Financing

Invoice financing is a form of lending that allows business owners to borrow against money that is owed to them by their customers. With invoice factoring, the lender purchases the invoice, paying the small business a percentage of the total invoice amount. When the lender collects payment from the invoiced customer, the remaining percentage is paid to the small business, less interest and fees.

Invoice discounting is also an option. Through this type of loan, a lender will advance a percentage of the invoice total to the small business. Once the invoice is paid, the small business will repay the loan, along with fees and interest.

This is a lending option that works well for businesses that have many outstanding invoices and need money immediately. The accounts receivables serve as the collateral for this type of loan, and borrowers with lower credit scores can be approved.

6) Research Possible Lenders

5 C's of Credit: What Lenders Look For

Now that you know the best type of loan to fit your needs and (and which you’re most qualified to receive), the next step is to find a lender. Since interest rates, repayment terms, and requirements vary by lender, it’s important to take the time to research your options in order to find the most affordable loan for your business. Read on to find out where to get a small business loan.

Banks & Credit Unions

Banks and credit unions are where most people immediately turn when they need financing. For most business purposes, these financial institutions offer great options with low interest rates and long-term repayment options.

Through banks and credit unions, small business owners can take advantage of loan options including:

  • Secured and unsecured lines of credit
  • Business credit cards
  • Term loans
  • Vehicle financing
  • Equipment financing
  • Commercial real estate mortgages
  • Small Business Administration loans (through SBA-approved lenders)

As you can see, banks and credit unions offer a broad spectrum of loan options. While these loans come with extremely favorable terms, certain loans from banks and credit unions can be difficult to obtain. Obtaining a commercial mortgage or term loan can take weeks or even months to complete. For most lending options, banks and credit unions also require borrowers to have a very strong credit score.

Read The Best Banks For Small Business Loans for more information on specific lenders.

The Small Business Administration (SBA)

If you’re wondering how to get a small business loan from the government, look no further than the Small Business Administration. SBA loans are one of the most popular options for small business owners. The SBA, through intermediary lenders, provides funding opportunities for small business owners when traditional loan options aren’t available.

The SBA offers multiple loan programs for small businesses, including:

Loan Program Description More

7(a) Loans

Small business loans that can be used for many many business purchases, such as working capital, business expansion, and equipment, inventory, and real estate purchasing.

Review

Microloans

Small loans, with a maximum of $50,000, which can be used for working capital, inventory, equipment, or other business projects.

Review

CDC/504 Loans

Large loans used to acquire fixed assets such as real estate or equipment. 504 Loans are offered in partnership with Community Development Companies (CDCs) and banks.

Review

Disaster Loans

Loans used to rebuild or maintain business following a disaster. 

Review

These loans are backed by the government, so intermediary lenders have more incentive to loan to small businesses. All loans are regulated by SBA standards, keeping interest rates low and repayment terms flexible.

There are some drawbacks to SBA loans, however. For most programs, a strong credit score is required. With the exception of Express Loans, SBA loans also have a lengthy application process, and funding can take several months.

Online Lenders

One of the benefits of the internet is that it has opened up many lending opportunities for small businesses. These loans often require less paperwork than loans obtained from banks or the SBA, and everything can be done online, from the application process to signing the final loan documents.

There are multiple loan options available from online lenders, including:

  • Long-term loans
  • Short-term loans
  • Equipment financing
  • Vehicle financing
  • Lines of credit
  • Business credit cards
  • Invoice financing

Requirements for online loans may be more flexible in terms of credit scores and time in business. However, depending on the loan selected, fees and interest rates may be much higher than other types of funding.

Looking for a good online lender? The following companies offer low rates and reasonable terms to qualified borrowers:

Lender Borrowing Amount Term Interest/Factor Rate Req. Time in Business Min. Credit Score Next Steps

$5K – $500K 3 – 36 months x1.003 – x1.04/mo 12 months 500 Apply Now

$5K – $500K 13 – 52 weeks x1.029 – x1.1872 9 months 550 Apply Now

$2K – $5M Varies As low as 2% 6 months 550 Apply Now

$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

Nonprofit Lenders

Some nonprofit organizations provide financing options for small businesses to fund almost any type of business expense. For qualified borrowers, low interest rates are available.

Low borrowing limits imposed by many nonprofit lenders are a potential drawback for small business owners. In most cases, these loans require a strong credit score and the application process can be lengthy, similar to applying for SBA and bank loans.

Microlenders

Microlenders offer small loans of less than $50,000 to small business owners. These loans can be used for just about business expense.

Microloans are a great choice for startups with limited credit history or small businesses that can’t obtain funding through other lenders. Getting a microloan is one way that business owners can get a boost to their credit score to qualify for larger loans from traditional lenders in the future. For businesses that need more than $50,000, microloans will not be the best option.

Check out these lenders if you’re interested in applying for a small business microloan:

Lender Max. Borrowing Amount Rates Req. Credit Score Next Steps

$250,000

9% – 36% factor rate

500

Visit Site

$500,000

2.9% – 18.72% factor rate

550

Visit Site

$500,000

9.4% – 99.7% APR

500

Visit Site

7) Prepare Your Documents

You’re getting closer to applying for a loan from your chosen lender. Before signing on the dotted line, though, it’s important to be prepared for the application process and know what you need to get a business loan.

Depending on the type of loan you’re applying for, paperwork requirements vary. At the bare minimum, you will be required to show the lender that you have the means to pay back the loan. Some loans, such as term loans from the bank or loans through the SBA, require much more paperwork.

Documentation requirements vary, but in general, you should expect to provide the following documents:

  • Balance sheets
  • Profit and loss statements
  • Personal and business credit reports
  • Personal and business income tax returns
  • Bank statements
  • Business licenses
  • Franchise agreements
  • Quotes from contractors and vendors

For many loans, personal guarantees from all owners may be required. This means that if the loan goes into default, the business owners can be held personally liable for the debt.

Startup businesses without proper documentation may be required to submit other paperwork, including a business plan, resumes for all owners to prove industry experience, and financial projections.

Can I Get A Business Loan Without Collateral?

For certain types of business loans, collateral is not required. For example, with equipment financing, the equipment being purchased is the collateral. For invoice factoring, the unpaid invoices serve as collateral. Smaller loans like microloans also may not require collateral, depending on the policies of the lender.

However, for larger loans, collateral is typically required. The SBA, for instance, requires all 7(a) loans of over $350,000 to be collateralized. Collateral is typically in the form of business assets. However, some lenders will also use personal real estate or assets as collateral for a loan.

8) Apply For Loans & Compare Offers

After following the last six steps, you’re finally ready to begin the application process. Depending on the lender and the type of loan you’ve selected, you may have to visit a financial institution, call the lender, or apply online.

Before applying, it’s necessary to have a general understanding of the requirements of the lender. For example, if their small business loan credit score requirements are over 700 and your credit is 680, applying for the loan will not only be a waste of time but will also create an unnecessary inquiry on your credit report. You also want to do your research to find what lenders offer the lowest rates and best repayment terms.

When applying for a small business loan, you will have to give the lender the reason you’re applying for the loan, as well as the amount you wish to borrow. You should have all of your documentation together to include with your application. Please note, however, that lenders have different requirements and more documentation may be required depending on your chosen loan.

Personal and business credit reports will be evaluated by the lender. If there are any negative items on your credit report, you will need to explain these items to the lender. All documentation will be evaluated to determine whether you qualify for the loan, including creditworthiness and ability to pay back the borrowed amount.

After documentation has been submitted and the application completed, the approval process begins. For business credit cards or lines of credit, this could be almost immediate. For long-term loans, this process could take several weeks.

Once approved, the loan will need to go through underwriting, closing, and funding. Depending on the loan selected, the entire process could potentially take several months. This is especially true for SBA and long-term business loans from banks and credit unions.

If you’ve applied for multiple loans, such as through an online loan marketplace, compare the offers you’ve received to determine which has the most favorable rates and terms.

Once your loan has been funded, it’s time to use the money for your intended business purpose. With careful planning, these funds have the potential to take your business to the next level. The final step is to remember to always pay your loan as agreed like any responsible borrower. This proves that you are a trustworthy business and opens up more lending opportunities for the future.

The post How To Get A Small Business Loan: The Step-By-Step Guide appeared first on Merchant Maverick.

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Emergency Business Loans: 7 Ways To Get Business Funding Fast

No matter how good you are at planning, it’s impossible to prepare for every possible emergency that may affect your business. Acts of God like hurricanes, floods, and fires aside, invoice payments might be late. You may have experienced a fluke sales slump. Or maybe you just need to restock before a big event next week to maximize your sales.

You’ve already shaken out your pants for loose change, so now what do you do? Where do you look for an emergency business loan?

Read on and we’ll try to help you out. Here are seven ways to get business funding fast.

1. Get A Short-Term Loan

fast business loans

If it has been a while since you last looked for financing, you’re probably imagining long, drawn-out loan applications with high credit restrictions.

Those traditionally-structured loans still exist–and tend to have excellent rates–but they’re not much help when you need money fast. An easier way for most businesses to get a lump sum of cash quickly is to get a short-term loan.

Short-term loans usually last less than a year, feature simplified (and usually online) applications, and can get cash into your account within 24 to 72 hours. Most of them don’t even require collateral in the traditional sense.

So what’s the catch? Well, you’ll probably be going through an alternative lender. That means higher rates and fewer regulatory protections than you’d find with a bank.

Because the repayment schedule is accelerated, these loans charge a flat fee instead of instead of interest. This fee is a percentage of the amount you borrowed ($10,000 x 20% = $2,000, so you’ll be on the hook for $12,000). You’ll also be paying it back much more quickly. Repayment intervals are weekly or even daily, with fixed payments automatically withdrawn from your business bank account.

Think a short-term loan is right for you? Check out the following short-term lenders:

Lender Borrowing Amount Min Credit Score Time To Funding Next Steps

$2K – $5M 550 1-2 Days Apply Now

$5K – $500K 550 1-3 Days Apply Now

$5K – $500K 500 2-5 Days Apply Now

$5K – $250K 500 2-5 Days Apply Now

2. Get A Merchant Cash Advance

how to get a merchant cash advance

I know we’re technically talking about “loans,” but if you need money quickly, you’re probably not that concerned with semantics. For the pedantic, a merchant cash advance (MCA) is the purchase of your future credit/debit card sales. So you’re technically selling something, not taking on debt. Confusing, right?

An MCA fulfills a similar niche to a short-term loan and shares a few characteristics with it. MCAs also feature simplified applications and qualifications; they’re even less governed by financial regulations than short-term loans. You’ll also usually have your money in a day or two. MCAs and short-term loans even share a flat fee approach, where the amount you owe is the amount you “borrowed” plus a percentage of that amount ($10,000 x 20% = $2,000, for a total of $12,000).

But wait, didn’t I say the MCA company was actually buying a percentage of your future receivables? How does that work? Rather than making payments, the MCA company will collect a percentage of your daily credit- and debt-based sales until they’ve collected the lump sum they gave you, plus their flat fee. Because your sales may vary from day to day, MCAs don’t have exact term lengths. If your sales are good, you’ll pay the debt off more quickly; if they’re poor, it will take longer to pay off.

Be aware, however, that MCAs are one of the most expensive ways to borrow money.

Want to explore your options? Check out the following providers of merchant cash advances:

Lender Borrowing Amount Min Credit Score Time To Funding Next Steps

$2K – $5M 550 1-2 Days Apply Now

$5K – $500K 550 1-3 Days Apply Now

$5K – $500K 500 2-5 Days Apply Now

$5K – $250K 500 2-5 Days Apply Now

3. Get An Express Bank Loan

What’s an express loan? The definition varies by lender, but in general, this is an option offered by many traditional banks. Thanks, in part, to pressure from alternative lenders, banks have made efforts to speed up the application processes of some of their products. If you need a small amount of money relatively quickly, it may be the way to go.

These loans typically aren’t short-term loans, but medium-term installment loans. That means monthly payments and interest accruing over time.

Compared to short-term loans, express loans will often have better rates but aren’t as easy to qualify for. Depending on the bank, the speed with which you can get funding may be competitive with those of alternative lenders, while others might be a little bit slower. Note that SBA Express loans, while quicker than other SBA loans, probably aren’t going to be fast enough to cover an emergency expense. On the other hand, if your emergency is the result of a regional disaster, you may want to check out SBA disaster loans.

4. Get An Installment Loan From An Alternative Lender

installment loans

Wait, aren’t installment loans–express loans notwithstanding–too slow to be much help in an emergency?

Alternative lenders don’t only deal in short-term loans and merchant cash advances. Some offer products that more closely resemble traditional installment loans. These loans feature longer-terms and regular monthly (sometimes weekly) payments.

