Do I Need To Pay A Down Payment To Get A Small Business Loan?

If you’re a small business owner, you already know that growing, taking care of emergencies, and even just handling day-to-day operations takes capital — and lots of it. Sometimes, when expenses can pile up, it makes sense to consider turning to a small business lender for a helping hand.

After you’ve calculated the amount you need, selected a lender, and started the application process, however, you may hit a financial roadblock: you need ready money to put a down payment on the loan.

To obtain a small business loan — especially for a large amount — lenders often require the borrower to pay a percentage out-of-pocket as a down payment. But why is this required? It seems a bit counterintuitive, after all. You’re borrowing money because you need more, but you have to pay money up front to actually receive the loan.

Is there a way around this apparent Catch-22? What loans require down payments, and what are your options if you don’t have the funds to pay the down payment? Read on to find out more.

Why Lenders Require A Down Payment

If you’ve ever taken out a large loan before, you’re already familiar with down payments. Car loans and mortgages are two examples of loans that require down payments. Let’s say that you go to the car dealership to purchase a car for $30,000. A 10% down payment is required. This means that you will pay $3,000 out of pocket, while the lender will loan you the remaining $27,000 to be paid over the next several years.

Down payments work the same way for business loans. But why do lenders require it?

Requiring a down payment is just one of the ways that lenders lessen their risk. When you make a down payment, you’re investing your own money, which demonstrates to the lender that you’re serious about the loan and more likely to pay it back. It will also be easier for the lender to recoup at least part of their money in the event of a default. If an asset must be repossessed to pay off the debt, the lender will not have to sell the item for full value in order to recoup their investment.

Of course, down payments aren’t just good for lenders — they benefit you, too. By putting up a down payment, you’re able to lower the amount of money that you borrow. This means that not only will your monthly payments be smaller, but you also will save on interest over time, making the loan more affordable over the long term.

Do All Loans Require A Down Payment?

Most larger business loans — including commercial mortgages, commercial auto loans, and equipment loans — do require a down payment in order to get approval for funding.

Whether a down payment is needed at all — and, if so, the required amount — will often vary based on the creditworthiness of the buyer. For example, a borrower with a solid history may qualify for a “zero down” offer or very low down payment, whereas a borrower with a troubled credit history may be required to pay a down payment to be approved for the loan.

One thing to consider is that when there is a minimum down payment requirement, it’s a wise move to put more money down, if possible. As previously discussed, this means you’ll need to borrow less money, leading to lower payments and long-term interest savings.

How The Cost Of A Down Payment Is Determined

There are a few factors that determine the cost of a down payment. The first is the lender’s policies. Lenders may automatically require a down payment for specific loans or loans that exceed a certain amount.

Credit history also plays a role in the amount of the down payment. Down payment requirements are often lower for borrowers with high credit scores and solid credit histories. In some cases, these borrowers may even qualify for no-down payment offers. Borrowers with low scores may be required to make a down payment before even being considered for a loan.

Collateral may also play a role in the amount of the down payment. If sufficient collateral has been put up to cover the loan in case the borrower defaults, a down payment may not be required. For other loans with no specific collateral requirements, a down payment may be required based on the amount of the loan and the creditworthiness of the borrower. This also holds true for loans where the assets being purchased with loan proceeds (such as vehicles, real estate, or equipment) serve as the collateral.

Typical Down Payment Requirements

Whether a loan requires a down payment is based on a number of factors, including the type of loan selected. For some loans, a down payment is always required but may vary based on the profile of the borrower and other considerations, such as the amount of the loan. For other loans, a down payment may not be required at all.

Loan Type Typical Down Payment Requirement

Bank Loans & Lines of Credit

0% – 20%

Online Loans & Lines of Credit

None

SBA 7(a) Loans

10% – 20%

SBA CDC / 504 Loans

10% – 30%

Business Acquisition Loans

10% – 20%

Commercial Real Estate Loans

10% – 30%

Equipment Loans

0% – 20%

Invoice Financing

None

Bank Loans & Lines of Credit

Business loans from a bank are typically reserved for the best borrowers. Even so, banks want to protect themselves from risk as much as possible, which is why a down payment to receive a loan is required, especially for higher loan amounts.

