19 Reasons To Get A Business Loan (And How To Get Started)

business loan reasons

There are so many good reasons to get a business loan that you probably haven’t even considered half of them. For example, have you ever thought about taking out a loan to hire a new employee or getting a loan for the sole purpose of building your business’s credit? Those are both valid reasons to apply for business financing, and there are many other reasons that might not have ever crossed your mind.

While many small businesses are debt-averse — afraid to apply for financing because they don’t think they have good enough credit, or unsure if they can afford repayments — it’s a simple fact that you need money to make money. In some ways, living debt-free can actually hinder your business’s growth or even its ability to stay afloat. You might also be surprised at the wide variety of financing products available for almost any type of business pursuit.

Even if you’ve never applied for financing before, a business loan is definitely something to think about if you are short on funds or are considering a new opportunity or investment that could advance your business.

Read on for a look at 19 reasons you might want to take out a business loan.

Or, skip down to the “Types of Business Loans” section to see if what type of loan you should pursue for your particular business need.

1. Start A Business

Want to get your brand-new business off the ground with a running start? A startup loan can help you do just that. A few startup-friendly lenders will lend to brand-new businesses with no time in business, while others will want to see that you have 6 months’ worth of revenue.

However, startup loans are not by any means easy to get for spanking new businesses lacking in experience, especially if your business is still in the “idea stage.” If this sounds like you, you might consider a crowdfunded loan or small business grant in lieu of traditional financing.

2. Increase Working Capital

Working capital—the money required for day-to-day business operations—is a big reason businesses might need to apply for financing. For myriad reasons, your business may simply be short on cash. Sporadic cash flow, business growth spurts, and seasonal sales fluctuations are just a few reasons businesses apply for a working capital loan.

In many circumstances, you might not know exactly how much money you need, but expect you’ll need some extra working capital in the near future. In such cases, you might be wise to apply for a short-term business line of credit that you can draw from as needed.

3. Purchase Inventory

Businesses new and old, large and small, commonly apply for financing to cover the cost of purchasing inventory or raw materials to make products. A healthy inventory allows you to have enough product on-hand to meet demand and keep customers happy.

Retail businesses, in particular, often require financing to replenish stocks, particularly is your store sees a big sales up-tick during certain seasons. For example, a company that sells a popular holiday gift might take out a short-term loan to purchase product ahead of the holiday season, and then repay that loan with the proceeds of their seasonal sales.

4. Purchase Equipment

Almost all businesses require equipment of some sort — especially businesses involved in manufacturing, as well as those in the food and service industries. Whether you need professional gym equipment or even a business vehicle, such assets can represent a major expense to a new, struggling, or expanding business.

Purchasing equipment may necessitate a business loan, or perhaps you’d rather charge it on your business credit card if your credit limit is high enough. One popular way to buy business equipment is equipment financing, as this type of loan typically does not require any collateral other than the equipment itself.

5. Hire New Talent

According to the National Small Business Association, data going back as far back as 1993 shows a strong connection between businesses’ ability to hire employees and their ability to get financing. Indeed, payroll is a significant expense businesses must contend with, including not just wages, but healthcare and other benefits, as well as employee training. In some cases, businesses even have to reduce their number of employees or scale back employee benefits if they don’t have sufficient access to financing.

While taking out a loan to hire someone is always a risk, it’s true that employees are a business’s greatest asset; if the employee is worth their salt, they will eventually justify the expense of the loan.

6. Expand Products/Services

Businesses in the growth stage, as well as stable businesses trying to increase revenues and/or stay competitive with peers, will need to expand their offerings from time to time. Regardless of how you’re going to achieve a product or service expansion, an installment loan or another type of business loan can help you make the necessary investments to keep your offerings fresh and relevant.

7. Open A New Location

Your business is growing fast and you need to open a new location. Expanding to a new location is a major undertaking requiring a lot of capital, but one that can pay off tremendously in time.

If you have at least two years’ time in business, you may be eligible for a long-term business expansion loan with low interest rates. Businesses purchasing real estate to open a new location be eligible for a commercial real estate mortgage such as those offered by the SBA through the  SBA CDC/504 program. There is even such a thing as real estate crowdfunding for businesses.

Or, say you own an online business and want to establish your first physical location, you might consider a startup loan to help get your new operations up and running.

8. Pay Taxes

Ideally, you will set aside enough money throughout the year to pay your business taxes when the tax man comes a knockin’. But alas, life doesn’t always work out that way, which is why small businesses frequently take out loans to pay taxes.

Rather than get in trouble with the IRS for not paying your taxes, you are much better off using a business loan or even a cash advance to pay your taxes.

9. Create A Safety Net

A safety net is a cash or credit “cushion” you can use to fall back on during slim times. Perhaps you own a seasonal business or simply have cash-flow problems from time to time; even though you don’t require any extra working capital at the present moment, you feel good knowing it’s available if and when you need it.

You’re probably especially aware of the need for a safety net if you’ve been caught without one in the past, and had to pay overdraft bank fees or get an expensive short-term loan to cover unforeseen shortfalls.

A revolving line of credit, working capital loan, or even a business credit card can all help provide a safety net for a future rainy day. If there are no rainy days on the immediate horizon, you will have some peace of mind knowing you’re prepared for anything.

10. Refinance Another Loan

While it may seem strange to take out a loan to pay off another loan, debt refinancing is a popular and sometimes necessary reason to take out a business loan. You might choose to refinance your business debt because you are offered a loan with better rates and fees, or you might choose to consolidate multiple loans into one loan.

If you’re considering refinancing a loan you are currently paying on, check out our Complete Guide To Refinancing Small Business Debt.

11. Buy A Business

A business acquisition loan, or a loan to buy a business, is another popular category of business loans. You can take out this kind of loan to expand your current business’s offerings with the purchase of another business, or to buy a business even if you don’t have an existing business (in which case you will probably need a startup loan).

Depending on your business credentials, the health of the business you want to purchase, and other factors, you may be able to get a business acquisition loan through a bank or the SBA. You might also finance your business purchase through a business expansion loan or a startup loan from an online lender. There are also franchise loans available to individuals looking to purchase a new or existing franchise.

12. Buy Out A Partner

business loan vs personal loan

Sometimes it just doesn’t work out with a business partner. But just because your partner agrees to be bought out doesn’t mean you’ll necessarily have the money to do so. In these circumstances, you can get a business loan to execute a partner buyout.

There is not really a specific type of loan for partner buyouts but you can use many standard business loans for this purpose, including an SBA standard 7(a) loan.

13. Cover Construction Costs

Perhaps you want to expand or improve your physical business location(s) with renovations or improvements, or maybe you want to construct a brand-new building for your business. Either way, a commercial real estate loan—also called a commercial mortgage or commercial construction loan—is the type of financing you need.

You can use a commercial construction loan, typically obtained through a bank or credit union, to pay for construction costs such as labor, materials, and land development. Hard money loans are another option to pay for business construction.

14. Cover Unpaid Invoices

Businesses with a lot of outstanding invoices can free up pending earnings using a type of loan called invoice factoring.

The financer fronts you the money that your customers owe you, and then you repay them as the customers pay off their debts. With this type of financing, your business does not necessarily need to have good credit, as the invoice factor is more concerned with your customers’ credentials than with your business’s.

15. Buy Insurance

Insurance is a major business expense. Business insurance requirements vary by state and industry. Liability insurance, property insurance, employee healthcare insurance, malpractice insurance, and flood insurance are just a few types of insurance your business might need. For certain business loans, you even need insurance in order to get the loan in the first place. For example, you may need life insurance and various other types of insurance to qualify for an SBA loan.

While, ideally, insurance costs will be included in your budget as a percentage of your gross sales, a business loan or line of credit can help your business pay your insurance policy during times you cannot afford to do so.

16. Cover An Unexpected Expense

Remember that safety net we talked about earlier? Well if you don’t have it, you could have no choice but to take out a loan after-the-fact to cover an unexpected business expense that you didn’t budget for. This could be anything from replacing some expensive equipment that failed unexpectedly to making repairs after a natural disaster. Fortunately, an emergency business loan can help your business cover the expense of just about anything life can throw at ya.

