Business Loans September 2023

Small Business Term Loan

A small business term loan is a lump sum loan that you then pay back with a fixed interest rate over a set duration. For a short-term loan, you usually have between 3 to 18 months to repay, whereas the repayment for a long-term loan can stretch up to 10 years or even more in certain situations. Like some long-term personal loans, small business term loans follow an amortization process. That means your repayments will start going toward the loan’s interest. Once the interest is paid off, your payments will go toward the loan’s principal.

• Credit Score: 580+
• Amount Range: $5,000 to $1 million+
• APR Range: Varies with the lender
• Best For: Renovations, Business acquisitions, Estate purchases

SBA Loans

SBA loans are business loans that the U.S. Small Business Administration partially backs and are provided by affiliated lenders like banks and credit unions. These loans come with competitive interest rates and extended repayment durations, suitable for financing various business needs. Make sure you meet the SBA loan eligibility requirements before exploring SBA loan options.

• Amount Range: $30,000 of $5 million
• APR Range: 11.5% to 15%
• Best Used For: Large one-time investments, long-term investments, real estate or equipment.

Small Business Lines Of Credit

Small business lines of credit are a form of rotating business credit. You may borrow money from your line of credit, up to the specified limit you agreed to with your lender. When you draw funds, you will have to repay them. You may continue drawing funds as much as you choose to, as long as you don’t hit your credit limit.

• Credit Score: 580+
• Amount Range: $1,000 to $250,000
• APR Range: 10% to 80%
• Best Used For: Boosting supplies, increasing inventory

Working Capital Loans

Working capital refers to the capital used to pay for the day-to-day operating expenses a business incurs. Many small business loans are taken to pay for large, long-term asset purchases or investments. Working capital loans, on the contrary, are taken to pay for the regular day-to-day expenses your business incurs, including mortgage and rent payments, utility bills, payroll, and other debt repayments.

Because of the nature of this form of borrowing, working capital loans typically carry shorter terms. They are also usually lent out in smaller amounts. 

• Amount Range: Varies with the lender
• APR Range: 3% to 99%
• Best Used For: Managing cash flow gaps 

Invoice Financing

If you have sent out invoices that are now long overdue, invoice financing is a potential course of action. Invoice financing is a form of business financing that is meant to help businesses recoup part of the balance of unpaid invoices.

Invoice financing takes place when you borrow against your unpaid invoices. Upon approval, the lender will send you funds, which you pay for with a fee. That means you will not be paid for the entire balance of your outstanding invoices. Instead, the lender will give you part of the balance, which you will pay back after your customer pays their overdue invoices.

People find invoice financing as a relatively quick business financing option, but it is normally more costly than the other alternatives. The fee you pay the lender to take your invoice will depend on the usual factors, such as your business credit score.

• Amount Range: Maximum of $850,000
• APR Range: 10% to 84%
• Best Used For: Improving cash flow, paying employees and suppliers 

Invoice Factoring

Invoice factoring is similar to business financing, with the largest difference being who collects your business’s unpaid invoices. With invoice financing, as discussed above, the customer (your business) retains control (and responsibility) for collections.

With invoice factoring, the lender purchases your unpaid invoices from you at a discount. After they buy your invoice, they take responsibility for collection. Both of these options will see you receiving a portion of your overdue invoices’ balances. The portion will depend on the lender and your business’s borrowing qualifications.

• Amount Range: $50,000 to $3,000,000
• APR Range: 0.5% to 4% monthly
• Best Used For Short-term liquidity, improving working capital

Equipment Loans

Equipment loans are small business loans with the purchased equipment serving as collateral. Small businesses normally take these loans to pay for business equipment. This can vary according to business needs, but small business equipment loans are often taken to pay for business vehicles or machinery. 

For example, a small logistics firm may take a truck loan to purchase a new truck. The truck they purchase with the loan will serve as collateral until the logistics firm pays back the loan.

• Credit Score: 550 
• Amount Range: $5,000 to $5,000,000
• APR Range: 4% to 45% 
• Best Used For: Purchase of equipment and machinery 

Small Business Credit Cards

Business credit cards offer flexible credit lines. You can use and pay back the card as required, provided you meet the minimum monthly payments and stay within the credit cap. They're ideally suited for covering recurring costs like travel, office essentials, and utilities.

• Amount Range: Up to $50,000 
• APR Range: 20% to 30%
• Best Used For: Ongoing business expenses

Merchant Cash Advances

A merchant cash advance (MCA) is not a loan, strictly speaking. What they are is a lump sum payment to a merchant (business). The borrower will then pay back the sum through a portion of future credit and/or debit sales. In this way, they differ from traditional loans, where you have regular repayment terms.

MCAs are paid back automatically while you continue making card sales. Those repayments will cease once you’ve repaid your MCA.

• Amount Range: Up to $500,000
• APR Range: Up to 200%
• Best Used For: High and consistent credit card sales and can handle frequent repayments or that can't get financing anywhere else and can't wait for capital.

Microloans

Microloans are defined as small loans. By business standards, a microloan will typically range from $500 to $100,000.

Microloans have emerged among the larger trends of microfinance. Technology has enabled the business financing process to become more efficient, enabling lenders to process loan applications faster. This allows many lenders to efficiently and cost-effectively offer very small business loans.

• Credit Score: 620
• Amount Range: Up to $50,000
• APR Range: 7.75% to 11.75%
• Best Used For Working capital, inventory, supplies

There are many business loans available, and comparing the best small business loan may assist the borrower to find a lender that suits their needs. We encourage you to do thorough research before closing on your loan and beginning the repayment process.

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