The typical down payment requirement for a bank loan is 10% to 20%. The down payment amount will be based upon the amount borrowed, how the loan funds will be used, the borrower’s credit history, and how the loan will be collateralized.

Business lines of credit from a bank are different in that a down payment is not required. Secured lines of credit may require collateral but will not require a down payment. Learn more about collateral requirements for business loans. A personal guarantee or blanket lien may be required in place of specific collateral for some loans.

Online Loans & Lines of Credit

More business owners are turning to online loans because they are convenient to apply for, are funded quickly, and have qualification requirements that are less strict than conventional loans.

Online loans and lines of credit are also a top choice for business owners for another reason: they do not require a down payment. However, for most loans, collateral or a personal guarantee will be required to secure the loan. Learn more about personal guarantees before applying for your next loan.

Looking for a reputable online lender? The following lenders offer good rates and terms for online loans and lines of credit:

Lender Borrowing Amount Term Interest/Factor Rate Req. Time in Business Min. Credit Score Next Steps

$5K – $500K 13 – 52 weeks x1.029 – x1.1872 9 months 550 Apply Now

$5K – $500K 3 – 36 months x1.003 – x1.04/mo 12 months 500 Apply Now

$2K – $5M Varies As low as 2% 6 months 550 Apply Now

$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

SBA 7(a) Loans

The Small Business Administration 7(a) program provides loans to small businesses through intermediary lenders. These loans are very popular because of their high limits (up to $5 million), low interest rates, and flexible terms.

Like other lenders, SBA intermediaries will require a down payment that is sufficient to mitigate risk. Intermediary lenders typically require a down payment of 10% to 20% for 7(a) loans. The down payment amount is based on the borrower’s credit history, the amount of the loan, and the amount of collateral, if any, that is used to secure the loan.

SBA CDC / 504 Loans

SBA CDC/504 loans are loans that are used for the purchase or improvement of commercial real estate. With these types of loans, a borrower works with two lenders – an SBA-approved Certified Development Company and a traditional lender like a bank.

The CDC provides 40% of the total project cost as a loan, while the second lender loans 50% of the total cost. This leaves the borrower with the remaining 10% to be paid as a down payment. Based on the credit profile of the borrower and the amount funded, an additional 10% to 20% may be required by some lenders.

Business Acquisition Loans

When money is borrowed to acquire a business, a down payment is required. Again, it all comes down to the risk posed to the lender. Low-risk borrowers with stellar credit scores and high-value collateral can often receive down payments for business acquisition loans as low as 10%.

However, loans for borrowers with lower credit scores, loans of higher amounts, or loans that aren’t fully collateralized may require higher down payments up to 20%.

Commercial Real Estate Loans

Commercial real estate loans are used to purchase land or property for commercial use. A commercial real estate loan is similar to a personal mortgage, including the need for a down payment.

Many lenders require a minimum 10% down payment for commercial real estate loans. However, requirements vary by lender, so in some cases, up to 30% of the purchase price may be required as a down payment.

With commercial real estate loans, the lender considers the loan-to-value, or LTV, ratio. This means that the lender looks at the appraised value of the property compared to how much the borrower is requesting. A higher LTV poses more risk for the lender, especially when the borrower doesn’t have a solid credit history. To lessen this risk, a higher down payment may be required to lower the LTV.

The SBA CDC/504 loans discussed previously offer an alternative if you’re looking to purchase commercial real estate with a lower down payment.

Equipment Loans

An equipment loan is a type of financing that is used to purchase equipment and machinery needed for a business to continue or expand operations. Equipment loans may require a down payment, although there are options available for 100% financing with no down payment required. Equipment that holds its resale value will most often qualify for very low or no down payments. Because it serves as the collateral and can be repossessed and sold if the loan goes into default, there is less risk for the lender.