17. Advertise Your Business

Marketing/advertising is a business expense that can cost a lot of money upfront but will hopefully pay off in the long run. SEO and online advertising, commercials, billboard advertising, radio ads, and promotional materials are all types of marketing for which you could need a loan, especially if you’re hiring a marketing agency to try to achieve big results.

18. Build Credit

A lot of small businesses don’t have much of a business credit history, even though the business owner herself might have good credit. Taking out a business loan is one way of establishing a business credit history rather than using your personal credit for your business. Building business credit will allow you to separate your personal and business credit profiles, and will also put you in a good position if you need to ask for a business loan in the future.

For more information on this and other ways to build your business credit history read my Ultimate Guide To Improving Your Business Credit Score.

19. Take Advantage Of A Business Opportunity

Every now and again, your business may be presented with an awesome opportunity that is just too good to pass by—even if you can’t afford the whole thing up front. Business success requires a lot of pragmatism and planning, but there is also some degree of risk-taking and, dare I say it, magic. Whatever that special something is, if you get a “spidey sense” that a certain opportunity will help take your business to the next level, it can pay off handsomely to trust your intuition and go out on a limb to make that investment.

Of course, going out on a limb in this case likely means taking out a business loan. Just make sure you’re not so focused on the opportunity that you rush things and say yes to the first loan offer you come across. It’s absolutely essential to compare multiple loan offers to make sure you are getting the best deal.

Types of Business Loans

I’ve discussed many types of business loans in this post, and it can be confusing to sort through all the different loan categories if you don’t know what you need. To help simplify things, I’ve made a chart with brief explanations of different loan types discussed, and below that, I included longer descriptions of some popular loans you should know about.

Resource Description

Startup Loan

Financing for businesses 6 months old or younger.

Crowdfunded Loan

Funds sourced from a network of backers or investors. 

Small Business Grant

Free funds granted to businesses, normally for a specific project. 

Working Capital Loan

Financing to cover daily operating expenses of running a business.

Business Line of Credit

A credit facility from which your business can borrow money at any time. 

Short-Term Loan

Usually a higher-interest loan that you pay back quickly, typically within a year. 

Business Credit Card

Credit card used for business expenses.

Equipment Financing

Self-securing loan to finance major equipment purchases.

Installment Loan

A standard type of business loan also called a term loan, repaid in regularly scheduled installments.

Long-Term Business Expansion Loan

Usually a large, low-interest loan, repaid over 5 or more years.

Real Estate Crowdfunding

Crowdfunded capital to purchase real estate for a business.

Merchant Cash Advance

Expensive but quick source of business financing for merchants who need fast funds.

Business Acquisition Loan

Loan to purchase a business.

Franchise Loan

Loan to open a new franchise or purchase an existing franchise.

SBA 7(a) Loan

Standard business loan backed by the U.S. Small Business Administration.

Commercial Real Estate Loan

Long-term loan to purchase commercial real estate for a business.

Hard Money Loan

Shorter-term real estate loan similar to a mortgage, requiring the property you’re purchasing as collateral. 

Invoice Factoring

Service which converts your small business’s outstanding invoices to cash.

Emergency Business Loan

Fast loans to cover business funding emergencies. 

Installment Loan

Term loans, also called “installment loans” are a broad category of business loans. This type of funding is paid back in periodic installments, with interest. It may be a short- or long-term loan. Higher-quality term loans typically give you a longer amount of time to repay the loan, and let you pay via monthly installments (vs. weekly or daily installments with short-term loans). However, you will need at least 2 years in business, plus good credit and strong revenues, to qualify for a long-term business loan, particularly if you borrow from a bank; online lenders have less strict requirements.

Long- and medium-term loans are useful for established businesses making long-term investments in fixed assets like property or renovations, though they can also be used for working capital.

You can get term loans from a bank or credit union, though the lenders below offer reasonably quick installment loans as well:

Lender Borrowing Amount Term Req. Time in Business Min. Credit Score Next Steps

smartbiz logo

$30K – $350K 10 – 25 years 2 years 650 Apply Now

$2K – $5M Varies 6 months 550 Apply Now

$25K – $500K 6 months – 5 years 2 years 620 Compare

lending club logo

$5K – $300K 1 – 5 years 12 months 600 Compare

Short-Term Loan

Short-term business loans—installment loans that are repaid in 3 years or less, or sometimes in a matter of months—usually come in smaller amounts with higher rates when compared to long-term loans. Short-term loans also tend to require weekly or daily repayments. Although they are more expensive and less desirable than long-term loans in a lot of ways, short-term loans are relatively fast and easy to get and don’t have as stringent borrower requirements in terms of credit score, income, or time in business.

Because they have such a short repayment schedule, short-term loans are good for short-term problems, such as one-time expenses/investments.

The following lenders offer good terms and reasonable rates if you need a short-term loan:

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 – $300K 6, 9, 12, 15, or 18 months x1.15 – x1.31 1 year 600 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

Merchant Cash Advance

Merchant cash advances are not technically loans; rather, they are advances on your future sales or revenue. With a cash advance, you’ll receive a lump sum, which you’ll then begin repaying out of your daily credit card sales.  The interest charged on MCAs is usually calculated in terms of a factor rate rather than interest rate—for example, you might have a factor rate of 1.3, which means you’ll have to repay 1.3x the amount you borrowed. A typical factor rate for an MCA is between 1.2 and 1.4.

An MCA is good for an emergency situation where you need a large sum of money quickly and/or have bad credit, but you have a healthy daily cash flow. It does not help you build business credit because it’s not actually a loan and these lenders don’t usually report to credit agencies.

Generally, we don’t recommend MCAs if you’re eligible for another type of financing, but the following cash advance providers are reputable:

Lender Borrowing Amount Min Credit Score Time To Funding Next Steps

$5K – $500K 550 1-3 Days Apply Now

$2K – $5M 550 1-2 Days Apply Now

$5K – $500K 500 2-5 Days Apply Now

$5K – $250K 500 2-5 Days Apply Now

Business Credit Card

Business credit cards are useful the same way personal credit cards are useful—they allow you to pay for large or small expenses even if you don’t have the cash on hand, while also earning you rewards and building your credit history. Of course, you can get yourself into trouble if you don’t pay off the balance in a reasonable amount of time. With that said, business credit cards are super handy for any type of business expense that doesn’t exceed your credit limit, particularly if you can find a card with a 0% introductory rate, like the ones below.

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

Even if you don’t have an expense looming on the immediate horizon, a business card is just good to have in case you need it.

Business Line of Credit

A business line of credit is an amount of money available for you to draw from as needed. You only have to pay back what you borrow (plus interest). Similar to term loans, you can get a line of credit from a bank or online lender. Not unlike a business credit card, a line of credit is useful to have just in case you need to make up for any type of shortfall or gap. An LOC can come in handy especially if you have a seasonal business or a business with occasional cash flow problems. Additionally, a line of credit, like the ones offered by the lenders below, can help you build business credit.

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

Invoice Factoring

Invoice financing, sometimes called invoice factoring, is when you sell your business’s unpaid invoices to a credit facility. The facility fronts you the amount of the unpaid invoice (minus a percentage they charge as a fee), and you then repay the lender as your customers repay you. Note that you do still need to repay the lender even if your customer never pays you.

Invoice financing is a useful type of financing for businesses with a lot of unpaid invoices that want to free up some cash. The borrower requirements are usually pretty relaxed, as invoice finance companies are more concerned with your customers’ creditworthiness rather than your business’s.

Equipment Financing

Equipment financing is useful for the purchase of any type of equipment or machinery your company needs but can’t afford outright. This type of “self-securing” financing does not require any collateral other than the equipment itself, and you usually don’t need to have excellent credit or much else in the way of borrower credentials. If you default on the loan you could lose the equipment, but if you make all your payments, you will eventually own the equipment.

We recommend the following equipment financers:

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

Do You Need A Business Loan? Next Steps

If you’ve decided you need a business loan, it’s time to take the next steps to secure one.

1. Compare the different types of small business loans discussed above and determine which type of loan best suits your need. Or, read more about common types of business loans.

2. Take a look at our free guide to small business loans.

3. Calculate how much you can afford to borrow.

4. Take a look at our favorite lenders.

Once you complete your initial research by taking these steps, you should have a very good idea of what to look for in a loan and which type or types of financing are best for your situation. You’re now ready to start applying!