Installment loans, even those from alternative lenders, don’t necessarily promise the 24-48 hour turnarounds that are common with short-term loans and merchant cash advances. Some do, however. And even the ones that don’t may still be fast enough to help resolve your emergency.

These alternative lenders offer loan products that might work for your situation:

Lender Borrowing Amount Term Interest/Factor Rate Req. Time in Business Min. Credit Score Next Steps

$5K – $500K 3 – 36 months x1.003 – x1.04/mo 12 months 500 Apply Now

$5K – $500K 13 – 52 weeks x1.029 – x1.1872 9 months 550 Apply Now

$2K – $5M Varies As low as 2% 6 months 550 Apply Now

$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

5. Use A Business Credit Card

Best merchant online credit card processing companies image

Another way to handle emergency expenses is to have lines of credit in place ahead of time. The easiest to use are probably business credit cards.

Business credit cards can be a convenient way to pay for emergencies, provided the emergency costs are on the smaller side and can be paid with plastic. A balance that sits on your card month after month will quickly become more expensive than a loan. On the other hand, if you’re able to pay your business credit card off in full within your grace period (usually 20-25 days after you make the purchase), you won’t owe any interest at all. Better yet, you can take advantage of the rewards programs most of these cards offered.

Avoid taking out a cash advance with your credit card, though, as the fees and interest rates on those transactions make them a very expensive way to bail your business out.

Looking for a business credit card? Chase Bank offers some of the best options for small business:

Card Card Name Annual Fee Introductory Rate Rewards Next Steps

Chase Ink Business Preferred℠

$95 None
  • 3 points per $1 on travel, shipping, internet/cable/phone, and internet advertising (max $150,000 per year)
  • 1 point per $1 on all other purchases
Apply Now

Chase Ink Business Cash℠

$0 0% APR for the first 12 months
  • 5% cash back on internet/phone/cable and purchases at office supply stores (max $25,000 per year)
  • 2% cash back at restaurants and gas stations (max $25,000 per year)
  • 1% cash back on all other purchases
Apply Now

Chase Ink Business Unlimited℠

$0 0% APR for the first 12 months
  • 1.5% cash back on all purchases
Apply Now

6. Set Up A Line Of Credit

Business credit cards aren’t the only way to set up an “insurance policy” against unplanned expenses. In fact, they may not even be the best way, especially if you encounter expenses you can’t easily pay for with a card.

Banks and some alternative lenders offer business lines of credit. A revolving line of credit is a lot like a credit card (technically a credit card is a revolving line of credit, but not all revolving lines of credit are credit cards. Make sense?). Your lender will approve your business for a certain amount of credit, for a certain period of time, typically a year. During that time, you can draw upon your line of credit in any increments you want so long as the total amount you’ve drawn doesn’t exceed your credit limit. You only make payments and owe interest on the amount of credit you’re using. As you pay off your balance, that credit becomes available to use again. A non-revolving line of credit works the same way, except that once you use your credit, it does not become available again after you pay it off.

Some lines of credit are easier to use than others. Depending on your lender, you may have to pay a draw fee each time you withdraw cash. Some lenders charge annual, or even monthly, fees to maintain your line of credit. It’s not uncommon for banks to link a line of credit to a Visa or Mastercard, allowing you to use it almost exactly like a credit card. Some lenders may let you write checks against your line, while others will necessitate a cash transfer from your line to, say, a checking account.

The following lenders offer lines of credit to businesses at reasonable rates:

Lender Borrowing Amount Draw Term Draw Fee APR Next Steps

$6K – $100K 6 months None Starts at 13.99% Apply Now

$2K – $5M Varies Varies Varies Apply Now

$5K – $5M 6 months 1.50% per draw 21% – 65% Apply Now

$1K – $100K 12 weeks None 12% – 54% Apply Now

7. Use Invoice Factoring

Do what now? A quick and unorthodox way to get emergency financing without putting yourself at too much risk is invoice factoring. Factoring companies will purchase your unpaid invoices for around 80 percent of their face value, minus a small fee. It’s essentially getting an advance on your invoices by signing them over to a third party.

What about the remaining 20 percent? The factoring company will pay you that balance when the invoice is paid by your customer.

The catch is that you’ll need to have unpaid invoices in hand for invoice factoring to be of any use to you.

If you think invoice factoring might be the right choice for your business emergency, we recommend starting with a reputable company like BlueVine.

Get Started With BlueVine

Final Thoughts

It’s easier than ever to get emergency funding for your business. The trick is making sure you get it on the schedule you need, at a rate you can afford.

Not sure where to start looking?

We can help you out.

Loan Type What Is It? Typical Time To Funding

Short-Term Business Loans

Loans disbursed in one lump sum and repaid in periodic, fixed installments. Fees for borrowing are determined by a factor rate.

2 – 5 days

Online Lines of Credit

Credit lines from which the business can draw funds at any time, without going through an application process.

2 – 7 days for the initial application; 1 – 2 days for funds when the credit line is secured

Invoice Financing

Financing in which the business’s unpaid invoices are leveraged to access business funds.

2 – 5 days

Bridge Loans

Fast business loans used to fulfill funding needs until slower financing comes in.

2 – 7 days

Traditional Installment Loans

Loans disbursed in one lump sum and repaid in periodic, fixed installments. Borrowing fees are determined by an interest rate.

1 – 3 weeks

Business Credit Cards

Credit lines for everyday business expenses.

About 7 days

SBA Disaster Loans

Loans offered by the SBA to businesses that have been affected by a disaster.

7 – 21 days

The post Emergency Business Loans: 7 Ways To Get Business Funding Fast appeared first on Merchant Maverick.

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Small Business Microloans: What They Are And Where To Get Them

Most small business owners already know they can turn to lenders for help to cover large expenses, like the purchase of a fleet of vehicles, expensive equipment, or commercial real estate. However, these loans are often difficult to obtain from traditional lenders like banks, particularly for very small or newly established businesses.

Whether you need a relatively small loan amount or don’t qualify for funding from traditional lenders, there are options out there. In fact, one of the best ways small business owners can fund their business expenses is via microloans.

Ready to explore alternative business loan options? Read on to learn more about microloans and why today’s small business owners are leaning on this source of financing to bolster their businesses.

What Are Microloans?

business loan vs personal loan

A microloan is defined as a small loan that is typically for $50,000 or less. Microloans offer an alternative to traditional bank loans. These loans are for smaller amounts, so they are easier to qualify for, opening up options to small businesses that aren’t eligible for conventional loan options, either due to low revenue or lack of establishment.

How Can Microloans Be Used For Business?

Microloans can be used for almost any business purpose. Microloan proceeds can be used for a startup project or to get a business off the ground. Loans can be used to expand a business through the purchase of equipment, an office lease, or the hiring of employees. Microloans can also be used as working capital. Specific microlenders may have their own policies surrounding what expenses can be paid using loan proceeds.

What Type Of Business Would Benefit From A Microloan?

The businesses that would benefit most from microloans are smaller businesses with fewer employees and lower capital needs. A business that needs a large sum of money for a big expense, like purchasing commercial real estate, should consider other options.

Business owners that would not qualify for traditional bank loans are also great candidates for microloans. This includes startups and new businesses that may not have the documentation, years in business, or revenue required for other loan options. Microloans can be a great choice for women-owned and minority-owned businesses, as well as businesses in underserved and low-income areas.

Because requirements are not as strict, business owners with lower credit scores may qualify for microloans. In addition to getting the money that is needed at the moment, when the loan is paid as agreed, it can help a business boost its credit score to potentially qualify for larger loans in the future.

What Interest Rates Can I Expect From A Microloan?

Like other types of loans, microloan rates vary based on a number of factors, including the chosen lender’s policy and the creditworthiness of the borrower.

Credit score is still an important consideration for microlenders, although minimum score requirements are typically lower than they would be for bank loans and other conventional business loans. Borrowers with the highest credit scores will receive the best interest rates, while borrowers with lower scores will typically be approved with much higher rates.

Other risk factors may be evaluated when determining the interest rate of a microloan. This may include time in business or whether collateral will be required. Borrowers that have collateral to offer may qualify for lower interest rates and better terms.

With all of these considerations, what kind of interest rates should a borrower expect to see when applying for a microloan? On the lower end, an average rate of about 6% for the most qualified borrowers is possible through some lenders.

However, most borrowers should expect to receive interest rates between 8% and 18%. Borrowers with lower credit scores may receive even higher interest rates – sometimes 30% or more.

While these interest rates are higher than those of other loans, easier qualifications and the resources provided by microlenders make them an appealing choice for many small business owners.

Microloan Borrower Qualifications

Borrower qualifications for microloans are much less stringent than they are for other types of small business loans. Requirements vary by lender, but there are a few general rules to remember.

Some microlenders, such as Small Business Administration intermediaries, have their own definitions of a “small business,” which may limit the number of employees, annual revenue, and net worth of the business.

Business owners that seek out microloans should also have a credit score of at least 620. Most microlenders require a score in the low- to mid-600s, at a minimum. While some lenders may accept lower scores, interest rates will typically be much higher.

Borrowers of microloans must not request funding over the organization’s limits, which is usually $50,000. It is important to note here that many organizations receive federal grants and have a limited amount of money to give, so a borrower may not be approved for the maximum amount. Microloan borrowers must also use the loan proceeds only for approved business expenses.

Collateral may be required for some microloans but will depend upon the creditworthiness of the borrower, the amount of the loan, and the lender’s own policies. Even if specific collateral is not required, a personal guarantee or blanket lien is typically part of the loan contract.

Where To Find Microloans

Does a microloan seem like it will be the logical financing choice for your business or startup? If so, the next step will be to begin the application process, which starts with finding a microlender.

The Small Business Administration (SBA)

Loans through Small Business Administration programs have gained a solid reputation among business owners because of their low rates and favorable terms. The SBA’s Microloan program is no exception.

SBA 504 Loans

Borrowing Amount

$500 – $50,000

Term Lengths

Up to 6 years

Interest Rates

6.5% – 13%

Borrowing Fees

Possible fees from the loan issuer

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral normally required, but depends on the lender

Down Payment

  • No down payment for most businesses
  • Possible 20% down payment for startups
  • Possible 10% down payment for business acquisition loan

SBA Microloans are not issued directly through the organization. Instead, loans are obtained through non-profit intermediaries. Funding of up to $50,000 is available, but the average loan amount distributed through this program is $13,000.

Funds from the SBA Microloan program can be used for the purchase of supplies, inventory, fixtures, machinery, and equipment. It can also be used as working capital. Loans cannot be used for the purchase of real estate or to refinance existing debt.

The maximum repayment term for SBA Microloans is 6 years and interest rates range between 8% and 13%. Collateral may be required, as well as a personal guarantee. Loans are available to for-profit small businesses and non-profit childcare centers.

Non-Profit Lenders

There are many non-profit lenders that provide millions of dollars in microloans each year. One of the most popular is Grameen America, which provides microloans of $1,500 and financial training to female entrepreneurs.

Another popular microlender is Kiva, which provides up to $10,000 at a 0% interest rate. Borrowers prove their creditworthiness by inviting friends and family to loan to them, then can fundraise to over 1.6 million lenders through Kiva’s platform for 30 days. Borrowers have up to 36 months to repay the loan.

Other nonprofit lenders serve particular regions in the United States. For example, Accion New Mexico provides lending services and business counseling to borrowers in New Mexico, Nevada, Texas, Colorado, and Arizona. Opportunity Fund is another microlender that services business owners in the state of California. A quick online search will yield non-profit lenders in your area, or you can ask for microlender referrals through colleagues, friends, family, or your financial institution.

Alternative Lenders

Alternative lenders have risen in popularity in recent years because they have simplified the lending process. While most alternative lenders do not classify themselves as microlenders, they often have smaller loans available for small businesses.

A few of the most popular options include Credibly, LoanBuilder, and OnDeck.

Lender Max. Borrowing Amount Rates Req. Credit Score Next Steps

$250,000

9% – 36% factor rate

500

Visit Site

$500,000

2.9% – 18.72% factor rate

550

Visit Site

$500,000

9.4% – 99.7% APR

500

Visit Site

These loans are top choices for business owners because of easier requirements and faster approval and funding. However, interest rates for these loans may be higher than other options and terms not as favorable. When choosing an alternative lender, it’s important to fully assess the total cost of the loan, including interest and fees, to ensure it’s a wise business decision.

How To Apply For A Microloan

Once a lender has been selected, it’s time to begin the application process. This process varies from lender to lender, but there are generally a few similarities across the board.

Before you start the application, pull your credit report and score. This is an easy step, since you can access your credit score online at no cost. Review your score and make sure that it aligns with the requirements of your chosen lender. If not, consider other options or work to clean up your credit before applying.

