Small Business Loans
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Financing Options For Your Business's Needs
Compare Your Business Loan Options
Whether you're looking to expand, upgrade equipment, or bridge seasonal cash flow gaps, you need enough capital to run your business. Small business loans offer you the financial resources needed to grow your business. You can apply for financing from banks and alternative lenders, but both follow different eligibility criteria.
If you're a small business owner looking for more information on the different small business loans, you're in the right place. We've compiled everything you need to know about your small business loan options.
Compare Business Financing Options
|Type of Small Business Loan||Maximum Loan Amount||Term||Interest Rates||Speed|
|Business Line of Credit||$10,000 -$5,000,000||Revolving||Starting at 7.99%||24 - 48 Hours|
|SBA Loan||$100,000 – $10,000,000||10 – 25 years||Starting at 6.25%||as little as 30 days|
|Equipment Financing||$25,000 - $5,000,000||up to 10 years||Starting at 5.99%||24 - 48 hours|
|Asset Based Loans||$250,000 - $10,000,000||Revolving||Starting at 5.25%||10 to 14 days|
|Bridge Loan||$25,000 – $5,000,000||6 to 36 Months||Starting at 12%||24 - 48 Hours|
|Inventory Financing||$25,000 – $10,000,000+||Revolving||Starting at 7.25%||24 – 48 Hours|
|Invoice Financing||$25,000 - $10,000,000+||6 – 24 Months||Starting at 12%||As little as 24 hours|
|Purchase Order Financing||$25,000 – $10,000,000+||Revolving||Starting at 15%||24 – 48 Hours|
|Business Term Loans||$25,000 – $5,000,000||2 – 25 years||Starting at 6.99%||5 to 7 days|
Business Term Loans
Best for: Addressing short-term needs or investing in long-term business opportunities
Term loans are a straightforward business financing option. Small business owners receive a lump sum upfront, which they can pay back in fixed weekly or monthly installments over an agreed-upon timeframe or term.
These business loans have loan terms ranging from a few months (short-term loans) to ten years (long-term loans). Depending on your business' credentials (i.e., credit score, revenue, and time in business), you can qualify for anywhere between $25,000 to $5 million. Most lenders will require collateral to secure the loan.
Once approved, you can use business term loans to fund business initiatives like bridging cash flow gaps, equipment purchases, inventory reordering, expansion, renovations, business acquisitions, and more.
Business Term Loan Pros
- Companies can qualify for high loan amounts
- Low repayments
- Affordable rates
- Offers spending flexibility
Business Term Loan Cons
- Collateral and personal guarantee may be required
- Potential prepayment penalties
- Businesses with poor credit scores may not qualify
How to Qualify for Business Term Loans
To apply for business term loans, you need to meet the following eligibility criteria:
- A business credit score of 680 or higher
- Annual revenue of at least $500,000
- At least 6 months of business history
Ready to apply for Business Term Loan?
Business Lines of Credit
Best for: Maintaining cash flow during the slow season; addressing unforeseen business expenses.
Business lines of credit are one of the best small business loans if you’re looking for flexibility. It allows businesses to withdraw a certain amount of cash and pay it back with interest. Eligible businesses are given access to a credit line with a predetermined credit limit. You can access the pool of funds and draw any amount as long as you don't go over the set credit limit in the loan agreement. You only have to pay the money you've drawn, plus interest – not the entire credit limit.
With business lines of credit, you can qualify anywhere between $10,000 to $5 million. It's a revolving credit line, meaning you can repeatedly access the money as long as it stays open.
A line of credit is a popular small business loan primarily because it provides flexibility in their loan terms that no other option offers. You can use it to fund emergency expenses or when you need additional capital to invest in time-sensitive business opportunities.
