Small-business loans are normally issued only for businesses that have a history and revenue of more than a year. Among the financing options for entrepreneurs who qualify are term loans, U.S. Small Business Administration loans, invoice factoring and business lines of credit. Startups that have operated for less than a year can consider several other financing options.
Types of Loans for Established Small Businesses
The banks usually work very closely with the government-guaranteed SBA loan program to ensure that business owners get long-term repayment periods and considerably low-interest rates. But the process consumes a lot of time, and the requirements are strict. Only those with good personal credit (690 and above, even though some SBA lenders may have significantly lower score requirements), the flexibility to wait for funding and very strong business finances should apply.
- Loan amounts: $30,000 to $5 million
- APR range: 6.5% to 9%
- Good for large one-time and longer-term investments, purchasing equipment or real estate, refinancing debt and buying existing businesses.
BUSINESS TERM LOAN
Online lenders normally offer term loans of sometimes up to $500,000. For a short-term loan, they always set the repayment period of between six to 12 months, whilst a long-term loan repayment period can easily extend up to about 10 years or even longer in some cases. Business owners can also find financing that can be used for specific items, like equipment or inventory.
- Loan amounts: Up to $500,000
- APR range: 6% to 99%
- Good for large one-time investments
BUSINESS LINE OF CREDIT
A business line of credit basically offers access to flexible cash. Lenders will normally give you access to a specific amount of credit (say, $100,000), but you don’t really make payments or even get charged interest until you are able to tap into the funds.
- Credit line range: $2,000 to $500,000
- APR range: 8% to 99%
- Perfect for managing cash flow, financing short-term business needs and handling expenses that arise unexpectedly.
Invoice factoring converts business owners’ unpaid invoices into cash immediately. You sell the invoices to a factoring company, which is paid when it collects from your customers. If you choose to maintain solid control over your invoices, then you can be sure that invoice financing is a good alternative to factoring.
- Financing amounts: $500 – $500,000
- APR range: 16% – 77%
- Short-term financing and perfect for steady management of cash flow
Additional Funding Options
Apart from traditional loans or lines of credit, the other business financing options include personal loans for business or business credit cards. A personal loan for your business is actually a good option only if your business is still young and growing and you don’t qualify for traditional financing. Providers of Personal loans are keen to look at your personal credit score and income instead of your business history.
A business credit card provides the business owner with revolving credit, making it a perfect option for short-term expenses. It can also be easier to qualify for a business credit card rather than a small-business loan. Whilst credit limits are likely to be smaller than a line of credit, a business credit card may offer the holder rewards, such as travel points and cash back.
How Do I Get a Business Loan?
Every single lender out there has different underwriting guidelines, but most of them generally consider the same factors, which basically include personal credit score, annual revenue and your time in business. Lenders are also very keen to know your cash flow and ability to repay the loan.
Depending on the lender, you’ll be asked to share financial documents like tax returns, and bank and cash-flow statements.
Additional Steps to Qualify for a Small-Business Loan
Having strong personal credit can help you qualify for lower rates and give you more financing options. If you don’t urgently require business financing, then we recommend that you focus on building your credit score.
If you don’t know your credit score or maybe you want to consistently monitor it, then several personal finance websites, including MoneyLend offer free credit score access. Ensure that you always track your progress to constantly open more doors for financing your business.