Once you’re ready to apply, an application will need to be submitted along with documentation. This may include personal and business financial statements, bank statements, and financial projections. Some lenders require a detailed business plan, especially from startups and new businesses. Documentation requirements vary by lender, and more paperwork may be required after you begin the process.

For some microloans, specific collateral may be required, especially for larger amounts. However, if specific collateral is not required, a blanket lien may be included in the loan contract, or you may be required to sign a personal guarantee holding you liable for the debt if the loan goes into default.

One of the best things about microloans is that the application process can be much more personalized. Microlenders are often very willing to walk you through the entire process and provide advice and resources if needed.

Some microlenders require borrowers to go through training or classes before the loan will be approved and released. You should take advantage of these resources, which can help put you on the path to operating a successful business.

Once all documentation is submitted and requirements have been met, the microlender will come to an approval decision. This could take just a few days (with alternative lenders) or a few weeks or longer (with SBA and non-profit organizations). Once approved, the loan will be distributed based on the lender’s policies.

Alternatives To Small Business Microloans

If you need a smaller loan but don’t want to go through the process of finding a microlender and applying for a microloan, there are alternative options available that could better fit your needs.

Business Credit Cards

If you don’t qualify for a microloan or would rather have access to your funds much more quickly, business credit cards may be the answer. Business credit cards are typically approved in just days and are often available to businesses with low credit scores.

Business credit cards can be used toward any business expense. The card can be used up to and including the credit limit set by the issuer. A business credit card can be used for startup costs, larger purchases, or as working capital. Interest is applied only to the portion of the credit limit that has been used.

It’s important for anyone getting a business credit card to understand the interest rates. Borrowers with lower credit scores will often be stuck with a higher APR, so it’s important to use these cards responsibly. Borrowers should also be aware of any fees that are associated with having the account to understand the true cost of using the card. As with any other financial product, credit cards should be used responsibly. This includes spending only when necessary and paying the balance down as quickly as possible to avoid paying years of interest.

Personal Loans for Business

Getting a business loan can be difficult, especially for startups and new businesses. Many banks and lenders will turn these businesses away because they don’t have a solid reputation. However, borrowers with high personal credit scores can consider taking out a personal loan for business.

With a personal loan, the history of the business, including its credit, will not be a consideration. Instead, the income and the credit score of the borrower will be used to determine eligibility. Some lenders do provide personal loans to applicants with low credit scores, but these loans can often be very expensive because of high interest rates.

Invoice Financing

If unpaid invoices are causing cash flow issues, a conventional loan isn’t the only solution. Instead, businesses can look to invoice financing to resolve these cash flow challenges.

There are two different options to consider for invoice financing. The first is invoice factoring. A lender will pay a percentage of the unpaid invoice to the borrower. The lender will then collect from the customer. Once the invoice has been paid, the remaining amount will be paid to the borrower, minus fees and interest charged by the lender.

Invoice discounting is the other option. A large percentage of the invoice is paid to the borrower by the lender. The borrower collects payment from the customer and pays back the loan, along with interest and fees.

Invoice Financing Invoice Factoring

Uses invoices as collateral for a line of credit

Sell invoices for immediate cash

You are granted a credit facility based on the value of your unpaid invoices, and can draw from your available funds at any time

Factor gives you an advance when the invoice is sent and sends you the rest once the customer pays (minus a factoring fee)

You are responsible for collecting invoice payments

Factor is responsible for collecting invoice payments

Invoice financing is best for businesses that have unpaid invoices and need cash immediately. The invoices serve as the collateral for the loan, while credit requirements are not as strict as with other loan options.

Final Thoughts

Microloans can provide much-needed funding for small businesses that have faced challenges when applying for other types of loans. While these loans can certainly help a business get off the ground or overcome financial hurdles, as with any loan, be aware of the costs of the loan to ensure there will be a return on investment and compare all of your options to ensure you’re making a sound decision for your business.

The post Small Business Microloans: What They Are And Where To Get Them appeared first on Merchant Maverick.

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What Are High-Risk Business Loans And Where Do I Get One?

Qualifying for a loan can be frustrating for a business owner. With so much paperwork and so many requirements, the process is confusing, long, and — all too often — ultimately futile. Maybe your credit score is too low. Maybe your business hasn’t been in operations long enough to prove it can be profitable. Whatever the case, finding the right loan can be a challenge.

Don’t despair, though. Before throwing in the towel on finding a loan, you can explore the options available to what lenders consider “high risk” borrowers. With alternative loan options, business owners can get the financing they need while also building a positive credit history for the future.

Read on to learn more about high-risk business loans and where to get them.

What Businesses Are Considered High Risk?

When considering whether to approve a loan application, lenders will always focus on the risk posed by the borrower. After all, lenders are out to make a profit on the money they loan. They want to work with businesses and individuals that make payments on time every month. They lean toward approving businesses and individuals that have documentation proving that they can afford to pay the loan with interest. On the flip side, lenders are wary of working with businesses that are seen as risky.

But what makes a business risky? There isn’t just one factor. In fact, there are several things lenders consider before making their approval decision. If your business is defined by any one of the following four characteristics, it may fall in the high-risk category, often making it more difficult to obtain financing:

Startups & New Businesses

One entrepreneur may have the next great idea that she knows will change the world. Another entrepreneur needs money to start a business that’s been his lifelong dream. Both are ready to put in the work to make their endeavors successful. Both have confidence in their businesses — all they need is the money to get their ideas off the ground. Unfortunately, lenders don’t have the same level of confidence.

Startups and new businesses are considered riskier borrowers because they don’t yet have a proven track record. An established business can approach a lender with bank statements, profit and loss statements, and years of income tax returns proving that it is profitable. On the other hand, startups and new businesses haven’t yet built a reputation and don’t have the paperwork to verify their success.

This doesn’t mean that startups and new businesses are out of the running entirely when it comes to getting a business loan. What it does mean is that these businesses will have to prove themselves to lenders in other ways, like coming up with a detailed business plan and future profit projections. These borrowers should look into SBA (Small Business Administration) loans for startups and may also need to consider other forms of lending outside of traditional methods like banks and credit unions.

Businesses With Low Revenue

Lenders want to see that a business is making enough money to cover all of its debts in addition to a new loan payment. For businesses with high revenue, this is no problem. There’s plenty of money flowing in; all they need is a financial boost, perhaps for a larger purchase like real estate or equipment.

On the other hand, businesses with low revenues will encounter problems when applying for a loan. Maybe a seasonal lull has contributed to recent low revenue, or the business has many unpaid customer invoices that affect incoming cash flow. Unfortunately, the reason for your low revenue doesn’t typically matter to a traditional lender. Regardless of why current revenue is poor, lenders will call into question whether or not your future revenue will be enough to pay back a loan as agreed.

While seeking traditional loans may be challenging — or even impossible in some cases — there are financing options available for businesses with low revenue.

Businesses With Bad Personal Credit

Every business owner has a credit score. For most lenders, this score is one of the most important factors taken into account when deciding whether to approve a loan. The higher the credit score, the higher the odds for approval. Not only is a business owner with a great score more likely to get approved, but they’ll also receive the best rates and terms.

However, sometimes credit scores aren’t exactly where they need to be. Old medical bills, late payments to creditors, and high credit card utilization can all contribute to a lower credit score. Even having too many inquiries when shopping for a loan can make a credit score drop by several points. In some cases, a business owner may not even have started building a solid credit history, and the lack of credit is viewed similarly to bad credit by lenders.

Having bad personal credit certainly makes it more difficult to qualify for a loan, but it’s not impossible. There are bad credit options available for business owners. While some of these loans may have higher interest rates or terms that aren’t as favorable, these loans can give business owners the cash they need while also helping them to build a solid credit history.

Businesses In A High-Risk, Unstable Industry

In some cases, businesses that are in high-risk, unstable industries may also be seen as high-risk borrowers. Whether the industry itself is dangerous and unsafe or the business itself is at risk of becoming obsolete, lenders consider industry factors when approving loans.

Remember, lenders want to work with businesses that are going to be able to pay off the loan. If the future of the business could be in question, this throws up a red flag for lenders.

However, like the other high-risk businesses previously mentioned, there are alternative lending options available. Small business owners just need to know where to look and how to obtain these loans.

What Are My Options For High-Risk Business Loans?

High-risk businesses aren’t going to be able to just walk into a bank and walk out with a loan. But even though traditional loan options may not be available, that doesn’t mean there aren’t any lending options out there. In fact, there are several available to high-risk businesses. However, every business owner should have an understanding of how each loan works to ensure that the financing decision is a wise one that benefits the business.

Short-Term Loans

Short-term loans are loans that are paid off in a short period of time – usually one year or less. In some cases, short-term loans may be paid off in just a few months or weeks.

Qualifying for a short-term loan is easier than qualifying for other loans (like long-term installment loans). Credit requirements are not as stringent for short-term loans, so business owners with low personal or business credit scores may qualify.

Revenue and time in business requirements are also less strict for short-term loans, opening this type of funding up for startups, new businesses, and businesses with low revenues. Often, the application process is straightforward and easy and funds are available quickly.

Not only will receiving a short-term loan provide business owners with the capital they need, but making timely payments on a short-term loan can boost credit and open up other financing options for the future.

With short-term loans, however, rates can be very high, so it’s necessary to shop around for the best terms. Some banks offer short-term loans, while alternative lenders also provide this type of financing. Learn everything there is to know about short-term loans before moving ahead with the application process.

Merchant Cash Advances

A merchant cash advance is a type of financing that is based on credit card sales. With a merchant cash advance, a lender advances a sum of money to a business. Instead of taking monthly payments and using collateral to back up the loan, the cash advance is paid back through a percentage of future credit card sales. This is typically an option chosen by businesses that may have slower sales periods. With this model, the business would pay less toward the cash advance when sales are down and more when sales pick up. Usually, the percentage paid is between 10% to 20%, but this varies by lender.

Other times, a lender advances money to a business, then takes a fixed payment through weekly or daily ACH withdrawals. Regardless of the number and amount of sales, the payment remains the same.

Because this method of financing is based on sales, credit score and time in business is typically not as important of a factor as it is with installment loans or other types of financing. A lender will evaluate the cash flow of the business to determine how much money the business is eligible to receive, as well as work out the payment schedule.

While these cash advances could help businesses that are in a bind, it should be noted that interest rates can be high, with some annual interest rates soaring into the triple digits. Merchant cash advances are available through some banks and many alternative lenders. Before accepting an offer, all businesses should evaluate other loan options and weigh out the benefits of taking the loan versus the overall costs to avoid getting trapped in a cycle of debt. Learn more about the merchant cash advance process.

Looking for a reputable MCA provider?

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Invoice Financing

Few things are more frustrating to a business owner than having money they can’t access. This is what happens when a business has unpaid invoices. Whether the invoices aren’t yet due and an emergency situation has popped up or a customer is late in making their payment, unpaid invoices can pose a challenge for any business.

The good news is that there are options. Businesses that just can’t wait to get paid from their customers can take advantage of invoice financing. With invoice financing, there are two different options to consider.

Invoice Financing Invoice Factoring

Uses invoices as collateral for a line of credit

Sell invoices for immediate cash

You are granted a credit facility based on the value of your unpaid invoices, and can draw from your available funds at any time

Factor gives you an advance when the invoice is sent and sends you the rest once the customer pays (minus a factoring fee)

You are responsible for collecting invoice payments

Factor is responsible for collecting invoice payments

The first option is known as invoice factoring. With invoice factoring, the lender will pay the business a percentage of the invoice total. The lender will then collect the payment from the customer. Once the invoice has been paid, the remaining invoice total will be given to the business, less any fees and interest charged by the lender.

The second option is invoice discounting. The lender will loan the business an amount of money based on a percentage of the invoice (for example, 90% or 95% of the invoice total). Once the business collects payment from the customer, the loan is paid back, along with interest and fees.

Invoice financing is an easy way for businesses to resolve cash flow issues due to unpaid invoices. This option can be used by businesses with a low credit score, lack of collateral, or a limited time in operations. Thinking of applying for invoice financing? Learn more before getting started.

Fundbox and BlueVine are two of the most trusted invoice financing providers around. Compare rates below.

Fundbox BlueVine

Up to $100,000

Credit Facility

$20,000 – $5,000,000

100%

Advance Rate

85% – 95%

0.4% – 0.7% per week

Discount Rate

0.3% – 1% per week

None

Other Fees

Possible $25 wire transfer fee (no ACH transfer fee)

12 or 24 weeks

Term Length

13 weeks (91 days)

No

Monthly Minimums

No

Recourse

Recourse Or Non-Recourse

Recourse

Non-Notification

Notification Or Non-Notification

Both

Personal Loans For Business

Traditional business loans can be difficult to obtain. Business and personal credit scores are taken into consideration, while documentation to prove the success of the business through incoming cash flow is required. The process can be even more difficult for new businesses and startups with a lack of business credit or a limited time in business.