Business Line of Credit Pros
- Use the credit line as needed
- Interest rates won’t be charged if you don’t use the funds
- Revolving credit
Business Line of Credit Cons
- You maYou may have to pay an account maintenance fee
- Requires a personal guarantee
- A UCC-lien may be required
How to Qualify for a Business Line of Credit
To qualify for a business line of credit, your business must:
- Be at least two years
- Have a business credit score of 600 or higher
- Generate at least $100,000 in revenue
Ready to apply for Business Lines of Credit
Best for: Business acquisitions; refinancing existing debts; commercial real estate and equipment purchase
SBA loans are small business funding options originated by an SBA-approved lender like banks and other alternative lenders but guaranteed by the Small Business Administration (SBA) to support small business owners. If you (the borrower) default on the loan, the SBA will pay the agreed-upon portion to the lender. These loans offer high amounts, affordable rates, and long repayment periods, so they're one of the most highly coveted financing options in the market.
SBA Loans also offer exceptional loan terms. For instance, funding amounts range from $100,000 to $10,000,000, and generally, the government can guarantee up to 85% of the loan amount.
Although loans offered by the SBA may seem like the perfect fit for your capital needs, they're notoriously difficult to qualify for. That is why many small business owners only apply when they can show a stellar credit and financial history.
SBA Loans Pros
- Low-interest rates
- High loan amounts
- Flexible payment terms
- Low monthly repayments
SBA Loans Cons
- Lengthy application and approval process
- Businesses must have excellent financial and credit background to qualify
How to Qualify for SBA Loans
To apply for an SBA Loan Program, you typically have to meet two sets of eligibility criteria – one from the Small Business Administration (SBA) itself and the other from the lenders.
SBA’s Eligibility Requirements
- The business must be located within the United States or its territories
- The business must operate for profit
- Business owners must have enough equity invested in the business
- The company must meet the SBA's definition of small business according to the SBA Size Standard Tool
- The business owner must not have a criminal record to qualify for the small business loan
- Must not qualify for a loan elsewhere
Lender’s Eligibility Requirements
- A business credit score of 650 or better
- At least 3 years of business history
- Businesses must be able to pledge collateral and/or down payment
- Annual revenue must be at least $500,000
Ready to apply for SBA Loan?
Best for: Financing expensive equipment
Equipment financing is a type of business loan designed specifically for the purpose of buying equipment. It could be vehicles, machines, heavy equipment, or any equipment specific to your industry. Instead of digging through your personal finances or business cash reserves and paying for the equipment upfront, equipment loans let you spread out the payments to maintain a positive cash flow.
Equipment loans are also self-securing small business loans, meaning the equipment itself will act as collateral for the loan. With that, bad credit doesn’t automatically disqualify you from applying for the small business loan.
Lenders can fund up to 100% of the equipment's total value. The repayment terms are usually equivalent to the estimated lifespan of the equipment.
Equipment Financing Pros
- No additional collateral required
- Maintains a positive business cash flow
- Easier to qualify for compared to other loans
- Quick application and approval process
Equipment Financing Cons
- Equipment purchased may quickly become obsolete
- Lenders may require a down payment
- Funds are specifically for equipment purchase
How to Qualify for Equipment Financing
If you’re planning to apply for equipment financing, here’s what you need to qualify:
- A credit score of at least 600
- At least one year of business history
Best for: Companies growing rapidly and need to keep up with the capital requirement; businesses with highly liquid assets on their balance sheets
Commonly referred to as asset-based loans (ABL), asset-based business funding is a form of small business loan that relies on your business' assets rather than just cash flow statements and credit. Unlike conventional small business loans, ABL considers the collateral you'll pledge before cash flow. With asset-based loans, small business owners can use their real estate possessions, inventory, accounts receivables, machinery, or other forms of collateral.
Asset-Based Lending is easier to qualify for. The collateral mitigates the risk for the lenders, allowing them to can offer up to 75% to 85% of the asset's value in funding. However, if inventory is used as collateral, the lenders may fund only up to 50% of the inventory's value.