However, depending on the amount of the loan needed and other factors, including credit history, an equipment loan may require a down payment of up to 20% of the total value of the equipment.

Think equipment financing is right for you? Check out these lenders:

Lender Borrowing Amount Term Interest/Factor Rate Additional Fees Next Steps

$2K – $5M Varies As low as 2% Varies Visit Site

$5K – $500K 24 – 72 months Starts at 5% Yes Compare

Up to $250K 1 – 72 months Starts at 5.49% Varies Compare

Invoice Financing

With invoice financing, lenders provide an advance on cash for unpaid invoices. This type of loan is best for businesses that have cash flow issues due to unpaid invoices.

With invoice factoring, the lender provides you with a percentage of cash up front. Once the lender collects payment from the customer, the remaining percentage is paid to you minus any fees and interest collected by the lender.

Invoice discounting is similar. However, most of the unpaid invoice is advanced to you up front. Once you are paid by the customer, you pay back the advanced funds, along with any fees and interest charged by the lender.

With invoice factoring and invoice discounting, the unpaid invoices act as the collateral. Because the collateral reduces the risk for the lender, there are no down payments required for this type of loan.

What To Do If You Can’t Afford A Down Payment

You need a loan in order to expand your business, but you can’t afford the down payment – now what? Fortunately, there are a few steps you can take when you’re struggling to come up with the funds to make the down payment.

The first thing you can do is consider different loans to find options with lower down payment requirements. SBA loans typically have lower down payment requirements than loans from banks. If you meet the qualification requirements, consider applying for SBA loans, which also have very competitive rates and terms.

You can also explore loan options that don’t require a down payment, such as online loans and lines of credit. Remember, though, paying a down payment will help reduce the amount that you borrow, the monthly payment, and the overall cost of the loan.

Another strategy involves credit cards, but not in the way that you might think. While you can certainly choose to put a down payment on a credit card, this isn’t a wise financial move. Interest charges will rack up as long as there is a balance, keeping the business in debt. Instead, this strategy involves paying off your credit cards and other debts. Once old debts are paid off, the money being used to pay balances, plus interest, can then be applied toward the down payment.

If the financing need isn’t immediate, you can also consider saving the money. You can put money in a savings account or into certificates of deposits, money market funds, or other short-term investment vehicles.

If a low credit score is an issue that contributes to a high down payment, pull your free credit report and score and get to work building your credit profile to qualify for lower down payments — along with improved interest rates and terms — in the future.

While it’s possible to use credit cards or other borrowed funds to pay your down payment, this ultimately just adds to your business debt, so it’s best to avoid these methods if possible.

Final Thoughts

A down payment for a small business loan may seem like an inconvenience, but this requirement is put in place to protect the lender. The good news is that the lender isn’t the only one that will benefit. Having a solid down payment for your business loan will help you save money over the long-term in interest fees, while also reducing your monthly payments and lowering your debt — all keys to smart, responsible borrowing.

Looking for a business loan? Start here.

Lender Borrowing Amount Term Interest/Factor Rate Req. Time in Business Min. Credit Score Next Steps

$5K – $500K 13 – 52 weeks x1.029 – x1.1872 9 months 550 Apply Now

$5K – $500K 3 – 36 months x1.003 – x1.04/mo 12 months 500 Apply Now

$2K – $5M Varies As low as 2% 6 months 550 Apply Now

$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

The post Do I Need To Pay A Down Payment To Get A Small Business Loan? appeared first on Merchant Maverick.

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SBA Franchise Loans: A Complete Guide

If you’re a franchise operator, you know that getting started can be tricky. Franchises offer flexibility and support for owners, but require capital to get started. Chances are, you’ll need an influx of cash at some point during your career as a franchisee. Whether you’re starting a new franchise or growing an existing one, an SBA Franchise Loan can be a helpful tool. As part of their larger mission, the Small Business Administration offers funding for small business franchises that need capital. Once determined eligible, franchises can enjoy the flexibility and low rates of a small business loan, backed by the SBA.

