Small business loans can be an invaluable resource for owners who require extra capital to cover operating expenses, make purchases or seize growth opportunities. The best small business loans offer competitive interest rates, speedy funding and a range of flexible terms.
To be eligible for a business loan, you’ll need good personal credit, stable financials and at least one year of experience. Some lenders also require collateral.
Term loans are a popular financing choice for small businesses that need large sums of money to purchase equipment, expand or develop their business. With low interest rates and fixed payments over an agreed-upon period, Term loans may not be suitable for everyone; however, their advantages cannot be overlooked by all entrepreneurs.
When searching for a small business loan or larger commercial line of credit, comparing your available options is an essential step in your business finance journey. Which term loan works best for you depends on several factors including your financial history and current needs.
The traditional bank loan is the most common type of term loan, which can be used to finance business purchases, expansions or startups. These loans can be obtained through banks, credit unions and other lending institutions.
Qualification requirements for these loans differ by lender, but many require a minimum credit score and proof of income. Other criteria such as business ownership or duration in operation may also be necessary.
Similar to other small business loans, term loans are typically paid back in monthly or weekly installments. This makes them more manageable for managing repayments and protecting your company from falling behind on its debt obligations.
Term loans for small businesses generally range in term from 3-18 months, though longer-term options may extend up to five or more years. Although these longer-term loans are ideal for business renovations and real estate purchases, they may be harder to qualify for than shorter-term options.
Term loans can be repaid early to save on interest, but some lenders charge borrowers a prepayment penalty. This fee usually amounts to a percentage of the remaining balance and serves to offset any lost interest that the lender expects during the course of the loan; thus, borrowers should carefully weigh their options before making an early payment.
Lines of Credit
A business line of credit (LOC) is a popular way for businesses to finance short-term working capital needs. These funds can be used for covering operational costs like payroll and supplies, or increasing inventory levels. Many firms also utilize an LOC as seed money for growth initiatives that require extra funding.
Similar to a credit card, a line of credit allows your business to borrow money as needed and make repayments based on the amount withdrawn. However, unlike credit cards, interest charges aren’t applied to the entire balance of the credit line.
Online lenders, for example, often have simplified applications and can issue small-business lines of credit within days. While they may charge lower fees than banks do, be aware that these lenders usually charge higher interest rates and have lower credit limits.
Another viable option for small business owners is an unsecured line of credit, which does not need collateral. This option works best with new businesses or those with less established credit histories since there are fewer qualifying criteria such as having a strong credit profile and good business track record needed.
If your small business is facing slow revenue or COVID-19 expenses, a business line of credit can provide crucial access to cash when needed most. This type of financing is especially helpful for cyclical businesses that depend on regular inflows of working capital in order to stay afloat.
When determining if your business requires a line of credit, take the time to review your finances and assess which types of financing you qualify for. Some lenders have minimum revenue requirements, so having documents such as a business plan or other proof that your company is financially sound may be required.
Furthermore, many lenders require you to post assets or other collateral as security for the line of credit. This could include real estate, accounts receivable, or equipment. Doing so gives you a better chance at receiving a lower interest rate and higher credit limit than with an unsecured line of credit.
Asset-based lending, also known as asset-backed loans, are an ideal solution for small businesses to meet their short-term financing requirements. These loans are secured by business assets and typically more flexible than traditional bank financing options – which can be a major advantage to those businesses in need of fast access to working capital quickly.
Asset-based credit facilities are revolving lines of credit backed by a percentage of an organization’s accounts receivable, inventory or equipment. They provide temporary financing solutions to help smooth seasonal cash flow fluctuations, pursue growth opportunities or fund acquisitions or dividend distributions.
These lines of credit, which are secured against a company’s assets, typically offer lower interest rates than other forms of financing. However, they require more management and may require field exams or appraisals of the collateral pledged as security.
Small and mid-sized companies with secure business operations and substantial physical assets are ideal candidates for asset-based lending. Additionally, these borrowers can save the costs and delays of issuing additional shares or bonds on the capital markets for their short-term working capital needs.
Asset-based lenders provide businesses with working capital as well as a range of other products and services. These may include revolving lines of credit, merchant cash advances, equipment financing and more.
When looking for a lender for an asset-based loan, look for one that specializes in this type of financing. They will understand your business’ specific requirements and can offer financing solutions tailored to fit those needs.
Another crucial element to consider when applying for a loan is the terms. Some lenders may offer more favorable conditions than others, such as lower interest rates and flexible repayment schedules; however, this could mean longer loan repayment periods.
Additionally, selecting an asset-based lender that can meet your individual needs and offer you superior service is critical. Whether you require a line of credit or term loan, an asset-based lender will have the capacity to customize their solutions according to your specifications.
Merchant Cash Advances
Merchant cash advances (MCAs) are an ideal solution for small businesses that need to make immediate investments in their business, such as expanding, hiring new employees or improving operations. With fast funding and flexible payment terms, a merchant cash advance can give your business the boost it needs to grow and set itself apart from competitors.
However, they can be expensive and lack the same protections as other forms of financing. Furthermore, since they aren’t federally regulated, there is no law that safeguards you against unfair lending practices.
To apply for a merchant cash advance, your business must accept credit cards from customers. The lender will review your credit card processing and monthly sales figures to determine how much money they’ll loan you.
Your total repayment amount will depend on the volume of credit card sales your business makes, and the lender sets a factor rate for repayment. Payback is calculated by multiplying the advance by this factor rate in order to arrive at an amount that needs to be repaid in full.
Many lenders require businesses to have been established for at least six months and be processing a certain amount of credit and debit card sales each month. They’ll also evaluate your credit score as well as the length of time in business in order to assess the risk associated with repaying an advance.
Once approved for a merchant cash advance, funds can be in your account within days. Repayment terms typically last less than one year and most lenders allow daily or weekly payments.
For your business to qualify for a merchant cash advance, it must have been in operation for six months and processing at least $10,000 worth of credit card sales each month. Additionally, your business must possess an authorized credit card terminal which processes credit card transactions.
A merchant cash advance is a type of small business loan that combines the advantages of both personal loans and traditional loans. You have the flexibility to repay it however best suits your business; repayment methods vary depending on which lender you select; generally speaking, lenders withhold some percentage of credit card revenue each day or week which must then be repaid as part of monthly income.