To save time applying to multiple loans, you might consider using a lending matchmaker service like Lendio, which allows you to compare multiple loans tailored to your needs.

Final Thoughts

Applying for business financing can be daunting, given all the myriad types of loan products out there, and the possibility of being rejected for financing. You might also be worried about your ability to make payments on the loan.

However, if you have a good reason to apply for a business loan, there is a very decent chance that there is a lender willing to lend to you with feasible, realistic terms. With those funds, you’ll be able to address whatever needs your business has while building up your business credit profile with each repayment.

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 – $300K 6, 9, 12, 15, or 18 months x1.15 – x1.31 1 year 600 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

The post 19 Reasons To Get A Business Loan (And How To Get Started) appeared first on Merchant Maverick.

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Understanding Variable APR

Whether you need extra money to pay an emergency expense, expand your business, or to use as working capital, it’s not uncommon to seek financing in the form of a loan, line of credit, or credit card. Before signing a contract with a lender, though, it’s important to fully understand the cost of your loan.

While shopping around for financing, you’ll likely find financial products that feature a variable APR. If you’re scratching your head in confusion, this post is for you. Before entering into a loan agreement, read on to learn more about variable APR, how it’s different from fixed APR, and the benefits and drawbacks to consider.

What Is APR?

Before we jump into the specifics of variable APR, what is APR in general?

APR is the annual percentage rate of your loan, credit card, or other financial product. In simpler terms, APR is the total cost of borrowing for a period of one year. The APR includes the interest you pay to the lender as well as any additional fees, such as origination fees or packaging fees.

As you’re shopping for a loan, it’s vital to look at the APR in order to find the most affordable financing option. Let’s say you’re considering one loan that has a low interest rate but comes with additional fees. Another loan option has a slightly higher interest rate but no fees are charged. In this example, the APR for the first loan — the one with the lower interest rate — may actually be higher than the APR for the second loan. Even though the first loan has a lower interest rate, the added fees give it a higher APR  — which means a higher overall cost.

If this scenario is confusing, don’t worry. Most lenders perform APR calculations for you before you sign your loan agreement. If they don’t, or you want to see the numbers for yourself, check out our calculators for term loans, short-term loans, and merchant cash advances.

One thing to remember is that APR doesn’t always tell the full story surrounding the cost of your loan, particularly if you’re dealing with a non-traditional loan product, like a merchant cash advance or a short-term loan. Term lengths may also be a factor in determining the overall cost of borrowing. Refinancing or prepaying your loan can also have an impact on what you pay each year. Still have questions about APR? Learn more about the basics before applying for financing.

What Is Variable APR?

By now, you should have an understanding of APR at the most basic level and how it affects the cost of borrowing. Maybe you’ve even started shopping around for financing. But in your quest to find a loan, you may be faced with a new term: variable APR.

If your loan or credit card has a variable APR, it means that the interest rate will fluctuate over time. These fluctuations are based on an interest rate index that serves as a benchmark for the interest rates charged by lenders. Many lenders use the Wall Street Journal Prime Rate, which uses the base rates on corporate loans posted by at least 70% of the nation’s top 10 banks.

Interest rates are always based on the prime rate, but the number of percentage points a lender adds is based on the risk of the borrower. Low-risk borrowers, such as established businesses with high revenue and solid credit histories, will have a lower number of percentage points added to the prime rate. A higher number of percentage points will be added to borrowers with low credit scores or revenues or a short time in business, making the overall cost of the loan higher over time for riskier borrowers.

With variable APR, both low- and high-risk borrowers may see fluctuations in their APRs based on changes to the interest rate index. When the prime rate increases, so does the APR. When the prime rate drops, the APR is lower.

Variable APR VS Fixed APR

Loans, credit cards, and lines of credit come with either variable or fixed APR. Unlike products with variable APRs, financing options with fixed-rate APRs never change. This means that if your APR is 5%, it is 5% for the life of the loan; the rate will not change if the prime rate increases or decreases. However, there are some instances where an APR can change even on a fixed-rate product.

If the APR on fixed-rate financing alters from its original terms, the lender must notify the borrower in writing. Most lenders provide a grace period that allows the borrower to pay off the debt and close the account or transfer the balance before the new terms are applied.

With a variable APR, the lender does not have to notify the borrower of changes to APR based on changes to the prime rate.

Is A Variable APR Good Or Bad?

A variable APR can be good for short-term use. For example, if you use your credit card and pay it off each month, you’ll save money when rates are low.

However, if you plan to use your financing over the long term, there is a risk that rates could rise. This could result in a higher cost of borrowing.

This doesn’t mean that if you need a long-term financing option, you should write off variable APRs. Long-term loans like Small Business Administration 7(a) loans have variable interest rates. Interest rates are based on the prime rate plus a markup between 2.25% and 4.75%. SBA loans are some of the most competitively-priced and affordable long-term loan options for small business owners.

When applying for a credit card, one thing to be aware of is that many card issuers offer introductory rates. These introductory rates are fixed and are lower than usual for a set period of time, such as 6 or 12 months. After the introductory period, the interest rate increases. A fixed rate may also revert to a variable rate after the introductory period. This is why it’s so important to carefully read all disclosures and agreements before opening an account.

Looking for a business credit card? Compare rates side-by-side to find the best option for your business.

Final Thoughts

APR is incredibly important to consider before applying for financing, but you need to consider all other factors before choosing your lender. The goal of your financing is to get rates and terms that work for you and your business. Shop around, do your research, and read everything before signing on the dotted line to find financing that best fits your financial needs.

The post Understanding Variable APR appeared first on Merchant Maverick.

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Business Loans For Auto Repair Shops

Cars may be starting to look more like computers, but they still won’t stay on the road long without the help of a trusty local auto repair shop.

If you’re in the auto repair business, you know that the volume of work — as well as the types of problems you’ll encounter — can vary greatly by the day. Even the most prepared shop may run into emergencies where funds aren’t readily available. When that happens, you may need a quick loan to keep things running smoothly. Or you may just need a traditional loan for a large, planned expense.

No matter your need, navigating through the vast market of traditional and alternative lenders can be daunting. Read on and we’ll walk you through how to get business loans for auto repair shops.

Financing Need Best Loan Type Recommended Lender
Purchasing Equipment Equipment Financing Lendio
Supplies and Inventory Short-term Loans PayPal LoanBuilder
Working Capital Lines of Credit OnDeck
Marketing and Advertising Business Credit Card Chase Ink Business Preferred
Business Startup/Expansion/Remodeling SBA Loan SmartBiz

Loan For Equipment Purchasing

We’re not talking parts for your customers’ vehicles. A loan of this type can help you buy the bigger stuff you’ll be keeping in-house and using regularly — things like air compressors, vehicles lifts, brake lathes, and engine hoists.

In most cases, you won’t be purchasing heavy equipment on the fly; you’ll purchase it when you’re first opening your shop, or you’ll have a general idea of when an old piece of equipment needs to be replaced. In these cases, you’re probably less concerned about speed than you are about getting a good deal that fits the needs of your shop.

Equipment Loans

If you prefer to own your equipment, you may want to look into equipment loans. These resemble traditional installment loans in many ways: they’ll accrue interest over time, you’ll make monthly payments, etc. But these loans have a built-in advantage; the equipment you’re purchasing with them can serve as collateral. Collateral is an asset the borrower puts up as security when they take on debt. Secured loans generally have better rates and terms than comparable unsecured loans.

Traditionally, equipment loans cover around 85 percent of the equipment’s costs, but some lenders may cover the entire cost. In most cases, this does not include transportation costs.

Equipment Leases

These are not loans strictly speaking, but they are a popular way to finance heavy equipment. (Read more about equipment loans vs equipment leases.) Leases fall into two broad categories.

Capital leases are essentially an alternative way to buy your equipment. In most cases, you are considered the owner of the equipment under this type of lease. You’ll make monthly payments for the length of the lease, at the end of which you’ll pay a small residual (sometimes as low as $1) to close your account.

Operating leases are closer to the traditional definition of a lease. In this case, you’ll effectively “rent” the equipment over the course of the lease, making monthly payments. At the end, however, you’ll have the option to return the equipment or buy it at fair market value. This type of lease is useful for equipment that becomes obsolete quickly.