SBA Franchise Loan Eligibility

Applying for an SBA Loan is an arduous process, and for franchises, the process does have an additional step. Thankfully, the SBA has worked to make the extra step a bit easier for larger, more established franchised businesses.

What Franchises Are Eligible For Financing?

The SBA has a simple way for most franchises to determine their eligibility for a loan. The Franchise Directory is a list of all brands reviewed by the SBA. If you find your franchise listed on the directory, it pre-qualifies you for SBA financial aid.

If your franchise has not already been deemed eligible by the SBA, you can apply to be added in the directory by submitting an agreement. You may also be asked to submit a Franchise Disclosure Document (FDD) and other applicable documents. The FDD will ask for information on your business, including its financial history and marketing strategies.

This process does add extra steps to your SBA Loan application, so it is much faster to acquire an SBA Franchise Loan if your franchise is already in the Franchise Directory. If you don’t wish to be added to the Franchise Directory, you have the option of simply applying for an eligibility review for your franchise.

What Eligibility Requirements Do Franchisees Have To Meet?

After your franchise is approved, you as a franchisee must also meet certain qualifications. Most borrowers are required to have management or direct industry experience. You must also have an acceptable personal credit history with no personal or corporate bankruptcies. The SBA has basic guidelines applicants of any loan must meet. This includes meeting size requirements, for-profit business status, and operations within the United States. You must have an acceptable personal background, a business plan, and financial statements. In most cases, you will be required to put up collateral and sign a personal guarantee.

The ideal borrower has an acceptable business history with a franchise of at least two years. Lenders want to know that your franchise will be a success, so the more successful locations your business already has, the better. Popular franchise types include retail, fitness, daycare, food service, and hospitality.

Ineligible For SBA Funding? Try These Lenders

Many businesses find it difficult to qualify for SBA loans, as the requirements are difficult to meet. If you find that you are ineligible for SBA funding, you can check out these alternatives to SBA funding, which are often easier to qualify for and can provide funding faster with less paperwork. Lenders like ApplePie Capital, Funding Circle, and SmartBiz offer some of the best online loans for franchises.

How Can Franchises Use SBA Financing?

To fund your franchise, you will probably need a 504/CDC Loan or a 7(a) Loan. 

General SBA 7(a) Loans

7(a) Loans are the most popular and versatile of SBA Loans. They are backed by the SBA in amounts up to 85%, making them a popular choice for businesses ineligible for traditional business loans. A 7(a) program offers long-term loans, favorable rates, and flexibility. Funds from a 7(a) can be used for short- or long-term working capital, furniture, fixtures, purchasing a pre-existing business, refinancing corporate debt, construction, refurbishment, and supplies.

SBA 7(a) Loan Base Rates (Plus Markup)

Loan Amount Less Than Seven Years More Than 7 Years

Up to $25,000

Base rate + 4.25%

Base rate + 4.75%

$25,000 – $50,000

Base rate + 3.25%

Base rate + 3.75%

$50,000 or More

Base rate + 2.25%

Base rate + 2.75%

SBA CDC / 504 Loans

504/CDC Loans are a more competitive loan product offered by the SBA and Certified Development Companies (CDC). These loans also offer long-term financing and small down payments, but have less flexibility in what buyers may purchase with funds. A 504 Loan can be used for heavy machinery, the purchase of existing buildings, construction, and refurbishment.

SBA 504 Loan Rates & Terms

SBA 504 Loans

Borrowing Amount

No maximum, but the SBA will only fund up to $5 million

Term Lengths

10 or 20 years

Interest Rates

Fixed rate based on US Treasury rates

Borrowing Fees

  • CDC servicing fee, CSA fee, guarantee fee, third party fees (however, most of these fees are rolled into the interest rate or cost of the loan)
  • Possible prepayment penalty

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral required; usually the real estate/equipment financed

Down Payment

10% – 30%

What’s The Difference Between A 7(a) Loan & A 504 Loan?

CDC / 504 Loans SBA 7(a) Loans

Loan Size

The CDC portion of the loan has a size limit, but the overall loan can be used to finance larger projects.

