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Whether it’s to help with cash flow, pay for new equipment, or fund some other business-related expenses, business loans are designed to provide financial assistance for businesses as needed. Similar to other loan types, such as personal loans, business loans involve creating debt and then repaying it with interest.
Luckily, finding the right financing for your business’s needs has never been easier. The scope for borrowing has extended far beyond traditional banks to include a wealth of online lenders— providing businesses with a wider range of business loan options and, in some cases, looser requirements and more flexible terms.
Let’s take a look at a few of the most popular business loan types, important requirements that will get you qualified, and some of our favorite online lenders that can help get you started.
“Business loan” is something of an umbrella term and encompasses a whole range of financing types, such as SBA loans, cash advance loans, lines of credit, invoice financing, and more to cater to a borrower’s specific needs.
Keep in mind that the below business loan amounts, terms, and requirements can all vary depending on the lender and your business’s financial profile.
A Small Business Administration (SBA) loan is a type of loan that is less of a risk to the lender since it’s partially guaranteed by the government, meaning better terms for the borrower. While the SBA used to only work primarily with traditional banks, they now work with a large network of approved lenders who will lend that money to small businesses.
Also known as merchant cash advance loans, this type of business loan is actually not quite a loan. How it works is a lending institution will give you a cash advance in exchange for a piece of your future sales.
As a result of this setup, it’s common to see lower payments when sales are low and higher payments when sales are high. Typically, the lender will determine a factor rate based on a few different risk factors (such as credit score and business performance). These will be the fees you pay on a cash advance loan.
A line of credit is another popular and flexible method for businesses to receive financing. It allows you the ability to borrow up to a certain limit and pay interest only on the money you actually borrow. It works very similarly to a credit card, which lets you draw money and repay it as you go with interest.
The difference between the two is that lines of credit often come with much higher credit limits and lower rates than credit cards. Additionally, credit cards are always unsecured whereas a line of credit can be secured or unsecured.
A business term loan is a lump sum a lender will provide you which will be paid back monthly and with a fixed interest rate. The “term” in business term loans refers to the repayment term length and typically ranges from one to five years.
This loan type works the same way a personal loan does, but it’s designed specifically for businesses in that it allows a borrower to limit their personal liability in the case of default or business hardship. It also helps a company build financial credibility.
With that said, business term loans are harder to qualify for than a traditional personal loan. They will sometimes require collateral, a minimum number of years in business, and minimum annual revenue.
Also known as business factoring loans, invoice financing is a means by which businesses can improve their cash flow by borrowing money against the amounts due by clients. Instead of having to wait idly by for money to come in from client invoices, businesses can be proactive, continue reinvesting in their operations, and move forward through invoice financing.
This form of short-term borrowing works most commonly through factoring. This is where a business will sell their unpaid invoices to a lender who will then pay them anywhere between 70% – 85% of the amount upfront. Once the lender receives the invoice money from a client, they will remit the difference to the business who will have to pay a fee or interest for the service.
LendingTree is an online lending marketplace that provides businesses with access to loan products from a wide range of leading providers. It aims to save time for businesses as they can quickly get an overview of the different options rather than having to go through each option one by one.
When it comes to business loans, LendingTree caters to everything from short-term loans to business lines of credit, equipment finance, and invoice factoring.
LendingTree has developed a good reputation over the years as it only works with reputable lenders. It allows businesses to quickly find a match for their specific needs without spending too much time doing so. There is a huge range of different loan types, and most businesses will be able to find something that fits their situation.
With loan amounts ranging from $5,000 to $750,000 and free, no-obligation quotes available on their website, you can find out how much capital you can get for your small business in just a few minutes, without risking a hard pull of your credit files.
Fora Financial has a reputation for helping small businesses get the capital they need by providing merchant cash advances and small business loans. Their willingness to consider factors other than credit scores sets them apart from traditional banks, as does their ability to fund loans in less than 72 hours.
Fundera offers a multitude of funding and lending options for businesses that need access to cash. Understanding which types of financing may fit your business can be confusing, so it’s a nice perk that Fundera matches business owners with a loan specialist to help you figure out which options may be best for your business. With a wide network of lending partners and 9+ options for financing and loans, this no-fee platform is a great option for business owners who want individual attention without having to hire an expert for advice.
If you’re new to shopping around for business loans, you should be aware that what it takes to qualify isn’t quite the same as other loan types, such as personal loans. Business loans often come with their own set of requirements, such as:
Business loans and all the different types can be tricky to navigate for new borrowers, but the variety of options available make it easier than ever for business owners to get what they need. Instead of staying tethered to the limited products available from traditional banks, venture out and see what kind of financing and rates you can get with online lenders.