Instead of getting a business loan, some business owners may opt to use their own personal credit score and income to qualify for a personal loan to use toward business expenses. Since it is a personal loan, the revenue of the business or its credit score will not be a factor in approving the loan.

Business Loan Personal Loan

Borrowing Amount

$2 million+

Max. $100,000

Term Length

6 months – 25 years

1 – 7 years

APR

4% – 99%+

5% – 36%

Fees

Possible origination fee, assessment fee, packaging fee, referral fee, guarantee fee, or others

Possible origination/closing fee, application fee, referral fee, or others

Collateral

Possible personal guarantee, UCC-1 blanket lien, and/or specific collateral such as accounts receivable, real estate, or equipment

Usually unsecured

Personal loans for business use are available through banks and alternative lenders. An applicant will need to prove that they are able to pay the loan by submitting documentation such as pay stubs and bank statements.

Creditworthiness is also a factor. While there are options available for applicants with low credit scores, the best interest rates and terms are given to those with higher credit scores. Learn more about applying for a personal loan for business.

In some cases, collateral may be required in the form assets and property (including real estate or vehicles). Whether collateral is required and how much collateral is needed is based upon the amount of the loan, the borrower’s creditworthiness, and the lender’s policies.

Asset-Backed Business Loans

As we’ve established, lenders want to make sure they get paid before loaning money to borrowers. When revenue or income isn’t where it needs to be or a credit score is low or non-existent, the borrower seems like a big risk. However, sometimes lenders are willing to take a risk on these borrowers provided they have adequate collateral.

Asset-backed business loans are business loans that are backed by collateral. This simply means that the borrower pledges to put up assets in the event that the loan goes into default. If the borrower fails to pay, the lender has the right to seize the assets, which can then be sold to pay off the loan.

Assets and property, including real estate, equipment, and accounts receivables, can be used as collateral. Typically, business assets are used as collateral, but in some cases, personal real estate and assets may be used.

These loans are available through banks and alternative lenders. The amount of collateral needed to secure the loan is dependent upon the amount borrowed and creditworthiness. The full amount of the loan will generally need to be collateralized.

Business Credit Cards

Many businesses have business credit cards, and it’s easy to see why. Business credit cards allow a business owner to have access to funds on-demand, the application process is typically quite easy, and even borrowers with lower credit scores can get approved. Some credit cards even come with rewards, such as cash back bonuses or airline miles.

Business credit cards are available through many banks and financial institutions and can be used just like personal credit cards. Multiple draws can be taken up to the amount of the maximum credit limit. Borrowers pay back the balance plus interest that is applied to the used funds.

With so many credit card options, it’s easy for a business to qualify for one, even when the business has lower revenues or credit scores. Some borrowers may have lower credit limits and higher interest rates, while others may need to pay a security deposit.

Businesses that opt to use credit cards should always keep their balances as low as possible, as a high credit utilization can have a negative impact on credit. In order to avoid paying interest month after month, business credit cards should be paid down or the balance completely paid off as quickly as possible.

Do you have excellent personal credit, even though your business is considered high-risk? Check out these 0% interest rate business credit cards.

Credit Card 0% Introductory Period Next Steps
American Express Blue Business Plus 0% APR on purchases and balance transfers for the first 15 months Compare
Chase Ink Business Unlimited 0% APR on purchases and balance transfers for the first 12 months Apply Now
American Express SimplyCash Plus 0% APR on purchases for the first 9 months Compare
Capital One Spark Cash Select For Business 0% APR on purchases for the first 9 months Compare
Bank of America Business Advantage Cash Rewards Mastercard 0% APR on purchases and balance transfers for the first 9 months Compare

Final Thoughts

Every business faces financial challenges which are made even more difficult when the business is seen as high-risk by lenders. However, there are financing options open to these high-risk businesses, whether they’re in an unstable industry or are just building up their credit and reputation.

Before accepting any offer, don’t forget to evaluate the full cost of the loan. A loan should only be used to help the business, not drag it into debt. Shopping around for offers and weighing out the pros and cons for each type of financing is a critical step before signing on the dotted line. Responsible borrowing — and making payments as scheduled each month — is the best way for businesses to receive more favorable loan options in the future.

The post What Are High-Risk Business Loans And Where Do I Get One? appeared first on Merchant Maverick.

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Alternative Business Loans: What They Are And Where To Find Them

Years ago, banks were the go-to sources for business loans. If you needed financing to expand your business, you walked into your local bank branch, filled out an application, and most of the time, walked out knowing that you would soon have the money you needed. And if you didn’t qualify? In most cases, you were just out of luck.

However, times have changed. The growth of the internet has offered a platform for a new form of lenders: alternative lenders. This couldn’t have come at a better time, either. Although the economy is bouncing back from the recession, banks are still hesitant to loan to businesses, especially new businesses, startups, and business owners with less-than-stellar credit scores.

Business owners have more choices than ever thanks to alternative loans. But what are alternative loans? Where can a business owner apply? How do alternative loans differ from traditional bank loans?

Read on to learn more about alternative loans and how they can benefit your business in a big way.

What Are Alternative Small Business Loans?

Alternative small business loans are loans that are issued outside of the context of a bank. This is why they’re also known as non-bank business loans. Alternative lenders provide loans and other forms of financing for business purposes. This could include the purchase of commercial real estate or equipment, working capital needs, or any other business expense, large or small. Small businesses often turn to these alternative lenders when they cannot qualify for a traditional loan from a bank.

How Are Alternative Business Loans Different From Bank Loans?

While bank loans are available only through banks, alternative loans are available through financial groups, nonprofit organizations and community groups, or even individual investors.

Bank loans can only be obtained through a bank branch. This often requires an in-person visit or at least a phone call from the applicant. On the other hand, alternative business loans can typically be completed online from start to finish. The application process, submission of documentation, and even approval and funding can be handled via email or secure online portals.

Qualifying for an alternative business loan is typically easier than qualifying for a bank loan because requirements are not as strict. There are fewer paperwork requirements and more flexibility. Alternative loans are also approved and funded more quickly than bank loans.

Bank loans are known for their favorable rates and terms. While interest rates vary across lenders, alternative loan rates are typically higher than those offered by bank loans, with the best interest rates reserved for borrowers with the best credit scores.

Types Of Alternative Loans

best online lenders

One of the best things about working with alternative lenders is that there are many different options available to fit the needs of small business owners.

Installment Loans

Installment loans are one of the most common types of financing. An installment loan provides a business owner with one loan disbursement for a set amount. The loan is paid back with fees and interest over a set period of time through scheduled payments.

Installment loans are generally the most flexible of all business loans. These funds can be used for any business expense. Installment loans are best for businesses that need money for larger purchases, such as real estate or company vehicles. For the most qualified buyers, interest rates for installment loans can be competitive with bank loans.

Business Lines Of Credit

A business line of credit works just like a credit card. A business can make multiple draws against the line of credit up to and including the credit limit set by the lender.

A business line of credit is great for emergencies or for use as working capital. Interest is paid only on the portion of the credit line that has been used.

Short-Term Loans

A short-term loan is a loan that is paid back like an installment loan, only the repayment period is much shorter – typically one year or less.

Short-term loans often come with the highest interest rates, so it is best to only use these for emergencies. These may also be an option for business owners with low credit scores. Taking out a short-term loan and repaying it as promised can also help business owners boost their credit scores to qualify for more affordable loans in the future.

Invoice Financing

Unpaid invoices can leave businesses in a bind. Instead of waiting for customers to pay, business owners can use invoice financing to get the money they need immediately.

There are two types of invoice financing. With invoice factoring, a portion of the invoice is paid to the business. The lender then collects the total invoice amount from the customer. The remainder of the invoice is paid to the business owner, minus any fees and interest charged by the lender.

With invoice discounting, the lender pays a large percentage of the invoice to the business owner. The business owner then collects the payment from the customer. Once payment has been collected, the loan is paid back, including interest and fees.

Most business owners that use invoice financing do so to resolve cash flow issues. These loans are distributed quickly and often do not require high credit scores to qualify.

Why Get An Alternative Business Loan?

Getting a loan from a bank can be difficult, even for the most qualified borrowers. Small businesses often have unique financing challenges that require flexible and creative financing options that only alternative lenders can offer.

You Need A Loan Fast

Bank loans are great because of their low interest rates and great repayment terms, so many businesses find that these loans are worth waiting for. Often, though, the waiting period can be weeks or even months if complications arise during the process — and this can be a hardship if a business needs money immediately. This is when alternative lenders are beneficial.

Most alternative lenders offer a fast and easy online application process. Because there isn’t as much paperwork typically required, this also helps shorten the timeline. Depending on the lender’s policies, the amount of the loan, and the loan type selected, some alternative business loans can be approved and funded in just days – and in some cases, as short as 24 hours.

Waiting for weeks to obtain a loan can at times be detrimental to a business if an emergency arises or even during slow seasons. Alternative lenders can work quickly to provide a business loan exactly when it’s needed.

You Have Poor Personal Credit

A poor credit score can affect anyone. There are a lot of factors that can bring down a credit score, including a history of late payments, high balances on credit cards that are slowly being paid off, or too many credit inquiries. As many small business owners have discovered, most banks will speedily reject a business loan application due to a poor credit score.

Since bank loans boast such favorable rates and terms, these are typically reserved for business owners with the highest personal credit scores. While those scores in the high 600s may qualify for bank loans, scores of 700 or above are typically preferred. This is why many business owners with low credit scores turn to alternative lenders.

Alternative lenders often have less stringent credit score requirements. In some cases, scores in the 500s may even be approved, depending on the loan selected and the amount of the loan. As with other types of loans, the better the credit score, the better the interest rates and terms with alternative loans.

You Haven’t Been In Business Very Long

Most bank loans require a business to be in operation for at least two years. New businesses and startups may be able to get a loan from a bank, but it’s much more challenging than for an established business. Being unable to find financing when it’s needed can stall a new business before it even gets off the ground.

Fortunately, alternative lenders provide a variety of funding options for new businesses and startups when banks and other conventional lenders turn them down. While time in business requirements vary by lender, in many cases, a business only has to be in operation 6 months to qualify for some alternative loan options.

You Don’t Make Very Much Money

Bank loans typically go to the most low-risk borrowers: the borrowers with the best credit, the most years in business, and the most revenue. Unfortunately, some business owners seek a loan because they aren’t making enough money to fund a much-needed purchase. They go to the bank but are rejected because they aren’t earning enough money, so they can’t get the help they need to boost their business. It’s a vicious cycle.

With alternative loans, though, there are options for businesses that aren’t bringing in high revenues. Revenue requirements are more flexible with alternative lenders – think $25,000 annually or $10,000 monthly. For many small businesses, this is an easier requirement to meet than the revenue criteria set by banks.

How To Qualify For Alternative Business Loans

Requirements for alternative business loans vary by lender. However, there are a few things to keep in mind regardless of what lender is used and what type of business loan you need.

Your personal credit score is a factor when qualifying for a loan, although alternative lenders will typically approve borrowers with lower credit scores. Borrowers with scores as low as 500 may qualify for some alternative loans, although options may be more limited. The best APR, repayment terms, and monthly payments will generally go to borrowers with scores over 600. Having collateral may help borrowers with lower scores qualify for additional loans or higher limits.

Many alternative lenders will require collateral. For some loans, though, additional collateral is not needed. For example, with invoice financing, the unpaid invoices serve as the collateral.

Even if specific collateral isn’t required, a blanket lien or personal guarantee may be a condition of the loan, which is why all loan contracts should be fully understood before signing on the dotted line.

There are no set revenue requirements, but generally, at least $25,000 in annual revenue is needed to qualify. However, lower limits may be available through some alternative lenders. There are also no set requirements across the board for required time in business, although most alternative lenders require that a business is in operations for at least 6 months. Lower time in business requirements may be available through select lenders.

Borrowers will need to request the loan amount needed and describe how the funds will be used during the application process. Borrowers should be prepared to offer collateral, if needed, and should be aware that repayment frequency may vary. While banks traditionally offer a monthly repayment schedule, alternative lenders may have weekly or even daily payment requirements.

It’s also important to view loans from the lender’s perspective. By understanding the five Cs of credit, you’ll have a better idea of what to expect during the application process and how to boost your odds for approval.