Offers flexibility for size projects, but are generally used for smaller sized projects.

Interest Rates

504 loans offer fixed-rate financing, which locks in low rates for the full length of the loan.

Usually has lower fees, but are variable, not fixed, and are adjusted quarterly. Rates typically rise over time.

Prepayment Penalty

High prepayment penalties

Prepayment penalties vary depending on loan

Loan Structure

  • 50% Bank Loan
  • 40% CDC Loan
  • 10% Borrower Down Payment

Varies depending on risk. Minimum 10% down payment for the borrower.

Loan Fees

Fees are negotiated per the 50% bank loan. Can be financed within the 504 loan.

Fees are based on the size of the loan. Can be financed within the 7(a) loan. An extra .25% of fees can be charged on portions of a 7(a) loan exceeding $1 million.

How To Apply For An SBA Franchise Loan

Applying for an SBA Franchise Loan is a similar process to applying for any other type of SBA Loan. Once your franchise has been approved or been confirmed on the Franchise Directory, the process of applying for a loan will remain the same. You will need the following information for your application:

  • Personal Credit History
  • Personal Financial Statement
  • Business Plan

These are all customary documents for an SBA application. You can get started with your application online and be connected with potential lenders within two days.

Final Thoughts

Operating a franchise can be a great way to become a business owner. Franchises offer the independence of a small business with the guidance and support of a larger corporation. If this sounds like a good option for you, an SBA loan program can be another supportive infrastructure to have on your side. While applying for an SBA Loan can be a difficult process, the benefits of flexibility and support are well worth the effort.

The post SBA Franchise Loans: A Complete Guide appeared first on Merchant Maverick.

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How Long Does It Take To Get An SBA Loan Approved?

Wondering what the turnaround time is for an SBA loan?

With typical lenders, the process of receiving an SBA loan takes up to 2-3 months. Some lenders will offer funding in as little as 30 days, although these efficient lenders are quite rare. The process requires patience; potential borrowers must go through many steps of paperwork and vetting. You will need to prepare all necessary documents, meet with a lender, complete more documents, wait on underwriting, and finally wait for closing.

The more exact and correct you can be in your preliminary applications, the better chance you have of getting a faster response from the SBA. Most importantly, be prepared to wait, and don’t be surprised if you aren’t regularly updated on the status of your application.

Read on to find out how long you may have to wait and how to speed up the process!

SBA Loan Approval Time

SBA 7(a) Loan Approval Time

An SBA 7(a) Loan usually takes about 2-3 months to be approved. If you have the option of working with an SBA Preferred lender, your application may be approved much faster, comparatively. Of course, the exact time it will take to be approved depends highly on you and your lender.

SBA 504 Loan Approval Time

As with other loans, the time allotted for SBA 504 Loans vary drastically. On average, the loans take around 30–45 days from application to funding. Approval time can, however, take anywhere from 1–6 months. Because the 504 lending program is a dual-approval loan involving both a CDC and the SBA, there are more variables to consider. The timeline relies heavily on the borrower and their specific needs.

SBA Microloan Approval Time

SBA Microloans are given in smaller amounts, so the process can be somewhat shorter. Receiving a Microloan can take an average of 4 weeks or more. Your application must be approved by both an intermediary lender and the SBA, so patience is key when waiting on a Microloan.

SBA Disaster Loan Approval Time

Receiving an SBA Disaster Loan is a three-step process: Application, Property Verification & Loan Processing Decision, and Loan Closing & Disbursement of Funds. The SBA states that the first and second step takes an average of 4 weeks. Step 3 takes around 5 days for borrowers to receive funds.

What About SBA Express Loans?

Are Express loans actually faster than regular SBA loans? In short, yes. The downside is that, while the processing time is much quicker than other SBA loans, the maximum loan amount is low at $350,000. The Express Loan can be approved within 36 hours, making it the fastest SBA loan application process.