Eligible small businesses can use the business funding for any business purposes, including working capital, payroll, expansion, renovations, inventory, etc. The repayment could be as short as 60 days to 6 years, depending on the collateral used.
Asset-based Lending Pros
- Easier to qualify for
- No personal guarantee required
- Excellent option for cash flow and working capital needs
- Offers spending flexibility
Asset-based Lending Cons
- Assets (i.e., equipment) could become obsolete and lose value
- Risk of losing a precious asset if the company cannot pay the loan balance
How to Qualify for Asset-Based Lending
To qualify for asset-based loans, you typically need some sort of highly liquid asset that the lenders can tie up the small business loan to. It could be any piece of equipment, real estate, inventory, etc.
Ready to apply for Asset-based Loan?
Best for: Companies looking to cover capital needs until a more permanent financing option temporarily comes to fruition.
Many small business owners find themselves in a position where they need capital fast, and traditional loan options are not quick enough to be the solution. Bridge loans are temporary business financing options that provide additional capital injection while waiting to get approved for a more comprehensive business financing. It provides immediate cash flow to small businesses, which can then be used to address time-sensitive financial obligations.
There are countless scenarios and reasons for a company to use bridge financing. It includes waiting for clients or customers to fill existing invoices or purchasing new equipment. Bridge loans can fund anywhere from $25,000 to $5 million, with rates ranging from 12% to 29.99%.
Bridge Loan Pros
- Addresses short-term capital needs
- Limited documentation required
- Flexible repayment terms
- Quick application and approval process
Bridge Loan Cons
- Rates are higher than other business loan options
- Borrowed amount has to be repaid in less than a year
How to Qualify for a Bridge Loan
To qualify for a bridge loan, you’ll need:
- A credit score of 650 or higher
- Low debt-to-income ratio; preferably less than 36%
Best for: Companies that carry a high volume of inventory
Inventory financing allow a small business owner to leverage existing inventory to secure additional working capital. Lenders can fund up to 65% of the inventory's total value funding, and repayments can be as long as 36 months (but some lenders might limit it to 12 months).
Inventory financing is commonly used by companies with large quantities of inventory, like wholesalers, retailers, construction, and more. You can use the funds for almost any business purpose, including expanding product lines, securing additional capital to keep up with customer demand, or reordering more inventory to prepare for the busy season.
Inventory Financing Pros
- Fast underwriting process
- Frees up cash tied up on inventory
- No additional collateral needed aside from inventory
- It can be structured as a business line of credit
Inventory Financing Cons
- Repayments typically have to be made in less than a year
- Not suitable for service-based companies
- Interest rates can be high
- Low funding amounts
How to Qualify for Inventory Financing
To qualify for inventory financing, you’ll have to meet the following requirements:
- Your business must be product-based
- The inventory used as collateral must not be perishables
- At least two years of business history
Ready to apply for an Inventory Financing?
Best for: Companies offering net term payments to customers; businesses with slow-paying customers
Invoice financing, also known as accounts receivable financing, allows businesses to use unpaid invoices as collateral for upfront cash. Lenders typically give you 85% to 97% of the total invoice value upon approval. Once your customers settle their dues, you'll receive the remaining 3% to 15% (minus a small transaction fee).
The main benefit of invoice financing is that it frees up the cash tied to your outstanding invoices. With more capital available, you can cover day-to-day expenses, take in more customers and invest in growth opportunities.
Invoice Financing Pros
- Free up cash tied to the customers’ unpaid invoices
- Easier to qualify for
- No collateral needed, except for unpaid customer invoices
Invoice Financing Cons
- Fees are typically more expensive than other financing options
- Interest and other fees can accrue for every week the invoices remain unpaid
How to Qualify for Invoice Financing
Qualifying for invoice financing is relatively easier. The lenders will mainly look at your customers' credit standing and the invoices' net terms. The more reputable your customers are, the higher your chances are of qualifying.