Recommended Option: Lendio

If you’re not working with a captive lessor or your preferred bank, it’s nice to be able to hit a bunch of potential equipment financers with one easy application. Lendio is a great way to do just that. Within 72 hours of your application, you should have multiple equipment financing offers on your screen. Funds are typically dispensed within a week of accepting an offer.

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Loans For Supplies & Inventory

You never want to be in a position where your auto body shop is suffering from too much business. Whether you’re facing a very high volume of customers, or an unusual number of customers all presenting with similar car problems, you may find your supplies depleted more quickly than you can collect on your invoices.

When this happens, you may want to consider a short-term loan.

Short-term Loans

Fast, streamlined, and (relatively) expensive, short-term loans are handy when you need a loan fast and want to pay it back quickly.

Short-term loans can usually get money into your hands within a day or two, which makes them a good choice for unplanned emergency financing. Rather than charge interest, short-term loans use a flat fee formula, or factor rate, to calculate the amount of money you’ll owe. For example, if you take out $10,000 at a 1.2 factor rate, you’ll need to pay back $12,000.

Short-term loans usually have terms shorter than a year, so their repayment schedule is much faster than those of medium and long-term loans. If you take out a short-term loan, you’ll be making weekly or daily payments, which, in most cases, will be automatically deducted from your business account.

Recommended Options: PayPal LoanBuilder

Because short-term loans are so fast and volatile, you’ll want some flexibility over the terms of your loan. PayPal’s LoanBuilder product is built around the idea of customization. You’ll be able to customize many elements of your loan to fit your need. Better yet, their rates are reasonable (as short-term loans go).

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Loans For Working Capital

merchant cash advance industry

Working capital is a wonky term for the money you have on hand for daily operational expenses. If everything’s going well, you probably don’t have to give it a lot of thought. But if emergency expenses have tapped into your reserves, you may find yourself unable to pay some small, recurring expense.

Working capital loans tend to be some of the most flexible when it comes to what you can spend your money on.

Lines Of Credit

Since working capital expenses come in many different forms and amounts, it’s nice to have a flexible financial cushion to fall back on. Rather than giving you a lump sum, a business line of credit pre-approves you for a certain amount of money, called your credit limit. While your account is active, you can draw on your credit line as much or as little as you want so long as the total amount you’ve borrowed doesn’t exceed your credit limit.

In most cases, you’ll only pay interest on the amount of money you’ve borrowed, though some lenders do charge administrative and access fees. Revolving credit lines let you reuse credit after you pay off your balance, similar to a credit card. Non-revolving lines of credit don’t have this feature and tend to be extended for specific expenses where the final cost is uncertain.

OnDeck

OnDeck offers quick and easy access to lines of credit, even for businesses with fairly poor credit. Depending on your revenue and other qualifications, you can get a credit limit between $6K and $100K with no draw fee. Just be aware that these are short-term credit lines lasting only about 6 months, but considering the approval process only takes a few days, you don’t need to plan too far ahead. The major downside is the $20/mo administrative fee, but OnDeck will waive that if you withdraw at least $5,000 within the first five days of opening your account.

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Loans For Marketing & Advertising

Word of mouth may be the ideal form of advertising, but sometimes you need to reach outside of your normal sphere of influence to draw in new customers. Or maybe you’re a new business that needs to establish a customer base.

Designing and running an effective advertising campaign is outside of the purview of this article, but most of the good ones require spending some money.

Business Credit Cards

Surprised? Business credit cards are often suggested as a way to smooth out your business’s cash flow, but they also have some other features that make them ideal for certain types of expenses. Namely, rewards programs that allow you to get a return on specific expenses — expenses like advertising.

Just be sure to pay off your balance within your business credit card’s grace period, or the cost in interest will exceed your rewards savings.

Recommended Option: Chase Ink Business Preferred

Chase’s Ink Business Preferred credit card is at the top of most business credit card lists, and for a good reason. It offers one of the most lucrative rewards programs out there. Advertising expenses spent on social media sites and search engines earn triple points (as do travel, shipping, and telecom expenses). Those points can be redeemed on travel, on Amazon, as gift cards, statement credit, or cash back.

The card has an annual fee of $95 and an APR between 17.99% and 22.99%.

Chase Ink Business Preferred



Apply Now 

Annual Fee:


$95

 

Purchase APR:


17.99% – 22.99%, Variable

Loans For Business Startups, Remodeling, Or Expansion

Like equipment purchases, business remodeling and expansion (or starting your business up in the first place) falls under the category of “large, planned expenses.” One of the bigger and more daunting business expenses occurs when you’ve outgrown your space.

If you need additional bays, or even a larger overflow lot, you’ll want a loan that can offer you a large sum of money at a low interest rate. Your best bet is probably an SBA loan.

SBA Loans

The Small Business Administration (SBA) is a government agency tasked with advising and assisting small businesses. The SBA doesn’t usually directly lend to businesses. Instead, it guarantees a portion of an SBA-approved lender’s loan. This guarantee allows you to access better rates and terms than your credit rating or business size might otherwise allow.

The two most common forms of SBA loan are the SBA 7(a) and the SBA 504.

SBA 7(a) Loans SBA 504 Loans
  • Working capital
  • Commercial real estate purchasing
  • Equipment purchasing
  • Purchasing a pre-existing business
  • Refinancing debt
  • Purchase an existing building
  • Purchase land and land improvements
  • Construct new facilities
  • Renovate existing facilities
  • Purchase machinery and equipment for long-term use
  • Refinance debt in connection with renovating facilities or equipment

The 7(a) offers the most flexibility in terms of what it can be used for. This can include anything from equipment to non-investment real estate, leasehold improvements, business acquisition, or start-up costs. Depending on your needs, however, you may want to look into the SBA 504 loan, which has a higher maximum borrowing amount. These loans can be used to purchase land and buildings, buy long-term equipment, or make improvements to your lot.

Be prepared to play the long game with an SBA loan, though. They take far longer to close than the other financial products we’ve discussed.

Recommended Option: SmartBiz

You have a lot of choices when it comes to SBA-approved lenders, which likely includes your preferred local bank or credit union. You don’t need our advice for that, right?

But if you need help navigating the complexity of the SBA application process and don’t have a lender specifically in mind, you may want to give SmartBiz a look. SmartBiz can’t do a full end-run around the massive amounts of paperwork required to get an SBA loan, but what they can do is keep the process as organized and streamlined as possible on your behalf. Most importantly, they’ll match you with a lender that fits your needs.

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What To Consider When Choosing A Lender

If you didn’t see a lender you liked above, you can always hunt for one on your own. Though it can be a time-intensive task, there are some ways to strategically narrow your search.

Why Do I Need A Loan?

Lenders serve a variety of needs, but not every lender can serve yours. Even if you don’t like the lenders we recommended, the type of financial products discussed above can be a guide for finding a lender.

A slow, traditional lender may not be able to help you get emergency funds, while a fast, expensive alternative lender may be a poor choice for financing an expensive renovation.

Am I Qualified?

One of the easiest ways to rule out a lender is to figure out if they’ll rule you out.

Most lenders have minimum qualifications for borrowers. The most common ones are:

  • Time In business: Lenders want to know you’ll be around long enough to pay them back.
  • Credit Rating: Some lenders use credit rating as a line in the sand, while others use it mainly to help determine rates.
  • Revenue: Lenders want to make sure you can pay off your debt. Sometimes this number is an absolute minimum (like $100,000/yr); other times it’s relative to the amount of money you want to borrow ($1.50 for every $1).

Additional factors may include the number of other loans you currently have, the industry or state you’re in, and whether you’ve had any recent bankruptcies.

Do The Terms & Rates Meet My Needs?

While it might seem that lenders have the upper hand, remember that you are ultimately the one who gets to decide whether or not the transaction happens.

If a lender charges usurious rates, if they pile on unnecessary fees, or if they demand repayment on a schedule you can’t accommodate, you’ll probably want to keep looking.

Try to get a sense of whether your prospective lender will be a flexible partner or a predatory animal looking to cash-in on any small mistake you make. Do they offer early payment incentives? Incentives for repeat business? Is customer service available and helpful?

Final Thoughts

When it comes to keeping your auto repair shop’s engines purring, you have a ton of potential financial solutions at your disposal. With a little patience, you can find a deal that fits your needs.

Didn’t find a lender you were looking for above? Here are some overviews of our contenders for loans, lines of credit, credit cards, and startup financing.

