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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.
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Explore Your Options: Types of Business Loans
“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.
SBA Loans
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.
- Amount: SBA loans are larger business loans that typically range from $5,000 up to $5 million.
- Terms: Since the government is backing up this loan type, businesses can secure lower APRs and longer repayment terms of up to 25 years.
- Qualifications: These loans are a bit harder to qualify for and often have a general minimum for businesses, such as 2+ years in business, a 640+ credit score, and at least $100,000+ in annual revenue. Again, these numbers vary depending on the lender and the loan amount desired.
- Good For: This type of loan is a great option for borrowers who don’t need super quick funding and are able to wait a bit longer than other loan types.
Cash Advance Loans
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.
- Amount: Cash advance loans typically range from $5,000 up to $250,000.
- Terms: The loan term for a cash advance is normally up to two years.
- Qualifications: This loan type is known for being less strict to qualify for than other loan types. Lenders may require a monthly credit card transaction minimum or financial statements to validate past sales.
- Good for: Businesses with high credit card sales and borrowers who need fast financing.
Business Line of Credit Loans
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.
- Amount: Can be as low as $1,000 or as high as $1 million.
- Terms: Terms will vary depending on the lender, but are often around 6 months to 5 years.
- Qualifications: Lines of credit loans are also a bit lenient on credit score, but they will typically require a business history of at least 6 months or even a year. Lenders will also look at annual revenue and may have a minimum of $50,000 or more.
- Good for: Borrowers who want flexibility.
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Business Term Loans
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.
- Amount: Up to $1 million
- Terms: 1 - 5 year loan term
- Qualifications: Requirements are stricter since term loans tend to be longer. Lenders will often require at least 1 year in business and an annual revenue minimum of $50,000.
- Good for: Borrowers looking for larger loans which they can repay over a longer period.
Invoice Factoring
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.
- Amount: Since invoice factoring is more similar to a cash advance than a traditional loan, the amount will vary greatly depending on the lender.
- Terms: Up to 24 weeks
- Qualifications: Requirements are typically looser for invoice factoring and many lenders will only require a minimum credit score of 530.
- Good for: Borrowers looking for steady cash flow for their business.
Learn About Our Recommended Business Loan Providers
Ondeck is an online lender that offers small business loans to businesses with annual revenue of at least $100,000. Loans are available in amounts up to $250,000 and have terms of 12, 24, or 36 months. Interest rates start at 29.90% APR.
Why Ondeck?
- Quick funding: Funds are deposited directly into your business bank account within 24 hours of approval.
- Flexible terms: Choose from 12, 24, or 36-month terms to fit your needs.
- Competitive rates: Ondeck offers competitive rates to businesses with good credit.
- Easy application: The application process is quick and easy.
National Funding is an online lender that offers small business loans to businesses of all sizes. Loans are available in amounts up to $400,000 and have terms of 12 to 60 months. Interest rates start at 1.10% APR.
Why National Funding?
- Quick funding: Funds are deposited directly into your business bank account within 1-3 business days of approval.
- Flexible terms: Choose from 12 to 60-month terms to fit your needs.
- Competitive rates: National Funding offers competitive rates to businesses of all credit scores.
- Easy application: The application process is quick and easy.
Fundera is a marketplace that connects small businesses with lenders. Fundera offers a variety of loan options, including term loans, lines of credit, and SBA loans.
Why Fundera?
- Multiple lenders: Fundera works with a variety of lenders, so you can compare rates and terms to find the best deal for your business.
- Easy application: The application process is quick and easy.
- Fast funding: Funds can be deposited into your bank account as soon as 24 hours after approval.
- Personalized service: Fundera has a team of experts who can help you find the right loan for your business and walk you through the application process.
Most Important Requirements for Business Loans
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:
- Credit Score: Lenders use your credit score to determine how risky you are as a borrower. They’ll often have a credit score minimum you must meet.
- Annual Revenue: How much revenue your business makes each year is a big indicator of its overall performance and how likely you are to pay back a loan. Many lenders will have an annual revenue minimum of around $50,000 - $150,000, depending on the loan type and amount.
- Time in Business: Lenders feel more comfortable lending to businesses that aren’t brand new, and may require a minimum of 1 or 2 years in business before lending you anything.
- Collateral: Some, but not all, business loans will require collateral, making the loan secured and less risky for the lender. This can be a valuable asset such as inventory, equipment, or real estate.
Conclusion
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.
*The required FICO score may be higher based on your relationship with American Express, credit history, and other factors.
**All businesses are unique and are subject to approval and review.
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