Why SBA Loans Take So Long: The SBA Loan Application Process

When applying for an SBA loan, know that you’ll need to be patient. Most SBA loans will require a lot of documentation and verification, which makes the process quite lengthy.

If you’re applying for a 504 Loan, your application will be roughly thirteen pages long. You’ll need information on project cost, energy efficiency goals, debenture pricing, and more. Because the 504 Loan is a dual-approval process, it can take even longer. Your completed application will be submitted the CDC which will then assess the application and forward it to an SBA Loan Processing Center.

Other SBA loans have similar processes in which a potential borrower must fill out an online form describing the business’s needs. From there, the SBA will match you with potential lenders with whom you can discuss rates and terms and formally apply for their loan.

These in-depth applications do take time to fill out. Once the application is completed, the documents must be reviewed by multiple sets of eyes, which makes the waiting periods lengthy.

First Step: Putting Together An SBA Loan Application Package

Here are some items you will need in your SBA Loan Application Package:

  • Business Plan: Your lender wants to see concrete evidence that your business will be able to pay back the loan. You can show this by including:
    • A description of your small business, including information on your product/service.
    • Future plans for your business.
    • An outline of your team.
  • Statement of Purpose: This is your opportunity to tell the SBA what you intend to do with any funding you receive. You will need:
    • A statement on how the loan will benefit your business.
    • An explanation of how you, as a business owner, have invested your personal resources into the business.
    • Any other information you have about your loan request.
  • Financial Statements: Here’s where you can show the lender that the numbers are in your favor. To show that you are financially capable you will need:
    • Personal Financial Statements: personal net worth, debts
    • Cash Flow Statements: income, expenses
    • Income Statements: profit, loss
    • Balance Sheets: business value and/or net worth

Next Step: Underwriting

Formal underwriting for an SBA loan usually takes about 2–3 weeks. This time allows either your underwriting team or loan officer to discuss any questions or concerns they may have about your loan. During this time, you may be asked to participate in more meetings to discuss your plans, or even to fill out more paperwork. The Underwriting period can take longer if the SBA requests extra documentation.

Final Step: Approval & Loan Disbursement

Once you’ve been approved, it generally takes funds about 5 days to reach your account. This can vary depending on the type of loan and your particular case. Be sure to ask your lender how long it takes for approved funds to be disbursed.

How Does SBA Loan Turnaround Time Compare To Other Types Of Business Loans?

We’ve established that SBA loans can take up to 90 days or more to be approved and released to small businesses. In comparison to other business loans, this is quite a lengthy process. When applying for a traditional business loan at a bank, you can expect to get an answer within only 2–4 weeks. An even faster option is an online business loan. Online resources such as Credibility Capital, Currency Capital, Funding Circle, and more boast short applications that take minutes and can provide funding within as little as 24 hours.

The appeal of an SBA Loan, of course, is not that it is quick or simple, but that it is guaranteed in amounts up to 85%, and often offers low rates and long terms.

Need Cash Fast? Two Ways To Get An SBA Loan If You Need Cash Now

Best Time Tracking Integrations

If you need cash quickly, be sure to fill out your SBA paperwork and preliminary applications as accurately and robustly as possible. This is your best bet of getting a fast response from the SBA. The less they have to do to get information from you, the better your experience will be.

Of course, a speedy response is not a guarantee, even if you do have all your documents in order. If you truly need to know your funds will be here sooner than later, you can check out these resources for small business owners:

  • Apply for an SBA loan through SmartBiz, an online resource that allows small business owners to apply for SBA loans without most of the hassle associated with the traditional process. By applying online, much of the cost, time, effort, and paperwork are eliminated. The usual 60– 90-day process is condensed into a 30-minute, user-friendly process, featuring pre-approval. SmartBiz even claims that some users receive funding in as little as five days.
  • Get A Bridge Loan. A bridge loan is a transitory, short-term loan that your small business can use until all of your needed funding comes in from other sources. If you’re looking for a bridge loan without a prepayment penalty, check out the small business loan comparison chart.