The post Business Loans For Auto Repair Shops appeared first on Merchant Maverick.

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Slow-Paying Customers? 10 Tips To Get Your Invoices Paid Faster

Slow Paying Customers? 10 Tips To Get Your Invoices Paid Faster

If your company relies on invoices, you’re probably all too familiar with slow-paying customers. According to the popular accounting software Xero, “More than a third of small business invoices are paid late.”

Late invoices seem like an inevitable part of running a business, but they don’t have to be. That’s why we’ve created a list of practical steps you can take to increase your chances of getting paid on time.

Here are our top ten tips to get your invoices paid faster.

Send Online Invoices

If you’re still mailing invoices manually, now is the time to start saving time and money by switching to e-invoices. Sending invoices online is easy, cost-effective and best of all — fast.

Instead of spending time printing invoices, stuffing envelopes, and waiting on the mailman, you can send your invoices to customers instantly. Your customers get their invoices faster, which means you get paid quicker. And you won’t need to worry any longer about whether your invoice got lost in the mail or sent to the wrong address. Most invoicing software programs offer invoice tracking so you can see exactly when your customer receives and views their online invoice.

When it comes to small businesses, time is money. But money is also money. With e-invoices, you’ll save both. While you may need to spend a small monthly fee on invoicing or accounting software, you won’t have to purchase envelopes, ink, paper, stamps, etc., and you can use your newfound free time for managing other more important aspects of your business.

Take a look at some of our favorite online invoicing options or continue reading to learn all of the perks invoicing software offers.

Offer Online Payments Options

Slow-Paying Customers? 10 Tips To Get Your Invoices Paid Faster

One of the other great perks of using online invoices is the ability to accept online payments. When it comes to getting invoices paid fast, the key is to make it as easy as possible for customers to pay you.

That’s why payment processors are so important. They’re quick, convenient, and available with almost all invoicing and accounting programs offers multiple payment processing options.

According to the popular invoicing software FreshBooks, offering an online payment option significantly increases your chances of being paid on time; and according to Xero, companies that accept both online credit card payments and Paypal payments get paid 20 days faster than those that don’t.

To learn more about accepting online payments, download our free Beginner’s Guide to Payment Processing. If you’re already sending online invoices but aren’t yet accepting online payments, read our post The Best Payment Processors For Accounting Software.

Choose The Right Invoice Template

Believe it or not, choosing the right invoice template can play a role in getting your invoices paid on time.

Most invoicing software programs offer multiple templates options. You want to pick a template that is attractive, simple, and clear to read. This includes choosing a legible, easy-to-read font like Arial or Helvetica (I usually shy away from serif fonts, like Times New Roman, as they are harder to read and often make the invoice look outdated and cluttered).

According to Invoice Ninja:

[An invoice] that’s colorful, distinctive, and attractive in appearance will stand our in their minds. This can help clients to remember your invoice and nudge them towards paying promptly.

Not only do you want an attractive invoice, but you also want an invoice that clearly shows:

  • The invoice due date
  • The invoice amount
  • Your company’s contact and payment information
  • The products or services the customer is paying for
  • The invoice’s terms and conditions

Clarifying and highlighting this information makes it easier for your customers to know when and how to pay you, which can speed up the payment process.

Here are a few examples of strong, attractive invoice templates:



Pick The Right Date

Choosing an invoice template with a clear due date is a definite step in the right direction, but you also want to make sure you choose the right due date.

Oftentimes, you’ll see invoices that say “due upon receipt.” This is a perfect example of what not to do. It doesn’t give a clear due date, which encourages late payments. Another term you often see is a “Net 30” due date. This means that the invoice payment is due 30 days after the invoice is sent. Some customers may not be familiar with this notation. Instead, be clear and specific. If an invoice is due 30 days after it’s sent and it was sent on September 1st, just say that the invoice is due September 30th. When customers have a set-in-stone deadline, they are more likely to pay on time.

If you want your invoices to be paid faster, also consider moving up your due date. If you typically have invoices due 30 days after they’re sent, try moving that up to 15 days. This way you are spending less time waiting on cash.

Give Discounts

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You catch more flies with honey than vinegar, and invoicing is no exception. A great way to get your invoices paid fast is to offer a small discount for customers who pay early. Maybe consider offering a 5% or 10% discount for customers who pay their invoices in the first ten days. Everyone likes saving money, so those customers who are looking for savings will jump on the deal and pay their invoice quickly. While you may lose a small amount of your sale, you’ll receive cash faster, which may be more than worth it.

This option may not be for everyone or every type of business, but is definitely worth considering if your business is struggling with cash flow due to late invoice payments.

Enforce Late Fees

If incentives don’t work, you can also consider charging a late fee or interest for late payments. While no one likes to be the bad cop, sometimes you have to take drastic measures to receive your hard-earned money.

If you do go this route, be sure to clearly state your late fee policy on your invoice’s terms and conditions and send reminders to inform your customers that you will begin calculating interest or charging a fee if you don’t receive your invoice in time.

Send Invoices Right Away

Get your merchant funds fast. Image description: Clock with money underneath it

Your customers can’t pay you if they haven’t been sent an invoice. That’s why staying on top of invoicing is one of the most important things a business owner can do. The sooner you send your invoice the sooner you can get paid. Plus, customers are more likely to pay quickly for items or services that they just received.

It can be easy to become overwhelmed and fall behind on invoices. Luckily, there are tons of great invoicing tools out there to help automize your invoicing process. Nearly every invoicing software allows you to send recurring invoices to repeat customers. Apps like Zoho Invoice and QuickBooks Online allow you to auto schedule invoices in advance to help save time. And programs like Invoice2go offer great mobile apps so you can send invoices on straight from your phone.

Send Payment Reminders

Slow-Paying Customers? 10 Tips To Get Your Invoices Paid Faster

Another way to avoid late-paying customers is to send regular invoice payment reminders. Sometimes people simply forget and need a nudge in the right direction toward payment. Send invoice reminders a few days before the invoice is due, the day the invoice is due, and a few days after the invoice is missed.

Hopefully, the first reminder will be enough to get you your payment. If not, continue sending email reminders and calling them on the phone. No one likes to chase down payments or be a nag, but it’s your responsibility to follow up with slow-paying customers.

One of the perks of invoicing software is that most programs allow you to create automatic payment reminders, which saves a lot of time. These programs almost always have an Accounts Payable report as well so you can view your customer’s outstanding balances without having to manually track who hasn’t paid yet.

Invoice In Phases

If you run a project-based business, consider invoicing in phases. Instead of sending one giant invoice at the end of the job, maybe try invoicing once certain phases of the tasks are complete. Or, consider charging a deposit for your work to discourage customers from avoiding payment altogether. This way, you can even out your cash flow.

Use Invoicing Software

When it comes to getting your invoices paid on time, invoicing software is integral. With it, you can send invoices quickly, automize your invoicing process, and encourage customers to pay quickly with online payments.

Here at Merchant Maverick, we highly recommend that small businesses use invoicing software at the very least, or purchase full-fledged accounting software to send online invoices and balance the books. In this post, we’ve already mentioned several of the great perks of e-invoicing and invoicing software.