How To Find Alternative Business Lenders

You have an understanding of alternative business lenders and you’re ready to apply, but you’re not sure where to begin. Since these lenders are online, it’s easy to find them with a simple search. However, not all alternative lenders are equal. Your search may yield predatory lenders with out-of-this-world interest rates, unclear terms, high prepayment penalties, and unnecessary fees.

Sometimes, it’s easy to jump into a loan without thinking of the long-term costs, especially when an emergency occurs. However, it’s important to understand all rates, terms, fees, and collateral requirements before entering into the loan contract.

Instead of navigating the alternative lender landscape on your own, check out our small business loan comparison chart. You’ll be able to compare requirements, loans offered, maximum loan amounts, and repayment terms without spending hours shuffling through search engine results. When you’re ready to learn more about each lender, take a look at our in-depth reviews to find the lender that’s the best match for you.

You can also check out a loan matchmaking service like Lendio. With Lendio, just one application is all it takes to be matched with more than 75 lenders. You’ll receive the best possible rates and your loan can be funded in as little as just 24 hours. This eliminates the need to fill out multiple applications and helps you avoid many of the hassles associated with finding the best alternative lender for your business loan.

Final Thoughts

From emergencies to expansions, every small business will encounter financial hurdles that require a little bit out of outside help in the form of a loan. Alternative lenders open up more opportunities for business owners, so you can find the money you need for your business, regardless of what challenges you’ve faced in the past when applying for a loan.

The post Alternative Business Loans: What They Are And Where To Find Them appeared first on Merchant Maverick.

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Types of Small Business Loans: 12 Types You Should Know

There comes a time when every small business needs extra capital in addition to incoming cash flows. Perhaps an unexpected emergency popped up or the business needs new equipment to replace outdated or broken machinery. Maybe the business hasn’t even started yet, and an entrepreneur is ready to launch but the money’s just not there. In these situations, many small business owners make the decision to take out a small business loan.

However, just as every business is unique, so are the needs for capital. Whether you’re brand new to the industry, your personal or business credit scores are low, or you’re aiming for specific rates and terms, there are different loan products available. As a business owner, you should only take out a loan for purposes that are going to improve your business and its cash flow, not lead to a cycle of burdensome debt. This is why it’s important to carefully research all your options for business loans, starting now.

Types Of Business Loans At A Glance

Loan Type What Is It? Best For…

Installment Loans

Loans disbursed in one lump sum and repaid in periodic, fixed installments. Borrowing fees are determined by an interest rate.

Most small businesses.

SBA Loans

Low-cost loans offered by the Small Business Administration and its partners. SBA loans can be used for most business purposes such as working capital, equipment purchasing, real estate purchasing, or refinancing.

Businesses with strong credit and a strong business profile.

Business Lines Of Credit

Credit lines from which the business can draw funds at any time, without going through an application process.

Most small businesses.

Short-Term Loans

Loans disbursed in one lump sum and repaid in periodic, fixed installments. Fees for borrowing are determined by a factor rate.

B2C businesses that need cash fast.

Equipment Loans

Loans used to purchase equipment.

Businesses that need expensive equipment.

Invoice Financing

Financing in which the business’s unpaid invoices are leveraged to access business funds.

B2B businesses with unpaid invoices.

Merchant Cash Advances

Non-loan business financing in which a cash advance company purchases the business’s future revenue at a discount in exchange for cash up-front. Can be used for short-term needs such as working capital, payroll, or emergency funds.

B2C businesses that need a small amount of cash fast.

Personal Loans For Business

Loans in which the borrower’s eligibility is based on their personal profile, not the business profile. Can be used for startup or entrepreneurial purposes.

Startups and entrepreneurs.

Microloans

Installment loans of $50,000 or less.

Startups, entrepreneurs, or other businesses that need a small amount of funds.

Crowdfunding & P2P Loans

Financing in which the funds are sourced from a pool of investors or backers.

Businesses with a consumer-friendly product or business model.

Commercial Real Estate Loans

Loans used to purchase or improve commercial real estate.

Businesses with a strong personal credit and revenue.

Business Credit Cards

Credit lines for everyday business expenses.

Most small businesses.

Installment Loans

Best for…

Most small businesses.

An installment loan is one of the most common types of loans and one that most business owners are already familiar with in some capacity. Mortgages and vehicle loans are just two examples of installment loans.

An installment loan involves a specific amount of money that is paid back through a set schedule of payments. Typically, these payments are made each month, but the pay schedule varies based on the policies of the lender. Each payment will be applied toward the principal, or the balance of the loan, as well as to interest charged by the lender.

The interest rate of a business installment loan is determined by a variety of factors, including but not limited to business and personal credit history and scores, as well as the time in business. Startup businesses, for instance, are seen as riskier borrowers by lenders and may receive a loan with a higher interest rate.

Terms vary and may be determined by the amount borrowed as well as the lender’s policies. Some term loans may last for just a few months, while others may be stretched over several years.

Because installment loans are available in different amounts with a wide variety of rates and terms, it’s important for a business to understand the cost of the loan (use our nifty installment loan calculator for help). A low-interest, long-term loan could be a great business decision, while a high-interest, short-term installment loan could be a burden.

Installment loans can be used for just about anything. However, the smartest and most affordable ways to use these loans is by obtaining a low-interest loan for a larger purchase, such as buying expensive long-term equipment or a commercial vehicle. This allows the business to obtain the funding they need for a large purchase without having to pay the full cost up front. To receive the most favorable rates and terms, a business should be established (in operation for more than 2 years), have proof of positive cash flow, and have a strong credit score.

Installment loans are available through banks, credit unions, and online lenders.

SBA Loans

Best for…

Small businesses with strong credit histories looking for competitive, non-traditional loan options.

The Small Business Administration is a federal organization that serves as a resource for small business owners. One of the biggest benefits offered by the SBA is its low-cost, government-backed loan program.

Business owners do not go directly to the SBA for loans. Instead, SBA-approved lenders known as intermediaries provide funding to small businesses. Since the SBA guarantees large percentages of each loan, lenders are more apt to provide funding to small business owners when traditional options aren’t in the cards.

There are several types of loan programs available through the SBA. This includes the 7(a) standard program, which provides up to $5 million for almost any business purpose. Microloans up to $50,000 are available for smaller financing needs. The SBA also offers the 504 program for the purchase of real estate, the Community Advantage program for businesses in underserved communities, and the Veterans Advantage program for military veterans and service members.

Loan Program Description More

7(a) Loans

Small business loans that can be used for many many business purchases, such as working capital, business expansion, and equipment, inventory, and real estate purchasing.

Review

Microloans

Small loans, with a maximum of $50,000, which can be used for working capital, inventory, equipment, or other business projects.

Review

CDC/504 Loans

Large loans used to acquire fixed assets such as real estate or equipment. 504 Loans are offered in partnership with Community Development Companies (CDCs) and banks.

Review

Disaster Loans

Loans used to rebuild or maintain business following a disaster. 

Review

These loans are typically reserved for business owners with strong credit scores (at least in the high-600s). The process to receive an SBA loan is notoriously long, potentially taking months from application to funding. However, because the SBA has set interest rates and terms, these are also some of the most affordable loans on the market. Find out more about qualifying for SBA loans.

SBA loans serve many different purposes. They are ideal for large purchases, including equipment, commercial real estate, or even acquiring a business. They can also be used for working capital or to refinance existing debt. These loans are extremely flexible and with so many programs, it’s easy to find one that works for any business that meets the SBA’s requirements.

SBA loans can be obtained through intermediary lenders, including banks, credit unions, non-profit organizations, and Commercial Development Companies.

Business Lines of Credit

Best for…

Businesses that want a flexible credit option and on-demand access to funds.

A business line of credit is very similar to a credit card. A business is given a maximum credit limit. The business can spend up to that limit, making multiple draws if needed. Interest will be applied to the borrowed funds and will be paid back with the principal through scheduled payments.

Unsecured and secured credit lines are available. Unsecured lines do not require any collateral and are available to borrowers with positive credit histories. Secured lines are often given to startups and applicants with lower credit scores. Secured lines of credit are backed by assets or property to be used as collateral. If a borrower defaults, the lender can use the collateral to pay off the debt.

Lines of credit are best used for unexpected expenses or to resolve cash-flow shortages. They can also be used to purchase supplies or inventory for seasonal increases. Like a credit card, it is important to use a business line of credit only when needed and to pay borrowed funds back as soon as possible to avoid paying hundreds or even thousands of dollars in interest.

Business lines of credits are available through banks and credit unions. Some alternative online lenders also provide lines of credit. For example, SBA has lines of credit can be issued via SBA-approved intermediary lenders. Learn more about how to obtain business lines of credit.

Short-Term Loans

Best for…

Emergency financial needs or businesses with low credit scores.

A short-term loan must be repaid over a short period of time, usually within one year. The repayment period varies according to lender, but it could be months or even a few weeks. Short-term loans offer a quick way to get much-needed cash and are best for unexpected emergencies.

Short-term loans may also be an option for businesses with bad credit. Low business or personal credit scores may disqualify business owners from long-term loans with better terms and rates. A short-term loan could be a good way for borrowers with a poor credit history to get the money they need quickly while also boosting their credit after paying off the loan.

However, it is very important to remember that these loans often come with very high interest rates. Because short-term loans can be very expensive, it’s important to use them only when emergencies arise that cannot be resolved through other means. Find out everything you need to know about short-term loans before applying.

Short-term loans can be obtained through alternative online lenders. These loans are typically easy to receive and do not require an extensive application process like other types of loans.

Equipment Loans

Best for…

Companies that want to purchase equipment with low monthly payments.

Sometimes, entrepreneurs need to purchase equipment to get their businesses off the ground. Other times, more equipment is needed when production increases or new equipment is needed to replace old or outdated machinery. When this occurs, it can be difficult for a small business to come up with the funds to pay out-of-pocket. Instead, businesses turn to equipment loans to make these large purchases more affordable.

An equipment loan is used to purchase equipment. The business will immediately get to use the equipment but won’t have to pay the full cost up front. Instead, it will be able to pay smaller payments on a monthly basis (or other repayment schedule). The lender charges interest for loaning the funds to the borrower.

Equipment financing is a good choice for anyone who wants a more affordable option for purchasing expensive equipment. Equipment financing is also an option for startups or business owners with lower credit scores, and it’s easier to obtain than other loans like SBA loans or installment loans. No collateral is typically required for this type of financing, as the equipment itself serves as the collateral and can be repossessed if the owner defaults.

Some banks and credit unions offer equipment financing. Online lenders also have options. Equipment manufacturers may also have their own credit program available for qualified borrowers.

Invoice Financing

Best for…

Businesses that have cash flow shortages due to unpaid invoices.

There comes a time for many small businesses when there’s a cash flow shortage due to slow-paying accounts receivables. To resolve these cash flow issues, invoice financing can help.

There are two main options for invoice financing. The first is known as invoice factoring. With invoice factoring, a lender pays the small business a percentage of its outstanding invoices. The lender then collects payments from the invoiced customers. Once payment has been collected, the lender pays the business the remaining outstanding balance, less any interest and fees for providing the service.

Invoice discounting is another type of invoice financing. With invoice discounting, a percentage of the unpaid invoice is paid to the small business. Once the business collects payment from its customers, the loan is repaid along with interest and fees.

Invoice factoring is best used for resolving cash flow issues that stem from unpaid invoices. These loans are usually quite easy to receive, and unlike other types of loans, your credit score isn’t the most important factor. The invoices serve as the collateral for these loans, so no additional collateral is needed. Invoice financing is available through banks and alternative lenders.

Merchant Cash Advances

Best for…

Small businesses with lower credit scores that need cash quickly.

Small businesses that need money quickly for an emergency situation or to purchase supplies or inventory may consider a merchant cash advance. With a merchant cash advance, a lender advances a company money in return for a percentage of future credit card sales.

After receiving a merchant cash advance, daily payments are withdrawn by the lender from the business’ bank account. When sales are lower, the payment is also lower because the payment is based on a percentage of sales. Merchant cash advances may be a consideration for businesses with lower credit scores, as the lender is more concerned with the amount of credit card sales. This type of financing is usually provided very quickly – in some cases, within 24 hours.

The major drawback of merchant cash advances is that interest rates can be much higher than with other lending options, making this a very expensive form of credit. As with other types of loans, a small business should consider the total cost of the merchant cash advance and shop around for the best rates. Merchant cash advances are available through alternative lenders. Learn more about applying for a merchant cash advance.

Personal Loans For Business

personal loans used for business

Best for…

Startup businesses that have not established a positive business credit history.

A personal loan for business is an option for businesses that do not have the credit score or business documentation required to qualify for a business loan. With a personal loan, the small business owner uses his or her own credit score and income documentation to qualify. The business owner will be held personally liable for the debt.