Final Thoughts

While SBA loan applications do take a bit longer than traditional and online business loan applications, they do have their positive qualities. If you think an SBA loan is right for you, begin the application process before you need cash. Most importantly, be sure to look into all your options before making a decision on what is best for your small business!

The post How Long Does It Take To Get An SBA Loan Approved? appeared first on Merchant Maverick.

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Self-Employed? You May Qualify For A Business Credit Card

Being self-employed brings great freedom and flexibility when it comes to scheduling, determining work flow, and setting pay rates. But there’s one more benefit that you might not immediately think about: getting a business credit card. Even though you may not run your work as a “business,” you still could be eligible for a business credit card. There are plenty of benefits to having a business credit card, so perhaps it makes perfect sense for you to apply for one.

Is a business credit card right for you? Read on through to find out!

Do I Need An “Established Business” To Get A Business Credit Card?

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Not necessarily. You might qualify as a business owner as long as you sell goods or services outside of a traditional employment situation, enabling you to get a business credit card.

You may qualify if you sell items via online storefronts such as Amazon or eBay or offer lessons for activities like music or art. You may even qualify if you provide freelance services such as writing, photographing, or writing code. Do a maintenance side gig for friends and neighbors? That could qualify you, too.

Essentially, if you make profit doing something outside your day job or personal life, you could qualify as a business owner.

What Are The Perks Of A Business Credit Card For The Self-Employed?

There are numerous benefits to maintaining a business credit card while self-employed.

The primary reason you might want to apply for a business card is so that you can separate your professional expenses from your personal ones. This means you can keep easier track of business-related spending—something that’s important for both budgeting and filing taxes.

Reward programs are also structured for business expenses. For instance, some business-specific cards offer rewards geared towards travel, which might be beneficial if you spend time flying for work. Some cards also bundle in perks like access to airport lounges or free wifi.

Additional business credit card benefits can include excellent sign-up bonuses, higher potential credit limits, and free employee cards.

Are There Any Drawbacks To Watch Out For?

As with any credit card, it’s important to always pay off your balance on time. Doing so limits interest while potentially improving your credit score.

You’ll also want to avoid applying for too many cards in a short space of time. That’s because applying for a credit card results in a hard pull on your credit score. Too many hard pulls in quick succession could drop your credit score.

How Do I Apply For A Business Card?

You’ll want to first do proper research to find the best card for you. Not all cards are equally good for everyone. Some cards look snazzy up front, but they may not mesh with your professional pursuits. With that in mind, you’ll want to look for a card that has rewards that align with your business expenses while also allowing you to make the most of the card’s other benefits.

Because you’re self-employed, you might not have a history of business income or a business tax identification number. In most cases, card issuers will do a pull on your personal credit and your personal income to guarantee your credit history. Additionally, your social security number can often be used in place of a tax ID number. During the application process, you can also usually list yourself as a sole proprietor when filling out what kind of business you own.

And most importantly, never lie on a credit card application. Lying about your business or making up business income will only bring about a world of hurt in the future—even if you somehow manage to get approved.

How Can I Improve My Chances Of Being Approved For A Business Credit Card?

As with any credit card, it always helps to have a good credit score. Ultimately, though, issuers have their own criteria when deciding who gets approved and who doesn’t. As such, you’ll want to double-check that you meet the requirements of a card before applying.

Top Business Credit Card Pick For The Self-Employed

Chase Ink Business Preferred



Apply Now 

Annual Fee:


$95

 

Purchase APR:


17.74% – 22.74%, Variable

The best option for many small businesses, Chase Ink Preferred is a great choice for those who are self-employed, too. This card from Chase is simply a solid, well-rounded offering.

It packs in three points per $1 on the first $150,000 spent in combined purchases on travel, shipping, internet/cable/phone services, and advertising on social media and search engines each account anniversary year. For all other purchases, you’ll get one point per dollar spent.

On top of that, you’ll get a bonus 80,000 points after you spend at least $5,000 in the first three months of opening your account. Because points usually equal $0.01, that’s the equivalent of $800 cash back. Chase also bundles in cell phone protection and employee cards at no extra cost.