Here is a full list of the reasons you should use invoicing software:

  • To automate your invoicing process
  • To send online invoices to customers
  • To accept invoice payments from customers directly online
  • To see when your customers have received and viewed their invoices
  • To send automatic payment reminders to late-paying customers
  • To construct default terms and conditions that automatically appear on every invoice
  • To create default invoice email messages to make sending invoices faster
  • To run helpful reports like Accounts Receivable and Sales by Customer
  • To send invoices on the go with mobile apps
  • To save on paper, ink, and time

If you’re ready to start getting faster invoice payments by using invoicing software, here is a comparison of the top invoicing software options that have the best offerings:

Zoho Invoice Invoice Ninja Invoicera FreshBooks

Review Visit

Review Visit

Review Visit

Review Visit

Pricing

$0 – $29/month

$0 -$12/month

$0 – $15/month

$0 – $50/month

Customer Support

Very Good

Very Good

Good

Very Good

Ease of Use

Very Easy

Easy

Very Easy

Very Easy

Business Size

Small – Medium

Small

Small – Medium

Small

Number of Invoice Templates

16

10

7

2

Autoschedule Invoices

✓

✘

✓

✘

Payment Reminders

✓

✓

✓

✘

International Invoicing

✓

✘

✘

✘

Number of Payment Processors

11

35

30

2 – 6

If you want the same great invoicing features but with added bookkeeping functionality, here are the four best accounting programs for invoicing:

Zoho Books QuickBooks Online Wave Zipbooks

ReviewVisit

ReviewVisit

ReviewVisit

ReviewVisit

Pricing

$0 – $29/month

$15 – $50/month

$0

$0 – $125/month

Customer Support

Very Good

Poor

Good

Good

Ease of Use

Very Easy

Easy

Very Easy

Easy

Business Size

Small

Small – Medium

Small

Small

Number of Invoice Templates

15

5

3

1

Autoschedule Invoices

✓

✓

✘

✘

Payment Reminders

✓

✓

✓

✓

International Invoicing

✓

✘

✘

✘

Invoice Strength Score

✘

✘

✘

✓

Number of Payment Processors

12

15

2

2

If you need help deciding which software is right for you, check out our comprehensive invoicing software reviews, take a look at our post How To Choose Invoicing Software, or leave us a comment below.

What If My Customers Still Don’t Pay Their Invoices On Time?

So what happens if you try all 10 of these tips and you still have late-paying customers? That’s where invoice financing comes in.

With invoice financing, you can sell your unpaid invoices to a factoring company in exchange for immediate cash or you can use your invoices as collateral for a line of credit.

If you’re suffering from inconsistent or poor cash flow due to slow-paying customers, invoicing financing might be the perfect solution for you. Read our Merchant’s Guide To Invoice Financing to learn more or compare the invoice financing options.

Instead of feeling powerless against late invoices, you now have ten tricks under your sleeve to help get those invoices paid faster (eleven if you count invoice financing!) Take action against slow-paying customers and start getting your invoices paid faster today.

The post Slow-Paying Customers? 10 Tips To Get Your Invoices Paid Faster 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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Applying For Business Loans Online: Everything You Need To Know

The internet has changed the way we do business. Having access to the world wide web allows us to work remotely, communicate with our coworkers and colleagues, market to new customers, and send and receive payments. The internet has also opened up a major resource for business owners in the form of online loans.

Gone are the days when a business owner was forced to go to the local bank branch to receive a loan. Thanks to the magic of the ‘net, we now have more access than ever to affordable business financing. A plethora of lenders and loan options are available to us with just a quick online search and a click of the mouse.

If you’re considering applying for a business loan, an online loan may be exactly what you’re looking for. However, if you’ve never had experience with this type of loan, you probably have some big questions. Why should you work with an online lender instead of your local bank branch? What are the benefits of online loans…and the potential drawbacks?

Read on and we’ll cover all of these questions and more in this guide to applying for business loans online.

What Are Online Business Loans?

Online business loans are loans that you can apply for — and receive — via the internet. To apply for an online loan, you simply visit the lender’s website and input your information through a secure form. You may also be asked to submit documentation through secure web portals, and web applications can even link the lender to your bank account to access your bank statements directly.

Often, the entire process can be completed online, although some lenders may require a phone call to verify or request information. A direct deposit can be set up to receive loan funds, and many lenders offer the option to connect your bank account to make automatic payments.

How Are Online Business Loans Different From Bank Loans?

Online business loans are different from bank loans in a number of ways. Instead of having to drive to a local bank branch to apply for a loan, online loans allow you to apply at home, at the office, or anywhere you have an internet connection.

Online loans are also unique because the process is much shorter. In some cases, loans can be approved in just minutes and funded within days — or even within 24 hours.

There are typically not as many documentation requirements for online business loans as bank loans. Because there are so many different options, online lenders may offer loans for startups and businesses with low credit scores or revenues. Bank loans require high revenues, strong credit scores, and often have a minimum requirement for years in business.

Even though online lending offers more options and provides fast funding, the tradeoff is that these loans often come with higher APRs and terms that aren’t as favorable as bank loans.

How Are Online Business Loans Different From Alternative Business Loans?

The terms online business loans and alternative business loans are often used interchangeably. What are the differences between the two?

An alternative business loan is defined as a loan that is obtained from a source other than a bank. Many alternative lenders – but not all – offer online loan options.

For example, a loan from a credit union is an alternative loan. A loan from a microlender is also an alternative loan. While some credit unions and microlenders may have an online application process, in many cases, a borrower will have to pay an in-person visit or apply over the phone. In this example, these are alternative loans and not online loans.

Types Of Business Loans Offered Online

One of the biggest benefits of applying for an online loan is how many options are available to business owners. No matter what the money will be used for, how much is needed, or even if the borrower has some challenges that disqualify them from conventional loans, online lending offers something for everyone.

Installment Loans

An installment loan is what most people think of when they hear the word “loan.” With an installment loan, a borrower receives a specific lump sum amount of money, such as $10,000 or $25,000. The borrower then repays the loan, plus interest, in equal payments over a set period of time. Typically, this is once per month but payment schedules may vary by lender.

Installment loans are often used to fund larger purchases, such as a commercial vehicle or real estate. This allows a business to make its purchase without having to pay the total amount up front. Interest rates vary, with the lowest rates and best terms going to borrowers with the highest credit scores.

Small Business Administration (SBA) Loans

The Small Business Administration provides many useful resources to small business owners, and one of its most popular offerings is its affordable loans.

The SBA has set the guidelines for multiple lending programs that are offered through intermediary lenders, which could include banks, credit unions, or non-profit organizations. These guidelines keep interest rates low and terms favorable for borrowers, while the SBA’s guarantee on loan proceeds protects intermediary lenders.

Available programs include 7(a) loans for a wide variety of uses (from working capital to purchase of inventory), 504 loans for commercial real estate purchases and improvements, and Microloans of up to $50,000.

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

Some intermediary lenders provide online services for qualified borrowers. SBA loans are best for businesses with strong credit scores and who have time to devote to the lengthy loan process, which could take several weeks or longer.

Looking for an online loan facilitated through the SBA? SmartBiz has you covered.

Review

Visit Site

Streamlines SBA loan process for:

  • Debt refinancing
  • Working capital
  • Commercial real-estate

Highlights:

  • Suited for small and large businesses
  • Excellent terms and fees
  • No prepayment penalty

Business Lines of Credit

A business line of credit allows a business to make multiple draws up to and including a set credit limit. Interest is charged only on the portion of credit that has been used. A line of credit is very useful for businesses that need emergency funding or working capital.

Business lines of credit are available to borrowers with all types of credit scores, although lower scores may have higher interest rates, lower credit limits, and a need for collateral.

Many lenders offer business lines of credit online, and in most cases, applications are approved within days.

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

Short-Term Loans

A short-term loan is another popular online loan option. Short-term loans are similar to installment loans, but they are typically for much smaller amounts and will need to be paid back in a shorter period of time, which is typically one year or less.

Short-term loans often have much higher interest rates than other types of loans. Businesses with lower credit scores or revenues or a short time in business may turn to short-term loans when they are unable to qualify for other types of funding.

Merchant Cash Advances

A merchant cash advance is a type of loan that provides a lump sum amount to a borrower in exchange for a portion of the business’ future credit card sales. This can be done in two ways. The first way is by taking an agreed-upon percentage on a regularly scheduled basis. This is an option chosen by many businesses that may experience slow periods. When sales are down, the payment is lower. When business picks back up, the payment is higher.

The other way that businesses can pay back merchant cash advances is with a regularly scheduled payment that never changes. This could prove to be a burden for businesses that experience a slowdown in sales, as the payment remains unchanged.

With these loans, payments are made on a more frequent basis through ACH withdrawals. This payment schedule could be weekly or even daily. Merchant cash advances have very high rates and are one of the most expensive forms of credit. However, this may be an option to consider for businesses with very low credit scores or revenue, a lack of collateral, or that face other challenges when applying for other types of business loans.

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

Equipment Loans

Businesses that need to purchase new equipment may consider applying for an equipment loan. With this type of financing, businesses can purchase the equipment they need through affordable monthly payments instead of paying cash up front.

Equipment loans usually have fewer requirements than installment loans, including lower credit scores. No collateral is typically needed because the financed equipment acts as the collateral.