This is often a lending choice for startup businesses. If the business is new, it isn’t able to prove its success through past income tax returns, profit and loss statements, and other documentation. The business also likely hasn’t built up a solid credit history. All of this together throws up a red flag for lenders, who see the startup as being a bigger risk.

While there are loans available specifically for startups, sometimes interest rates can be high. If a startup owner has good personal credit and documentation to prove that the loan payments can be made each month, a personal loan may be a more affordable form of financing.

Personal loans are flexible and offer many different rates and terms. A long-term loan with a great interest rate could be an affordable form of financing for large business purchases. A personal loan can even be used to acquire or start a new business.

Personal loans are available through banks, credit unions, and alternative lenders. Private lenders, including family and friends, may also be an option.

Microloans

Best for…

Smaller businesses, sole proprietors, and startups with low capital requirements.

Small businesses that don’t require a lot of capital may want to consider applying for a microloan. A microloan is defined as a smaller loan of typically $50,000 or less. These funds can be used for many business expenses, including but not limited to expansion and startup costs.

Because these are smaller loans, they are best for smaller businesses, sole proprietors, and startups that have lower capital requirements than other businesses. Small businesses that don’t have any luck working with traditional financial institutions turn to microlenders.

Microloans can be obtained through non-profit organizations. The potential drawback is that these organizations often receive government grants, limiting the amount that they can lend out, as well as the number of businesses they can help. However, one big advantage is that in addition to providing needed funds to small business owners, many nonprofit organizations offer additional benefits such as training and education to help a small business or startup succeed.

Crowdfunding & Peer-to-Peer (P2P) Loans

go fund me for business start up

Best for…

Businesses that are looking for an alternative to bank loans.

Receiving a loan from a bank or other financial institution usually means low interest rates and competitive terms. However, any business owner that has ever received a loan from a bank knows that the process can be quite lengthy – taking as long as several months from start to finish.

Maybe the timeline isn’t a problem, but instead, the business is a startup and hasn’t yet built a reputation to even qualify for a traditional loan.

Startups and businesses that want to avoid the hassle of working with a bank have two alternatives: crowdfunding and peer-to-peer loans.

With crowdfunding, a small business or startup uses an online platform to raise money from a group of investors. The small business pitches its idea to investors, and investors donate money if the idea appeals to them. It’s important for the business seeking financing to map out a strategy to entice investors. The borrower will need to promote their campaign, encourage others to share, and offer rewards to investors – think equity in the business or free products. There are hundreds of crowdfunding sites available online.

Peer-to-peer, or P2P, is a type of lending that also involves private investors. However, it differs significantly from crowdfunding. Small businesses are connected with lenders through a P2P network. After filling out information, such as the amount of money needed and how it will be used, the borrower is matched with a lender. Rates and terms are agreed upon, and the paperwork can be completed and signed online.

This form of financing is much quicker than getting a loan from a bank or other traditional source. Borrowers will pay monthly payments over a set period of time, which could be as short as a few months or as long as several years. Business owners with high credit scores can receive very competitive interest rates, making this an affordable form of financing. Small businesses can apply for P2P loans online through lending networks.

Commercial Real Estate Loans

Best for…

Businesses that need funds to purchase real estate.

Commercial real estate loans can help you purchase or upgrade commercial real estate. These funds can be used to purchase an existing building or land, upgrade or add-on to an existing property, or construct a new building.
Commercial real estate loans are long-term loans that are paid off over a longer period of time, such as 20 or 30 years. This allows a business to expand their operations through affordable monthly payments.

These loans can only be used toward the purchase, development, or construction of commercial real estate. In some cases, the funds may be used to purchase long-term fixed assets (such as with the SBA 504 loan).

Commercial mortgages are available through banks and credit unions. SBA 504 loans can also be used to purchase commercial real estate. The SBA 7(a) program is also another great option that provides up to $5 million for the purchase of real estate or any other business expense.

Business Credit Cards

Best for…

Businesses that need on-demand financing for emergencies and business expenses and want to boost their credit scores.

A business credit card is a card that is used for business purposes. The lender provides the borrower with a set credit limit. The borrower can use the card to make multiple charges up to the amount of the credit limit. Interest is charged only on the funds that are used. The borrower then makes monthly payments to pay down the balance. As long as the card hasn’t been used up to its credit limit, it can be used over and over again.

A business credit card is a good financing option for emergency expenses or cash flow shortages. It can also be used to purchase supplies or inventory or to pay for other expenses. However, it’s important to note that the balance should be paid off or reduced as soon as possible to prevent paying interest month after month.

When used responsibly, credit cards can also be used to boost a business’ credit history. This could lead to higher credit lines in the future, as well as opening up other opportunities for funding (including long-term loans). However, carrying a high balance can lead to a high level of credit utilization, which can negatively impact a credit score. Late payments and missed payments can also hurt a credit score, which is why it’s so important to never miss a payment, just like any other financing option.

Business credit cards are available through many banks and credit unions. Retailers that provide supplies and other items needed by a small business often have their own business credit cards available.

Final Thoughts

Running a small business can be expensive, and seasonal increases, unforeseen emergencies, unpaid invoices, or the need for expansion can all lead a business owner to pursue financing options. While there are many affordable loans available, it’s important to fully evaluate all lending options, the total cost of the loan, and the return on investment from taking the loan. A smart business owner will take the time to weigh out the pros and cons before signing the paperwork to ensure that the loan will help the business prosper.

The post Types of Small Business Loans: 12 Types You Should Know appeared first on Merchant Maverick.

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SBA Microloans: A Comprehensive Guide To Terms, Rates, And Eligibility

As a small business owner, you know the importance of financing in order to expand your business — particularly if you’re running a startup, and you know that you need funding in order to start your next project. While there are many options available to provide you with the capital you need to start a new business or grow an existing business, one of the best options is a loan through the Small Business Administration.

For smaller capital requirements, SBA Microloans offer many benefits that make them more desirable than other loan products on the market. Is an SBA Microloan the right choice for your business? Read on to find out more.

What Is The SBA Microloan Program?

Before getting into the details of the SBA Microloan programs, let’s first understand what a microloan is. Microloans are small amounts of money loaned to businesses at low interest rates.

The SBA Microloan program is designed to offer small loans of up to $50,000 to small businesses and startups. A microloan can be the ideal choice for a business that doesn’t require a lot of capital and wants a low-interest loan with great repayment terms. Home-based businesses and even self-employed individuals can obtain microloans through the SBA lending program.

How Do SBA Microloans Work?

While many SBA loan products are available through traditional financial outlets (banks, private lenders, and credit unions), the Microloan program is different in that funds are provided through non-profit or community-based organizations.

A non-profit organization can receive funding of up to $750,000 from the SBA during its first year in the Microloan program. After the first year, up to $1,250,000 can be borrowed annually, with a cap of $5 million at any one time. The nonprofit organization then acts as an intermediary, providing loans to small business owners.

Small business owners and startups can apply for up to $50,000 through a nonprofit’s loan program. The minimum microloan amount available is $500. On average, businesses obtain loans of $13,000 to $14,000 through the Microloan program.

One thing that is different about the SBA Microloan program when compared to other SBA funding programs is that rates and terms are not set by the SBA. The $50,000 borrowing cap is set by the Small Business Administration, but further details — including terms, rates, and eligibility requirements — are set by the intermediary organization.

Funds from the SBA Microloan program can only be used for certain purposes. This includes the purchase of inventory, supplies, fixtures, furniture, or equipment, or for use as working capital or startup capital.

SBA Microloan Eligibility

The SBA Microloan program is designed for established small businesses and for-profit startups. It is a great option for small businesses that need only a small amount of funding but still want to enjoy the benefits of an SBA loan product, including competitive interest rates and longer payment terms.

Because the loan amounts are small, the Microloan program is great for home-based businesses and the self-employed. Nonprofit day care centers are also eligible to receive these loans. In fact, all small businesses and startups are eligible to apply for an SBA Microloan. However, companies that need larger funding amounts (up to $5 million) or would like to purchase a business or refinance debt should consider other SBA options, such as the 7(a) loan. All businesses receiving an SBA Microloan should have a minimum of two years of industry experience and must be able to show sufficient income for repayment of the loan.

Since the terms of micro-funding for small businesses are set by the lender, SBA Microloan credit requirements vary. On average, though, an applicant should have a credit score of at least 640 when applying for one of these loans. Some lenders may be more flexible in determining the creditworthiness of applicants, so it’s important for interested business owners to speak with their local nonprofit lender to find out more specific details.

Any derogatory entries on a credit report will need to be explained to potential lenders. In some cases, a co-signer with sufficient credit and income to repay the loan may be required. It’s also important to note that there must be no bankruptcies or foreclosures listed on a credit report from the last one to two years, in most cases.

Some lenders will provide SBA Microloan bad-credit funding for those with less-than-desirable credit scores. Personal credit scores as low as 575 have been approved on occasion when all other requirements for SBA Microloans are met. To know where you stand in terms of credit, you can easily obtain your free credit score online. From there, you can determine what you need to do in order to clean up your credit and raise your score, if necessary.

Most lenders also require some form of collateral, but again, this is at the discretion of the lender. A lien on personal property, such as a vehicle or house, may be required. A personal guarantee from all owners with a 20% stake in the business is typically required as a condition of obtaining one of these loans.

In addition to having a good credit score, collateral, and a personal guarantee, applicants for SBA Microloans should be able to show a positive financial outlook for the future of their business. This is why it is important to have a solid business plan prepared to show to potential lenders, especially for startups.

Cleaning up your credit score, creating a professional and solid business plan, and being prepared to offer up collateral or a personal guarantee are all ways that you can boost your odds for receiving an SBA Microloans.

SBA Microloan Terms & Rates

Unlike with other SBA loan products, Microloan terms and rates vary from lender to lender. This is because the SBA does not set these standards. However, there are some averages across lenders to give you a better idea of what you should expect when it comes to repaying your loan.

The interest rates for SBA Microloans vary from 6.5% to 13%, making them competitive with other types of business loan products. The repayment terms are set by the lender, so this value varies, but the maximum repayment term for any SBA Microloan is 6 years. As mentioned earlier, the maximum loan amount that can be obtained through this program is $50,000, although the average loan given is less than half this amount.

A down payment is not always necessary for obtaining an SBA Microloan. For startup micro-funding, an average of 20% of the project will be required as a down payment. Business acquisitions may require 10% down payment. However, in many cases, 100% financing is available with no required down payment from the borrower, assuming that all other conditions are met.

How To Apply For SBA Microloans

Before getting into the specifics of the application process, it’s important to remember that the entire process for receiving funding through the SBA Microloan program generally takes between 30 to 90 days. To avoid potential delays, it’s important to gather all the information you’ll need to submit ahead of time.

To begin the application process, the first step is to find an SBA microloan intermediary that lends in your area.  To do this, you can get referrals from any financial institution where you have an established relationship. You can also use the Small Business Administration’s Lender Match tool, which can help you find lenders for Microloans and other SBA loan products.

Some nonprofit intermediaries will allow you to apply online, but most will require you to appear in person or speak to a lending specialist over the phone. While the lender you work with will provide you with the details of their requirements and all documents needed for processing, there are a few items you can prepare in advance, including:

  • Minimum of two years of business and personal income tax returns
  • Balance sheets
  • Profit and loss statements
  • Personal financial statements
  • Personal credit report
  • Business plan and financial projections
  • Business licenses and permits

Please note that this is not a comprehensive list and because there are no set requirements by the SBA for microloans, necessary documentation will vary by lender.

Once you have gathered all the information required by the lender, your application will be complete. As previously noted, the entire application and funding process generally takes between 30 to 90 days, although some loans may be processed, approved and funded within two to three weeks depending on the lender. Some lenders may require classes, workshops, or other training as part of the application process. Others offer these programs but may not require them to disperse funding. This training offers great opportunities for startups and small businesses and should be taken advantage of whenever possible.

Is An SBA Microloan The Right Choice For Me?

While an SBA Microloan offers a great funding opportunity for many small businesses and startups, it may not always be the right choice for your particular situation. If you’re looking for more than $50,000 in funding or need faster funding, an SBA Microloan may not be the best choice for you.

Some other options to consider include:

Business Credit Cards

If you want more flexibility with your funds, a business credit card may be a more attractive option. Business credit cards can be spent any way you want without the limitations you may encounter with an SBA Microloans. Business credit cards are quickly obtainable and can be put into use immediately, making them an ideal choice for those who need funding fast. Many credit cards offer high credit limits close to or even exceeding the $50,000 limit of SBA Microloans.

It’s important if you go this route to shop around for the best rates. Some business credit cards offer 0% introductory APRs followed by interest rates that are similar to SBA Microloan rates. Some cards also offer extra benefits to the borrower—think airline miles, cash bonuses, and other perks just for using the card.

