Small-Business Loans

A small-business loan is a way to stock shelves, purchase new equipment, or expand your business. Traditional banks, online lenders, and community lending institutions can all provide funding for business owners.

How to choose the right small-business loan?

Qualified business owners have several funding options, including bank loans, SBA loans and term loans. There are also business lines of credit, equipment financing, invoicing factoring, and business lines. To qualify for financing, you will need to have a minimum of one year of revenue and history. Startups that have been in business for less than one year may be eligible for other financing options.

Many factors will determine the best loan for your small company.

• Why funding is important.
• How quickly you can access capital.
• How much money do you require?
• Your business’s qualifications.
• The total cost of debt.

Below is some information about the most sought-after types of small business loans.

There are many types of small-business loans.

Lenders may vary in terms of loan terms and interest rates, but these are the general features you can expect to see with each type of small-business loan.

Bank loan

Various financing options are available to small businesses, including SBA loans, term loans, and credit lines. A strong personal credit score, a history of solid business finances, and a strong cash flow are necessary to qualify for a bank loan. Banks may require collateral in certain cases.

• Maximum loan amount: $10,000 to $1 Million
• The approximate APR range is 2.54% to 7.02%.
• Ideal for: Expanding your business, working capital.

SBA loan

The government-guaranteed SBA loan program works with banks to offer low-interest rates and long-term repayment. The process can be time-consuming and strict. You should only apply if you have good credit (690 or more, though some SBA lenders may require lower scores), strong business finances, and the ability to wait for funding.

• Maximum loan amount: $30,000 to $5 Million
• The approximate APR range is 5.5% to 8.5%
• Ideal for: Large, long-term, and one-time investments.

Lending to businesses

Online lenders can offer term loans up to $500,000. A short-term loan typically has a repayment term of three to 18 months. However, a longer-term loan can be repaid for as long as 10 years. You can also get financing for specific items such as inventory and equipment.

• Maximum loan amount: $500,000.
• The approximate APR range is 9% to 99.9%.
• Ideal for large, one-time investments.

Credit for businesses

A business credit gives you access to cash in flexible amounts. Lenders give you credit up to $100,000, but you don’t have to make any payments or charge interest until you tap into it.

• Credit limit: $6,000 to $250,000.
• The approximate APR range is between 10% and 99%.
• Ideal for: Cash flow management, financing short-term business requirements and handling unexpected expenses.

Invoice financing and invoice factoring

Invoice Factoring converts unpaid invoices of business owners into cash immediately. Factoring companies are paid when they collect from customers. Factoring is not an option if you want to retain control of your invoices. Invoice financing is another alternative. Invoice financing or factoring can take a relatively short time to fund.

• Finance amounts up to $5 Million
• The approximate APR range is between 10% and 79%.
• Best for: Managing cash flow, short-term financing.

Equipment financing

Equipment financing is an asset-based financing option where equipment serves as collateral. Depending on your eligibility and the lender, you can obtain an equipment loan of up to 100% of what you want to buy. You then repay the loan over time with interest.

Lenders may cover soft costs such as delivery, warranty, installation and assembly. While some lenders will finance the entire cost of your equipment, other lenders may only fund a portion of it — for example, 80% — and then dedicate the rest (20%) to your non-essential costs.

• Maximum loan amount: 100% of the equipment’s value plus other costs.
• The approximate APR range is 4% to 30%.
• This is the best place to buy machinery and equipment.

Other funding options

Personal loans for business and business credit cards are other options for financing your business. If your company is young and doesn’t qualify for traditional financing, a personal business loan may option. Personal-loan providers consider your credit score, income, and business history.

A business card provides revolving credit and is a good option for short-term costs. A business credit card is often easier than a small-business loan. Although credit limits are typically lower than a line, a business credit card may offer rewards such as cashback and travel points.

How can I get a loan for my business?

Each lender will have different underwriting guidelines. However, they all consider the same factors, such as your credit score and time in business. Lenders will also look at your ability to repay the debt and cash flow.

Depending on the lender, you may be required to provide financial documents such as bank statements or tax returns.

>> Learn more about how you can get a small-business loan

You will need to take additional steps to be eligible for a loan for small businesses.

Strong personal credit can help you get lower rates and more financing options. Building your credit score is a good option if you don’t require business financing immediately. You may be eligible for a small-business loan with bad credit if you have more urgent financing needs.

Many personal finance websites such as NerdWallet offer free credit score access. You can track your progress and get more financing opportunities for your business.