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

Businesses that have cash flow shortages due to unpaid invoices can receive invoice financing. With this type of funding, businesses receive money immediately for unpaid invoices without having to wait for customers to pay. The accounts receivables act as the collateral with invoice financing.

Invoice factoring is one type of invoice financing. A lender pays a percentage of the invoice as a lump sum to the borrower. The lender collects payment on the invoice, and once it is paid, the remaining amount is paid to the borrower, minus fees and interest charged by the lender.

With invoice discounting, as much as 95% of the invoice total is paid to the borrower. The borrower collects the invoice total from the customer. Once collected, payment is submitted to the lender to repay the loan and pay interest and fees.

Online Business Loan Pros & Cons

online loan companies

Online business loans may sound great to you so far, and they do have many benefits over other types of loans. However, they also come with their own set of drawbacks. Before diving into an online application, it’s important to understand these pros and cons to determine if an online loan is the financing route you want to take.

Pros

One of the biggest benefits of online loans is that the application process is fast. For some loans, approvals are instant and money can be in your bank account in just a few days. For businesses that need money immediately for an emergency, this is a much better option than waiting weeks for a conventional loan. Borrowers can go through the process on their own timetable without having to make a visit to a bank branch or other institution.

The online lending process is easy. With traditional loans, lots of paperwork has to be compiled and submitted with the application before the business even gets an approval. With online loans, documentation requirements are not as strict and all paperwork can be submitted quickly online.

There are also many different loan options available through online lenders. No matter the reason for needing the money, there’s an online lender that offers a business loan to fit that need, from equipment financing to installment loans and lines of credit.

Online loans provide options for almost any business owner, even ones that have trouble qualifying for conventional loans. Whether it’s a credit issue or cash flow challenges, business owners can overcome their financing hurdles with online loans.

Cons

While online loans offer many benefits over traditional options, they don’t come without their drawbacks. One of the main drawbacks is that these loans are often more expensive than other options like bank loans because of high APRs. However, borrowers with strong credit scores can find online loans with competitive interest rates.

Repayment terms may not be as long with online loans, resulting in higher monthly payments. There are some loans, however, that offer excellent repayment terms, such as SBA loans.

Online loans can also come with additional fees that banks and other traditional lenders may not charge. Some loans may have prepayment penalties, so it’s important to fully read through the loan contract and only work with online lenders that are transparent about their fees and terms.

How To Apply For Online Business Loans

While the application process varies by lender, there are a few main steps that a borrower must take when applying for an online business loan. The first step is to visit the lender’s website and begin the secure application process.

The applicant will be required to provide personal information including but not limited to:

  • Legal name and business name
  • Personal and business contact information
  • Business tax ID
  • Social Security number
  • Income/revenue information

Typically, the lender will require the applicant to submit documentation. Initial documents may include bank statements and financial statements. For larger loans, additional information and documentation may be required.

After submission, the application will go through the lender’s approval process. For certain types of loans, approval could be instant. With other loans, such as SBA loans, more time may be required. The lender may also require additional documentation or a phone call to verify information.

In order to obtain a loan, specific collateral (business or personal assets that are used to secure the loan) may be required. Other times, specific collateral is not required. However, a personal guarantee or blanket lien will typically be included within the contract. A personal guarantee will hold the borrower personally liable for the debt, meaning that the lender can take legal action or seize personal assets if the loan goes into default. A blanket lien gives the lender the legal claim to seize business assets in the event that the loan is not paid.

Once the loan has been approved, the next step will be based on the lender’s funding policies. Some online lenders provide funds within days or as soon as 24 hours. All applicants should fully read and understand a loan contract before signing. Once signed, online loans are deposited directly into the borrower’s bank account. At this time, the borrower may also be able to log into their account through the lender’s website to have access to the signed loan documents and features such as autopay.

How To Find Online Business Loans

Since online loans are found through the internet, a quick query on a search engine will yield thousands of results. However, wading through all of the different lenders can be overwhelming. Instead of sorting through the many lenders offering online loans, start your search with the most reputable lenders.

Begin by comparing lenders side-by-side to see which best fits your needs. Once you’ve found a lender (or a few) that have captured your interest, check out our in-depth reviews to learn more about rates, requirements, and navigating the application process.

A business loan should only be used to boost your business. You want to ensure your return on investment outweighs the full cost of the loan, including all fees and interest. It’s easy to fall for the idea of fast money, but you should take the time to do your research to find the most affordable loan option that meets your business needs.

Final Thoughts

Online business loans make it easier than ever to get the money you need for your business. While these loans are great for getting fast funding, it’s important that you take the time to understand the loan process and fully review any offers you’ve received. While it’s okay to take on extra debt to advance your business, taking on debt that you don’t need or can’t afford can hurt your business in the long run.

The post Applying For Business Loans Online: Everything You Need To Know 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?

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

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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Commercial Loans: Types, Rates, And Where To Find The Best

Have you seen the term “commercial loans” in an ad from a bank or alternative lender and wondered what, exactly, that meant? Or where you’d look for one? Or what the terms of a commercial loan might be?

We’re here to help!

What Are Commercial Loans?

A commercial loan is simply a financial agreement made between a financial institution or private lender and a business (as opposed to an individual) where the business takes on debt in exchange for capital. This money can then be used for business expenses, inventory, or operating costs. Though individual institutions may use the phrase a little differently, commercial loan is more or less a synonym for “business loan.”

Commercial loans aren’t specific types of loans but are rather a category of loans or loan-like products that lenders offer to businesses.

Who Offers Commercial Loans?

While they’re not the only game in town anymore, banks are still one of the best sources of lending available to businesses that fall within their territory. Lending standards are still fairly tight compared to those before the 2008 financial crisis, however, so bank loans may be out of reach for newer businesses or those with bad credit. Still, if you’re looking for the most competitive rates, you’ll probably find them at a bank.

Filling the niche missed by traditional lending institutions is the private, alternative lending market. These lenders tend to have easier qualifications and quicker applications. Additionally, most have more of a national focus, which is helpful if your business is located in an underserved area. The trade-off is usually, though not always, higher rates and stricter repayment regimens since these loans represent investment opportunities in the form of private capital rather than banking services.

What Types Of Commercial Loans Are Available?

This is where it gets interesting and more complex. If you’re entering the market just looking for a “loan” you may quickly be overwhelmed by the terminology, buzzwords, and marketing gimmicks. On top of that, individual lenders will brand their financial products, making it harder to make a 1:1 comparison between different company’s offerings.

The good news is, once you cut away all the gimmicks, there aren’t that many different types of products to wrap your head around.

Term/Installment Loans

Sometimes called medium or long-term loans, term loans what most people think of when they hear the word “loan.” In most cases, a business that successfully applies for a term loan will receive a lump sum of cash which can then be used for business expenses. In some cases, there may be restrictions on what the money can be used for. These loans will generally last between one and 10 years, accruing interest along the way. The longer the term, the more expensive the loan will be.

In most cases, you’ll make fixed, monthly payments to your lender. The loan is considered paid off when you’ve paid back the money you’ve borrowed plus interest.

Short-Term Loans

Isn’t a short-term loan just another type of term loan? You’d think so, but short-term loans are actually pretty different than their medium- and long-term cousins. Short-term loans don’t last that long,  as the name would suggest — usually less than a year — so they don’t have time to accumulate a lot of interest. Because of that, most short-term loans charge a flat fee rather than a true interest rate. This flat fee may be expressed as a percentage (18%) or as a multiplier (1.18). In either case, to figure out how much your flat fee is in dollars, simply multiply that number by the amount you’re borrowing.

Short-term loans are both faster and more expensive than other term loans, featuring expedited application processes. Unfortunately, your repayments are also sped up, with fixed payments made weekly or even daily. These payments are almost always automatically deducted from your bank account. As in the case of term loans, these payments are fixed (with some rare exceptions).

SBA Loans

The Small Business Administration (SBA) is a federal agency tasked with promoting and assisting American small businesses. The term SBA loan is a little bit misleading because the SBA doesn’t usually originate their own loans. Instead, they work through banks and privates lenders, guaranteeing a percentage of the borrower’s debt. This reduces the risk to the lender and allows businesses to qualify for rates and terms they may otherwise be unable to get.

The two most popular programs are the SBA 7(a) and the CDC/504. The 7(a) loan is the more popular of the two. It covers typical working capital expenses as well as site improvements and business acquisitions. 504 loans are oriented more around economic development.