Equipment Financing

If you need to purchase equipment for your business, equipment financing may be an option. Equipment financing typically doesn’t have as many stringent requirements as obtaining an SBA loan, and funding can be acquired much faster. This can be a great option for someone who needs equipment immediately or who may not have the credit score or other requirements needed for the SBA Microloan program.

If you decide to get financing for equipment, you have two options: equipment loans and equipment leases. Equipment loans typically require a higher payment, but when the load is paid off, you own the equipment free and clear. With leases, monthly payments may be lower, but you’re only borrowing the equipment. If what you are purchasing is something that is needed for your business at all times, a loan may be the better option.

Peer-To-Peer Lending

If you have a decent credit score and you want to receive funding fast, peer-to-peer lending is an option you can explore. The typical credit score requirement for this type of loan is 670, but will vary by lender. With this option, you can receive comparable interest rates and payment terms to SBA Microloans without having to wait weeks for the approval and release of funding. There are no limitations on how peer-to-peer loan funds are used.

Invoice Factoring

If you have unpaid invoices that are affecting your cash flow, invoice factoring is something you may consider. With invoice factoring, you work with a lender who pays money on your unpaid invoices in exchange for a fee, which varies by lender. This immediately gives you the capital you need for any business expense without having to wait for payment on outstanding invoices. There are typically very few requirements for this type of loan, making it an appealing option for anyone with fair or poor credit. Usually, a business must be in operation for at least three months to qualify for this type of loan. Once the money is received, it can be used for any purpose with no limitations.

If you’re still unsure of which business loan is right for you, do some research online before signing on the dotted line. You can compare the different types of small business loans to find out which offer the terms, rates, and other details that will best benefit you and your small business.

Final Thoughts on SBA Microloans

SBA Microloans can provide startups and small businesses with the capital they need to further grow their business. The low-interest rates and repayment terms up to 6 years make it an appealing funding option for the business that doesn’t want to take on piles of debt. With the right paperwork, a decent credit score, and a solid business plan in place, many businesses won’t have any problem obtaining competitive financing through this program.

The post SBA Microloans: A Comprehensive Guide To Terms, Rates, And Eligibility appeared first on Merchant Maverick.

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Lendio and Merchant Maverick: Making Business Loans Easier

With the advent of online business loans — loans that are fast and easy to obtain online — merchants have more financing options than ever. Before, when business owners needed money, they had to go to a bank or credit union or work with niche funding options like invoice factoring and merchant cash advances. Now, business owners can check their eligibility for a plethora of business financing options from their own computers.

While this is good news for business owners, it presents a new problem: with all the business lenders out there, how do you find the right one for your business? Where do you look for a reputable online lender with decent rates? Merchant Maverick has partnered with Lendio, a business finance company, to answer those questions.

What Is Lendio?

Lendio is an online matchmaking platform that connects merchants to business financers across the nation. Instead of spending time applying for individual loans and comparing offers, merchants who apply for Lendio only have to fill out one 15 minute questionnaire. When you apply, Lendio will shop your business around to its partners and bring you the best offers it received from its network.

With over 75 different partners, Lendio is the largest business finance matchmaking service in America. Their partners offer everything from traditional term loans to more unusual types of financing like merchant cash advances (and everything in between). Below are the types of loans that you might be able to receive through Lendio:

  • Business lines of credit
  • SBA loans
  • Bank loans
  • Short-term loans
  • Medium-term loans
  • Long-term loans
  • Merchant cash advances
  • Business credit cards
  • Equipment financing
  • Commercial mortgages
  • Accounts receivable financing (invoice financing)
  • Startup loans
  • Business acquisition loans

Lendio works with a wide variety of lenders, including well-known brands such as American Express, OnDeck, and Kabbage.

Are You Qualified? Borrower Requirements For Lendio

Anybody can apply for financing through Lendio; however, the company cannot guarantee that you will be matched with any business financers. Currently, about 65% of business owners who apply attain financing through Lendio.

To improve your chances of receiving financing, Lendio recommends that you meet or exceed these business benchmarks:

category minimum requirement

Time in Business

6 months

Business Revenue

$10,000 per month

Personal Credit Score

550

Sound like something you’re interested in? Follow the link below to start an application, or read on to learn more about the application process.

Get Started With Lendio

Step-by-Step Application Process

The Lendio questionnaire can normally be completed in about 15 minutes. After you complete the application, Lendio will shop your request around to its partners and, if they find any matches, will return with quotes within 72 hours. When you have decided on an offer, you may have to complete a full application with the partner before receiving your funds.

The questionnaire contains five steps:

  1. Enter basic info
  2. Enter owner info & make an account
  3. Enter information about your business
  4. Upload documents
  5. Review the application

In all, the application generally takes around 15 minutes to complete. However, because the bulk of the time is dedicated to compiling and uploading various business documents, it may take you more or less than 15 minutes depending on how easily you can access the necessary documents.

The first and longest step is entering basic info. At this stage, you will have to enter general information about your business and the loan you’re looking for. For example, you will have to provide your monthly and annual revenue, your personal income, the industry you are in, and why you want the loan.

The next step is owner info. In this stage, you will have to provide contact info and make an account so you can come back later if you don’t finish.

After owner information, you’ll need to add business info, such as your address and whether or not you are renting.

In the penultimate stage, upload documents, you will have to upload your last three months of bank statements. 

When you have uploaded all the necessary information, the only step left is to review your information and submit the application.

If you run into any problems or have any questions during the application process, support is available via live chat to help you out.

After you submit the questionnaire, Lendio will spend some time gathering offers from their partners before presenting the best ones to your business. If they have found a match, you should receive offers within 72 hours of completing an application. When you have chosen the best offer for you, you might have to supply additional documents, depending on the partner funder. The time from funding to application will vary depending on the partner you are working with. If you’re on a tight schedule, it’s best to inquire how long verification will take before choosing an offer.

Ready to check your eligibility? Click the link below to get started.

Get Started With Lendio

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Quick Business Loans: The 6 Best Lenders And 10 Tips For Fast Approval

Good things take time. Patience is a virtue. We all know the sayings. But let’s face it, when it comes to making critical business investments—whether it’s new technology/equipment, a new location, or even just a new employee on the payroll—you usually don’t have unlimited time to come up with the needed funds. A quick loan or line of credit is often the best bet to take your business to the next level (or simply keep your company afloat).

If you’re reading this article, you’re probably in a hurry, so let’s dive right in. Here is a list of the quickest small business lenders, followed by a list of general tips for fast loan approval.

6 Best Lenders For Quick Business Loans

The following are some of the fastest and most reputable small business lenders. There are a lot of speedy “payday” loans out there, but most of them are dodgy at best (and outright scams at worst) and will end in you paying back way more money than you anticipated. The following lenders are reputable, and while the fees might be higher than what you’d pay with a bank, the financing offered is much faster and easier to qualify for than a bank loan.

We chose these lenders based on their stellar reputation and user feedback, as well as our own experiences reviewing their services.

One term you need to understand before we get started is “time to funding.” This refers to the amount of time from submitting the initial application to when the funds arrive in your account.

Top Quick Business Loans At A Glance

categories OnDeck/Credibly LoanBuilder/BlueVine Fundbox/Kabbage

Borrowing Amount

$5,000 – $500,000

$5,000 – $500,000

Up to $100,000

Term Length

3 – 36 months

13 – 52 weeks

12 or 24 weeks

Required Time in Business

12 months

9 months

N/A

Required Sales

$10,000 per year

$42,000 per year

N/A

Required Credit Score

550

550

N/A

Review

Review

Review

Visit Site

Visit Site

Visit Site

Borrowing Amount

$5,000 – $250,000

Up to $5 million

Up to $250,000

Term Length

6 – 24 months

13 weeks (invoice factoring)

6 – 12 months (line of credit)

6 or 12 months

Required Time in Business

6 months

3 months (invoice factoring)

6 months (line of credit)

12 months

Required Sales

$15,000 per month

$100,000 per year (invoice factoring)

$120,000 per year (line of credit)

$4,200 per month

Required Credit Score

500

350 (invoice factoring)

600 (line of credit)

N/A

Review Review Review

Visit Site

Visit Site

Visit Site

1. OnDeck

ondeck logo

Time To Funding: 2–5 days

The Basics: OnDeck is one of the few reputable online lenders willing to lend to less-than-qualified candidates: to qualify for a short-term loan ranging from $5,000 to $500,000 or a line of credit up to $100,000, you’ll only need a credit score of 500, 12 months in business, and $100,000 annual revenue. OnDeck has somewhat higher factor rates than some its competitors in the short-term lending space, but they have a good reputation for transparency, and it might be worth paying the extra cost if you have poor credit and need fast funds.

The Application: OnDeck’s application is fast and easy, and they don’t ask for a lot in terms of documents.  To make the process even faster, have all of this information ready to submit:

  • Business Tax ID
  • Bank statements for the previous 3 months
  • Social Security number of business owner(s)
  • Driver’s license number and state of issue

When applying, take advantage of the live chat feature so that the rep can guide you through the application and answer any questions you might have. After you submit your application, a rep will typically reply with an offer within 24 hours, and after you accept the offer, the money will be in your account within one or two days.

Another cool thing about OnDeck for customers who want fast funds? If you have an eligible debit card linked to your business bank account, you can take advantage of OnDeck’s Instant Funding, wherein you can transfer your line of credit funds to your account instantly, rather than waiting the standard 1-2 days for an ACH transfer.

Apply For An OnDeck Loan

2. LoanBuilder: A PayPal Service

loanbuilder logo

Time To Funding: 1–3 days

The Basics: LoanBuilder, a business financing service offered by PayPal, can potentially put money in your account in just a day. Like OnDeck, LoanBuilder offers short-term loans of $5,000–$500,000. They will lend to applicants with bad credit and newer businesses as well (minimum credit score of 550 and 9 months in business).

LoanBuilder has moderately high rates, but these are competitive with or lower than those of similar lenders. Additionally, this lender does not charge an origination fee, which means no money will be subtracted from the total loan amount. Also, repayments are automatically deducted from your account on a weekly, rather than daily basis (unlike many other short-term lenders). Keep in mind that you will have a maximum of 12 months to finish repaying your loan, and the combination of weekly repayments plus a short repayment term means your loan repayments will be higher than they would be with other types of business financing products.

One great thing about LoanBuilder is that what you see really is what you get. All fees and terms are spelled out before you see the loan and you even have the option to adjust the loan terms to your liking to “build” the perfect loan. LoanBuilder has a tool that lets you tinker around with your prospective loan before applying. For example, if you want longer repayment terms, you can adjust the term and see how that will affect your weekly repayments.

The Application: To apply for a LoanBuilder loan, simply fill out a 5-10 minute online questionnaire. If your business is eligible, you will be able to fill out a complete application. In some cases, the only required documents might be four months of your recent business bank statements. LoanBuilder says that signed contracts received before 5 PM will lead to funds being deposited the next day so long as all documentation is in order.

In terms of ease, transparency, and the reputation for speed and quality synonymous with the PayPal name, LoanBuilder is a great choice for small businesses who want fast funding, even those with bad credit.

Apply For A LoanBuilder Loan

3. Fundbox

fundbox loans

Time To Funding: 1–2 days

The Basics: Fundbox provides invoice financing and revolving lines of credit up to $100,000. Repayment terms are for 12 or 24 weeks, depending on the product and what works better for your business.

Fundbox has no minimum credit score requirement or time-in-business requirement, making its line of credit product, “Direct Draw,” a good loan for businesses with poor credit or little time in business. Meanwhile, Fundbox’s invoice financing offering, “Fundbox Credit,” is a favorite of companies that have cash flow problems due to outstanding invoices; Fundbox will lend you the full value of the unpaid invoice(s) with a 0.5–0.7% weekly borrowing fee.

The only borrower requirement to qualify for Fundbox financing is that you use compatible accounting or invoicing software for at least 3 months, or a compatible bank account for at least six months.

The Application: To apply, simply make an account, enter some basic information (such as your name, email, and phone number), and hook up your accounting or invoicing software account or your business bank account. Fundbox typically makes a decision within minutes of receiving your application, after which you can start requesting funds immediately should you accept their offer.

Fundbox requires very few fees—you will not have to pay a draw fee or a prepayment penalty. Although Fundbox’s borrowing rates are higher than what you’d get from a bank, they are in line with other online lenders’ fees. Having a revolving line of credit like the kind Fundbox offers is also a good way to ensure you never need to take out another fast business loan, because you’ll always have access to cash on-demand.

All in all, Fundbox is one of the fastest small business loans around. It’s an excellent option for businesses that struggle with cash flow issues, especially less-established businesses that can’t qualify for a bank line of credit.