Purchase Order Financing
Best for: Companies that are rapidly growing and need capital to keep up with large customer orders
Purchase order financing, also known as PO financing, is a funding solution for businesses that lack the working capital to fulfill purchase orders. PO financing companies provide business owners with the money needed to pay suppliers and vendors.
Most of the time, lenders can fund up to 100% of the purchase order's value. Upon loan approval, the lender will transfer the money directly to the supplier, who then fulfills the order and ships them directly to the customer once completed.
Purchase Order Financing Pros
- Startups can qualify
- Improved customer relationship
- Provides money needed to fulfill large customer orders
- Purchase orders serve as security; no additional collateral is necessary
Purchase Order Financing Cons
- Higher rates and fees than conventional loans
- Not suitable for service-based companies
- Not suitable for service-based companies
How to Qualify for Purchase Order Financing
Businesses may still qualify for purchase order financing even if they have less stellar business credit scores. Financing institutions are more concerned with their customers' creditworthiness since the repayments is dependent on their ability to repay.
However, your business must meet the following requirements to be considered for purchase order financing:
- Sell finished, assembled products
- Accept purchase orders in large amounts
- Sell to other companies or government customers
- Have reputable suppliers that offer high-quality products
- Profit margins should reach at least 30%
- Customers must have a good credit background
Ready to apply for Purchase Order Financing?
Where to Get Small Business Loans
Businesses have two main sources of additional capital: traditional banks and alternative lenders.
Banks offer the best rates and most flexible terms. However, companies must overcome one caveat: they must meet the potentially strict qualification requirements. You'll have to submit a laundry list of documents, including business legal documents, financial statements, profit and loss statements, and more. Plus, you may have to wait a few weeks to months to get a decision.
On the other end of the spectrum are the alternative lenders. Unlike banks, online lenders are more lenient on their requirements. They often work with businesses with less stellar scores and financial track records. However, to mitigate the risk, they may charge higher fees and offer lower funding amounts to businesses.
That being said, there are a few considerations to choosing the lender that's best for you. If you think you can meet the bank's eligibility criteria, then, by all means, go with banks. On the other hand, if you're still in the early stages of business or you’re working on improving your credit score, alternative lenders might be a more viable choice.
As more and more alternative lenders enter the financing landscape, the interest rates and fees they offer have also become more competitive. To help you find the best terms and rates for your business, it's best to work with a reputable financial advisor.
How to Qualify for Small Business Loans
Every lender has different eligibility criteria for their business loans. However, they generally consider similar factors, such as your credit score, revenue, and time in business. They may also consider the value of the collateral, if applicable.
A strong personal and business credit can improve your chances of getting approved for loans with excellent terms. If your business is new, consider building your credit and financial background.
However, if you're planning to apply for a loan and don't have the credentials for traditional loans, alternative lenders may still be willing to work with borrowers with poor credit.
Small Business Loan Application Requirements
At SMB Compass, we make sure that our clients experience a smooth business loan application process. We don’t require a long list of documentation. To apply for small business financing, you only have to meet the following requirements:
- One-page loan application form
- 3 to 6 months’ worth of bank statements
- At least one year of business history (2 years for some loan options)
Whether you’re looking for a working capital loan or more comprehensive loans like SBA loans, we’re here to help.
Tips For Comparing Business Loans
Like other business decisions, applying for a small business loan is a big commitment. As such, you’ll want to choose the best business loan option for your company. To make sure you make the right decision, we’ll outline some helpful tips and strategies when choosing the right financing option.
To save time and effort when applying for loans, you can prequalify for small business loans. Many financial institutions offer online prequalification processes wherein you enter pertinent information like the desired amount, year(s) in business, revenue, and others. Once you submit the application, the system will evaluate your qualification, then give you an estimated loan amount and rates which you’ll possibly qualify for.
