Small business loans can be critical to your success as a business owner. Traditional banks are no longer your only option. From SBA loans to business lines of credit to invoice-based financing, you now have access to many options through online lenders.
Small-business loans are typically issued only for businesses with a year or more of history and revenue. Among the financing options for entrepreneurs who qualify are U.S. Small Business Administration loans, term loans, business lines of credit and invoice factoring. Startups operating for less than a year can consider other financing options.
Types of loans for established small businesses
The government-guaranteed SBA loan program works with banks to offer low interest rates and long-term repayment. But the process is time-consuming, and the requirements are strict. Only those with good personal credit (690 or higher, although some SBA lenders may have lower score requirements), strong business finances and the flexibility to wait for funding should apply.
- Loan amounts: $30,000 to $5 million
- APR range: 6.5% to 9%
- Good for large one-time and longer-term investments, purchasing real estate or equipment, buying existing businesses and refinancing debt
BUSINESS TERM LOAN
Online lenders offer term loans of up to $500,000. For a short-term loan, the repayment period typically ranges from six to 12 months, while a long-term loan repayment can extend up to 10 years or longer in some cases. Business owners can also find financing that can be used for specific items, like equipment or inventory.
- Loan amounts: Up to $500,000
- APR range: 6% to 99%
- Good for large one-time investments
BUSINESS LINE OF CREDIT
A business line of credit provides access to flexible cash. Lenders give you access to a specific amount of credit (say, $100,000), but you don’t make payments or get charged interest until you tap into the funds.
- Credit line range: $2,000 to $500,000
- APR range: 8% to 99%
- Good for managing cash flow, handling unexpected expenses and financing short-term business needs
Invoice factoring turns business owners’ unpaid invoices into immediate cash. You sell the invoices to a factoring company, which is paid when it collects from your customers. If you prefer to maintain control over your invoices, invoice financing is an alternative to factoring.
- Financing amounts: $500 to $500,000
- APR range: 16% to 77%
- Good for managing cash flow, short-term financing
Additional funding options
Business financing options other than traditional loans or lines of credit include personal loans for business or business credit cards. A personal loan for business is a good option if your business is still young and you don’t qualify for traditional financing. Personal-loan providers look at your personal credit score and income instead of your business history.
A business credit card offers revolving credit, making it a solid option for short-term expenses. It can also be easier to qualify for a business credit card than a small-business loan. While credit limits tend to be smaller than a line of credit, a business credit card may offer rewards, such as cash back or travel points.
How do I get a business loan?
Every lender has different underwriting guidelines, but they generally consider similar factors, including personal credit score, your time in business and annual revenue. Lenders also consider your cash flow and ability to repay the debt.
Depending on the lender, you’ll be asked to share financial documents like tax returns, and bank and cash-flow statements.
Additional steps to qualify for a small-business loan
Having strong personal credit can help you qualify for lower rates and give you more financing options. If you don’t need business financing right away, consider building your credit score.
If you don’t know your credit score or want to monitor it consistently, several personal finance websites offer free credit score access. Track your progress and open more doors for financing your business.
Why online lenders?
Only about 1 in 5 businesses that apply for a loan from a big bank are approved. We help business owners by working with online lenders that simplify the loan application process and approve more small businesses. Many online lenders also offer competitive rates and faster funding than some banks.