The major drawback to SBA loans is that they have a longer and more complicated application process than similar term loans. While SBA Express loans speed up the process a bit, don’t expect to have the money in your account right away.

Equipment Loans

If you plan on buying equipment with your loan, you may want to consider an equipment loan. Equipment loans look a lot like term loans, but rather than being open-ended are specifically used to cover a percentage (85% is typical) of the cost of a specific piece of equipment.

Why would you want this?

Equipment loans use the equipment you’re purchasing as collateral, meaning you get the benefits (lower rates, longer terms) of a secured loan without putting up any of your own assets.

Lines Of Credit

Not sure how much money you’ll need in the coming year? Do you anticipate needing to make a large number of small purchases over a period of time? Do you just want to have something to fall back on in an emergency?

When you get a business line of credit, your company is approved up to a certain credit limit (a line of credit is very similar to a business credit card in that respect). Let’s say you’re approved for $100,000. You can draw upon that line of credit any number of times, in any amount you want, until you’ve accumulated $100,000 worth of debt. You only pay interest on the amount of credit you’ve used. This makes lines of credit far more versatile than other types of loans.

If the line of credit is revolving, any balance you pay off becomes available for use again. If it’s a non-revolving line of credit, it’s a one-shot deal. You can still withdraw in increments, but once the credit is used, it won’t become available again.

This convenience tends to come at a premium. Lines of credit usually have higher qualifications than loans, and many come with annual or even draw fees. They usually feature variable monthly payments, although some offer no-interest grace periods.

Alternative Financing

These products aren’t loans, commercial or otherwise, but you’re probably going to run into them if you’re looking for commercial loans. Here’s a quick rundown so you won’t be caught off-guard.

Merchant cash advances (MCAs) are an alternative way to get working capital. Rather than lending you money, the funder buys a percentage of your future credit/debit card sales. MCAs fill a similar niche to short-term loans. You’ll still get a lump sum, be charged a flat fee, and make daily payments. But rather than imposing fixed payments, your funder will claim a percentage of your daily card sales. Because MCAs aren’t loans, they aren’t governed by laws affecting loans. This allows them to be offered to riskier “borrowers,” and at a higher rate.

Capital leases are an alternative to equipment loans. Though the word “lease” suggests renting, they’re actually designed with ownership in mind. In exchange for a higher interest rate, you’ll get the full cost of the equipment covered. Like you would with a term loan, you’ll pay a capital lease off monthly. At the end of the lease, there will be a small remainder (as low as a $1) you’ll need to pay to close the transaction. This is called a “residual.”

Invoice factoring is a way to get an advance on your accounts receivable by selling them to a factoring company at a small loss. That company then collects on the invoice in your place. You’ll be paid the majority of the invoice’s value as a lump sum up front, with the remainder paid out to you — minus a fee — when (and if) the factoring company collects on the invoice.

Qualifying For A Commercial Loan

An easy way to narrow down your options is to eliminate any options for which you do not qualify. This will save you time and, potentially, money. Qualifications will vary from lender to lender, but these are the main things you’ll want to consider.

Credit Rating

There’s no way to completely get around it: your credit rating matters when you’re looking for financing. The question is “how much does it matter?”

For the more conservative lenders, your credit rating is a line in the sand. If you don’t meet their minimum standard, they simply won’t work with you. For traditional banks and SBA loans, that line is usually somewhere in the mid-to-high 600s.

With alternative lending, the guidelines aren’t so hard and fast. Some lenders impose minimums below which they absolutely will not go, but others don’t use credit scores for rule-out criteria.

That said, pretty much every lender, traditional or alternative, will use your credit history to determine what kind of rates you’re offered.

Time In Business

Lenders are going to want to know that your business is real and has staying power. A business that’s been afloat for five years inspires more confidence that one that is three months out from opening.

That said, not everyone is looking for the same thing. A traditional bank may want to see two to three years in business before they’re willing to take a risk on you. An online short-term lender may only be looking for six months — or even three months, in some cases.

Revenue

Any reasonable lender is going to want to know that you’re capable of paying them back. Even alternative lenders with loose credit prerequisites, especially those dealing in unsecured loans, will want to see your bank statements to get a sense of your cash flow. The more revenue you regularly take in, the more credit your prospective lender will be willing to extend you.

Location & Industry

This one’s out of your control, but the lender you’re looking at may not lend to businesses in your industry or even to your state. Banks tend to lend mainly through their physical branches and may require you to have a business checking account with them. Alternative lenders operate primarily online, but due to differences in lending regulations between states may not be able to lend to you, or may not be able to offer all their products.

Collateral

If you’re seeking a secured loan or line of credit, you’ll need to be able to put up collateral to secure your funding. What qualifies as collateral varies between lender and product, ranging from cash deposits to inventory, equipment, or real estate. Make sure you can put up the necessary collateral.

What To Look For In A Commercial Loan

Qualifying isn’t enough. It’s important that a lender meets your standards as well. So what should you look for?

Borrowing Limits

Most lenders have minimum and maximum amounts they’re willing to lend to businesses. You’ll want to be certain the lender is capable of giving you the lump sum you’re seeking. Of course, your revenue will have to be sufficient to cover your debt.

Banks are capable of offering larger amounts of money than most alternative lenders. One of the easier ways for a small business to qualify large amounts of money is through an SBA loan.

Term Lengths

How long do you need to pay your loan off? This can be a complex question; there’s no “right” answer. For any individual product, a shorter term length usually means lower interest rates than a longer one. However, paying off a loan quickly may stress your cash flow in the short-term. Having a good sense of your business’s ebb and flow before applying for any financing.

But don’t make the mistake of thinking short-term lending products come with lower interest rates or fees than long-term loans. In fact, those products tend to be among the most expensive in the industry. That said, the speed with which short-term lenders or merchant cash advance providers can get money into your hands may make them the best choice if you have time-sensitive expenses.

Rates

It goes without saying that you want to get the lowest rate you can whenever you borrow money.

APRs serve as one of the easiest ways to make direct comparisons between different products. Even though short-term loans use flat fees rather than interest rates, there are tools available to help you make the conversion.

Remember that lenders don’t always mean the same thing when they say “interest.” The percentage you see may be annual or monthly. In some cases, a flat fee may even be described as an interest rate.

Fees

Not to be confused with interest rates or flat fees, these are costs associated with the loan beyond interest rates. Not all lenders charge fees for every product, and some may have promotions that waive fees.

The most common fee you’re likely to encounter is the origination fee. Usually ranging between 1% – 4% of the amount of money you’re borrowing, this is not a fee you pay out of pocket. Instead, it is deducted from the lump sum you receive from the lender, so you’ll want to take it into account if you’re counting on every cent.

Additional fees may be charged for setting up accounts from which to withdraw automated payments, for late payments, or even just miscellaneous “administration fees.” Approach any lender who charges anything beyond an origination fee with caution and factor those costs into the amount of debt you’re taking on.

Commercial Lenders

Hopefully, we’ve answered some basic, nagging questions about what commercial loans are and how they work. With so many potential options, finding a lender can be an overwhelming prospect. Not sure where to look? We can help get you started.

Loan Type What It Is Typical Rates Learn More

Traditional Term Loans

Loans in which you borrow money in one lump sum and repay in fixed installments. Term loans can be used for most business loan purposes.

4% – 36% APR

Our top picks

Small Business Administration (SBA) Loans

Loans offered by the SBA in partnership with banks and other financers. SBA loans are backed by an SBA guarantee and originated by banks and other partners. 

6% – 12% APR

Our top pick

Commercial Real Estate Loans

Loans used to finance the purchase or commercial real estate.

4% – 36% APR

Our top pick

Business Lines of Credit

Credit lines used for business purposes. Borrowers can draw from their credit line at any time and only pay interest on the amount borrowed. 

8% – 65% APR

Our top picks

Short-Term Loans

Business financing with short term lengths, which normally have a one-time fixed fee instead of interest.

8% – 99% APR

Our top picks

Startup Loans

Loans used to finance the costs of starting a business.

4% – 36% APR

Our top picks

Equipment Loans

Loans used to purchase equipment. The purchased equipment is normally used as collateral to back the loan. 

5% – 24% APR

Our top picks

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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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