Prequalifications entail a soft credit inquiry. In other words, it won’t take a hit on your credit score.
2. Determine how you want to structure the loan
You can structure your loan in two ways: lump sum or lines of credit. Lump sums are more suitable if you need upfront cash to invest in one-time business initiatives like equipment purchases, business acquisitions, etc. Examples of business loans that offer lump sums are term loans, bridge loans, and equipment loans. An invoice financing can also be given as a lump sum.
Lines of credit are a more viable choice for ongoing expenses, renovations, construction, and day-to-day expenses. It can also be used for emergency or unforeseen expenses like equipment repair or replacements.
3. Consider the fees for their loan products
Every lender is different. They may charge additional fees to their loan products, like origination, processing, prepayment, and termination fees. Be sure to check this with the lenders before moving forward with your business loan application process.
Some companies may also forego the loan application fees, which can significantly lower your loan’s overall costs. Even if they typically charge these loans to regular borrowers, they may agree to waive the fees if you have collateral, stellar credit history, or have an existing relationship with the lender. The best way to know how to waive the fees is to ask the lenders directly.
4. Check their Customer Support
Customer support should always be one of your priorities when employing the services of a specific company. A small business loan is a big decision for the company, and therefore, you should be able to make sure that you can contact them anytime through different channels if you have questions or issues with your account.
Financing companies should be available for inquiries through email, phone, or chat. Check the company website which channels they usually use. You can also ask your friends or network what companies they can recommend and how good their customer support is. With that, you’ll have an idea of which companies offer the best and worst customer service, and make a more informed decision when it’s time.
5. Find out what business loan options are offered
It’s always a good thing to work with a lending company that offers a variety of small business loans. That way, when you need to cover a specific project or business initiative, you’ll be able to take out a loan that is aligned with your goal. For example, if your main goal is to add working capital, you can apply for working capital loans.
If you have bad credit, it’s also worth considering if the company offers small business financing to companies with less than stellar credit scores. Some may offer merchant cash advances, working capital loans, business credit cards, unsecured business loans, or personal loans that make it easier for startups to qualify.
If a company offers multiple loan options, chances are, you’ll be able to choose the best small business loans based on your current situation.
Small business loans give small businesses the capital to invest in growth opportunities and cover day-to-day expenses. Once approved, the lenders provide a lump sum of cash or set up a credit line from which small business owners can draw money. The small business owners then pay interest, which is expressed as a percentage of the principal loan amount, every week or month, depending on the agreed-upon repayment schedule.
The business loan proceeds can be used for a variety of purposes. This includes:
- Working capital
- Equipment purchase
- Business acquisition
- Real estate purchase
- Emergency cushion
Generally, small business loans are not hard to get, especially if small businesses have a stellar credit background. However, if you have a less than stellar credit score, poor revenue, and your business isn’t at least a year old, the small business loan application might be more challenging.
Fortunately, several companies now offer alternative financing solutions to small businesses. Unlike traditional lenders, alternative lenders have an easier small business loan application process and an approval time of at least 24 hours. Many of them offer bad credit business loans to businesses with poor credit scores and shorter business histories.
A small business loan is a smart option for several reasons. For one, it helps build your credit score (as long as you pay on time), which will eventually qualify you for more comprehensive loans in the future.
Aside from that, here are the top advantages of a small business loan:
- Give you the capital to invest in growth opportunities like expansion, business acquisition, renovations, partnerships, etc.
- Act as a cash cushion during the slow season or emergencies
- You won’t have to worry about falling short in cash and compromising your day-to-day business operations.
- You can refinance high-interest rate loans
Small business loan applications at SMB Compass are a straightforward process. All you have to do is to fill out our online application form and provide details like the loan amount, name of your small business, city, and zip code.
Once we receive your application, we’ll get back to you with a list of small business loan options. We’ll also ask for more information, so we can evaluate, and we can narrow down the best small business financing options for your company.