Apply For A Fundbox Loan

4. Credibly

credibly loan

Time To Funding: 2–5 days

The Basics: Credibly offers short-term loans and merchant cash advances with loan amounts of up to $250,000. This lender has relaxed borrower qualifications—to be approved for their business expansion or working capital loan, you only need a credit score of 500, 6 months in business, and revenue of $15,000 per month. For expansion loans, your average daily balance needs to be at least $1,000. As is the case with most business lenders, more qualified applicants will receive better interest rates.

The Application: To prequalify for a Credibly loan, use the easy online application to enter some basic information about yourself and your business. Credibly will then let you know whether you’re eligible and how much money you qualify for. If you’re eligible, a representative will call you and work with you to get the rest of the documentation you need. The docs you might need to supply include:

  • Business lease agreement or business mortgage statement
  • Picture ID of all business owners
  • Most recent business tax return
  • Bank statements for the last 3 months

After you send all the documents, it typically takes about a day to receive a finalized quote. Should you accept the offer, it takes about 1-3 days to receive the funds in your account. Note that while Credibly advertises 48-hour funding, that means you will receive the funds within 48 hours from the moment your loan application is approved.

We like Credibly for their transparent terms, easy application, low borrowing prerequisites, and responsive customer service.  Credibly is one of the few, well, credible players in the short-term lending space.

Apply For A Credibly Loan

5. BlueVine

Time To Funding: 2–7 days

The Basics: BlueVine offers invoice factoring as well as traditional lines of credit up to $5 million. Borrower qualifications vary by product. The minimum required personal credit score for a 6-month line of credit is 600. The minimum score for invoice financing is just 530; for this type of financing, your customers’ creditworthiness is a bigger consideration than your own.

The Application: The process to pre-apply for either the invoice financing or line of credit service is fast and simple: simply create an online account and answer some basic questions about yourself and your business. You’ll also need to provide either the most recent three months of bank statements or allow read-only access to your bank account. A BlueVine rep will then call you and walk you through the process and answer any questions.

Initial approval for either service takes about a day. Once you are approved, you can begin drawing from your credit line or selling invoices immediately. Money transfers normally take one to three business days. If you’re selling an invoice from a customer unfamiliar to BlueVine, it will take an additional 24 hours to see the funds in your account, because BlueVine has to assess your customer’s creditworthiness.

Apply For BlueVine Financing

6. Kabbage

Time To Funding: 2–3 days

The Basics: Kabbage is one of the quickest channels to get a business line of credit. Kabbage sells lines of credit up to $250,000, with zero required collateral – no blanket lien and no personal guarantee. Kabbage also provides borrowers with a spending card so you can spend funds from your line of credit instantly, without having to wait the typical 2–3 days for an ACH transfer period.

Note that Kabbage is bad-credit friendly and does not have a specific credit score requirement. However, the service not suitable for startups; to qualify, you need 1 year in business and must have made at least $4,200 for the last 3 months. It’s also important to keep in mind that while Kabbage is super convenient, this convenience isn’t free—fees are on the high side, and you’ll have to pay back your loan in just 6 to 12 monthly payments. Nevertheless, Kabbage a fast and easy way to get a line of credit if you don’t qualify elsewhere.

The Application: When applying for Kabbage financing, you will have to allow read-only access to your business bank account and any other data channels you use (such as PayPal or QuickBooks). Kabbage uses this information to determine your monthly fee and maximum credit line. Usually, it only takes a few minutes for the system to decide whether to approve or deny your application. Kabbage might request additional information in order to grant you a credit line larger than $150,000.

When you have been approved, you can begin requesting funds immediately. As mentioned, you can also request a Kabbage Card free of charge to pay for goods and services right from your credit line.

Apply For A Kabbage Line Of Credit

Which Loan Should I Apply For?

So, now you know of some quality lenders that can put money in your account within days of your application. To determine which loan is right for your business, consider the services they offer (and how well these services meet your needs) and whether you meet the lender’s minimum qualifications, which are as follows:

  • OnDeck: Short-term loans up to $500,000 and lines of credit up to $100,000; need 12 months in business, 500 credit score, and $100,000 in annual revenue
  • LoanBuilder: Short-term loans up to $500,000; need 9 months in business, 550 credit score, and $42,000 in annual revenue
  • Fundbox: Revolving LOC and invoice financing up to $100,000; need to have been using compatible invoice or accounting software for 3+ months, or compatible business bank account for 6+ months.
  • Credibly: Short-term loans up to $250,000; need 6 months in business, 500 credit score, and $15,000 in monthly revenue.
  • Bluevine: Lines of credit and invoice financing up to $5 million; for invoice financing need 3 months in business, 530 credit score, and $100,000 in annual revenue; for 6-month line of credit need 6 months in business, 600 credit score, and $120,000 in annual revenue.
  • Kabbage: Lines of credit up to $250,000; need 12 months in business and monthly revenue of $4,200 for the last three months, or $50,000 annually (no specific credit score requirement).

Note that if you only meet the bare minimum requirements, you may not be eligible to borrow the maximum amount advertised by each lender; your qualifications will determine how much money you can borrow.

The above loans are unsecured (meaning they don’t require you to list any specific business collateral), though borrowers may have to sign a blanket lien and/or a personal guarantee.

Fast Loan Approval Tips

How fast your loan is approved and received depends in large part on you. For example, if you procrastinate in turning in the necessary documents needed to get approved for a loan, or you apply for loans you aren’t qualified for, you will be wasting precious time!

What follows are some general recommendations to ensure a speedy time to funding. This includes pre-application preparedness tips to make your application process quicker, advice on what to include in your application in order to get approved fast, and considerations as to which type of quick loan you should apply for.

1. Check Your Credit Score

First, you want to check your personal credit score so you don’t waste time applying for loans you’re not eligible for. Of course, if you want to position your business to get good rates on a “quick” loan, you’ll want to your credit score to be as high as possible. While improving your credit is not something you can do overnight, before applying for loans, be sure to at least check your credit history to see if there are any major issues. Also, pay off whatever outstanding debts you might have (if you can afford to do so).

To check your credit score before you start applying for fast loans, you can use one or more of these Best Free Credit Score Sites. And whatever you find, don’t worry—there are still plenty quick financing options even if your credit score isn’t high enough to qualify for every loan.

2. Have Your Documents Ready

Having all your business documents ready and in one place will make for a speedier application process. Here are some examples of documentation the lender might ask for:

  • Tax returns (personal and business)
  • Seller’s permit
  • EIN certificate
  • Business license
  • Balance sheets
  • Bank statements
  • Proof of ID
  • Proof of address
  • Incorporation paperwork
  • Copy of business lease

Different lenders may require different and more/fewer documents. It’s a good idea to find out what paperwork the lender requires before you get pre-approved.

3. Prepare A Proposal

Many lenders require your loan application to include a detailed proposal and/or a business plan. This is often true even of “quick” loans. A proposal generally includes information such as how much money you need, what you will use the money for, and how you will repay the loan. As with your all your important business documents, the loan application process will be speedier and smoother if you have this information prepared and ready to go before you apply.

This resource from the SBA includes the information you should include in a loan proposal – although you should note that the SBA requires more information than do most “fast loan” options.

4. Be Thorough On Your Application

The more relevant information you reveal about yourself and your business on your loan application, the better. The whole process will be faster and less painful if you provide everything upfront. That way, there will be less back and forth between you and the lender as they work with you to get the information you didn’t supply initially. You are also more likely to get approved for a loan if you have a more thorough application.

5. Consider All Your Options (Even Unconventional Ones)

Assuming you have all your ducks (and docs) in a row, it’s time to look at your best options in terms of financing. In some cases, you might not even want to get a “loan” in the traditional sense; a line of credit or cash advance might be a faster or better option for you, depending on your situation. If speed is of the essence, you should consider the following loan products, through which you can potentially get funds as soon as a day or two of applying:

  • Short-term installment loan
  • Short-term line of credit
  • Merchant cash advance
  • Equipment financing
  • Invoice financing

You also might want to consider the following unconventional financing options:

  • Peer-to-peer loans
  • Business crowdfunding
  • Personal loan
  • Microloan

All fast financing options have their own pros and cons, of course. Merchant cash advances, for example, tend to be some of the most expensive forms of capital, though they are usually the fastest. Of the unconventional options, P2P loans and personal loans tend to be the fastest, but you’ll generally need to have good personal credit in order to qualify for these options.

6. Apply For Online-Only Loans

So here’s the quick-and-dirty about bank loans vs. online loans: bank loans are not only much more difficult to qualify for, they also take a lot longer to come through than online loans. If you want your loan fast – potentially even as soon as a day or two – online is the way to go. Interest rates are typically higher than with bank loans, but if you shop around, you might be able to get a low-interest small business loan online, especially if you have good credit.

7. Use A Loan Aggregator

A loan aggregator service lets you apply for multiple online business loans at once. Using a service lendio logolike Lendio you can fill out a single application with your business information and be pre-approved for multiple loan options. This is one of the quickest way to apply for online loans, as you save the time it takes to apply for multiple loans individually. Loan matchmaking services are also typically free; if you do accept a loan offer, the lender pays a referral fee to the matchmaker. You never have to pay the matchmaker directly.

Compare loans with Lendio

8. Consider An Online/SBA Loan Hybrid 

If you’re looking to borrow from the SBA, you probably know this isn’t the fastest form of financing around. And if speed is your top priority, you probably shouldn’t bother applying for an SBA loan, bank loan, or any other type of long-term loan. With that said, the SBA offers high quality, low-interest loans, and if you qualify for one, it might be worth waiting a little extra time for. To make the SBA loan application process faster and easier, you can apply for an online/SBA loan hybrid.

SmartBiz is one example of an online service that facilitates SBA-backed loans. Your funds might still take up to a few weeks to come through, but it will be quicker than applying directly through the SBA.

9. Don’t Forget About Your Business Credit Card

Taking out a business loan isn’t your only option if you need fast cash. You can also charge major expenses on your business credit card and pay them off later as you are able. Be sure to check out the Best Business Credit Cards for 2018 to find a good credit card that earns rewards and doesn’t charge an exorbitant amount of interest.

If you need a large sum of liquid cash, you might also consider a credit card cash advance. You need minimal qualifications in order to qualify for such an advance; if you have a business credit card, you will probably be approved for an advance. Once you sign up for your card’s cash advance program, you can typically begin withdrawing cash right away.

The downside to credit card cash advances is that the APR and cash advance fees are usually quite high. Since you’re borrowing against your own credit limit, this can also temporarily lower your credit score by affecting your credit utilization ratio. Nevertheless, credit card advances are a fast and easy business loan alternative available to virtually anyone who has a credit card.

10. Don’t Be Too Hasty

Finally, when getting a fast business loan, it’s important to take your time and read the fine print. In many cases, the super-quick “next-day” loans you find online will have less than ideal terms. You’ll likely have to pay your loan back rapidly at a high rate of interest.

Ideally, of course, you will find a great lender that gives you a fair rate and terms. Check out our Small Business Loan Calculators to calculate your total repayment, financing cost, daily/weekly/monthly payments, APR, and cents on the dollar.

Final Thoughts

Fast business loans can serve as a lifesaver for businesses that need working capital, have cash flow problems, and other financing issues. Although banks can take weeks to issue business loans (if you can even get approved for one), alternative lenders can put money in your bank account within a couple days. However, the reason that online/alternative lenders are willing to give you money so quickly is that you are paying a premium for speed—meaning, you’ll pay more than you would for a bank loan, and you’ll pay the loan back much quicker than you would other types of financing.

To avoid getting ripped off by a predatory lender or agreeing to a bad loan because you are desperate, be sure to compare multiple loan offers. It’s important to do your due diligence to ensure you get the best loan possible, i.e., the one with the lowest fee and repayments you can reasonably afford. Remember that you can pre-apply for multiple loans online without affecting your credit score.

Bear in mind that there are indeed some legitimate, quality lenders (like the ones on this list) that provide quick capital. What’s more, you can take certain actions to speed up your loan application process and time to funding. Be sure to organize and present all your business documentation at the start of the application process. And save time by applying for multiple loans at once with a loan matchmaker service like Lendio.

Lender Borrowing Amount Term Interest/Factor Rate Req. Time in Business Min. Credit Score Next Steps
$2K – $5M Varies As low as 2% 6 months 550 Apply Now
$5K – $500K 3 – 36 months x1.003 – x1.04/mo 12 months 500 Apply Now
$5K – $500K 13 – 52 weeks x1.029 – x1.1872 9 months 550 Apply Now
$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

The post Quick Business Loans: The 6 Best Lenders And 10 Tips For Fast Approval appeared first on Merchant Maverick.

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