You can also reap plenty of travel benefits, too. To start, points are worth 25% extra when redeemed through Chase Ultimate Rewards. You can further transfer points on a 1:1 basis with other travel programs, including United MileagePlus and Marriott Rewards. Finally, there is no fee on foreign transactions, a plus if you travel overseas frequently.

Final Thoughts

Want more business card options? Check out our comprehensive breakdown of the best business cards of 2018. Decided to stick with a personal credit card? We’ve got you covered with a list of the best personal credit cards for business expenses.

The post Self-Employed? You May Qualify For A Business Credit Card appeared first on Merchant Maverick.

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How To Get A Small Business Loan: The Step-By-Step Guide

It doesn’t matter what type of small business you own. You automatically have something in common with every other small business owner: you need money to function. Without money, your business isn’t going to be successful. Without money, you can’t pay your employees or even yourself. Without money, you’ll never be able to grow and scale your business.

Most small business owners know the importance of capital, which is probably why you’re here. You need money, and you’re considering a small business loan. However, like any smart business owner knows, taking on debt without knowing the facts can be dangerous. Accepting a high-interest loan, taking money without having a clear plan for how to use it, or otherwise being irresponsible with borrowing can lead to unpaid debt, collections, or worse, the bankruptcy and closure of your business.

While this isn’t meant to scare you, it is intended to show you the importance of borrowing with prudence and foresight. In order to borrow responsibly, it’s important to understand the small business loan process. Many owners don’t know where to begin.

  • How hard is it to get a small business loan?
  • How big of a loan can I get for my business?
  • What do I need for a small business loan?

If you’ve asked yourself any of the above questions, this guide is for you.

You are taking the critical first step to making the smart, responsible choice when it comes to small business loans. This guide will walk you step-by-step through the small business lending process to help you determine whether taking out a loan is truly best for your business. Whether you’re wondering how to get a small business loan to start a business or how to get a business loan without collateral, this guide will help you every step of the way. Read on to find out more.

1) Determine How You Will Use The Money

How do you get a small business loan? The primary action you should take before even thinking about filling out a loan application should be to determine how the business loan proceeds will be used. In other words, why do you need a loan?

There are a variety of legitimate reasons for business owners to take out a small business loan:

  • To upgrade facilities with the purchase of new equipment.
  • To buy land.
  • To purchase office space or buildings.
  • To refinance high-interest debt.
  • To hire new employees.
  • To cover payroll.
  • To purchase inventory or supplies that may be needed due to seasonal increases.
  • For working capital.
  • To start a new business.
  • To fund a start-up project.
  • To acquire another business.
  • To buy a franchise.

A small business loan can provide capital for just about any business expense. It is up to you to determine what expenses you have, how the funding will be used, and whether or not this will contribute to the growth of your business. A small business loan should only be used to benefit the business over the long term.

2) Decide How Much You Need…

Once you’ve determined why you need a small business loan, the next step is to figure out exactly how much you need. Taking out a loan for an excessive amount of money that’s not needed could result in unnecessary extra fees and interest payments.

Figuring out how you will use the money will help you determine how much you need. Run through calculations of your potential expenditures. Consider all scenarios when making these calculations. Do your research. For example, if you’re looking to expand your facilities with the purchase of commercial real estate, look at comparable properties online to get an idea of how much you will need to borrow. If you plan to purchase new equipment, compile a list or spreadsheet of related costs to give you an overview of how much money you need.

Not only will this help you save on interest by not overborrowing, but it is also necessary for the application process. Lenders will want to know why you want to borrow the money. Doing your research ahead of time and having a logical response for how much you need and why you need it is a critical step in applying for a business loan.

3) …And How Much You Can Afford To Borrow

merchant cash advance industry

While calculating the amount of your loan is important, also remember that there are limitations on how much you can borrow. To understand how to get a small business loan from a bank or other lender, you need to know the various calculations used throughout the loan process to determine how much you can afford to borrow.

One of the first things that will be considered is the Debt Service Coverage Ratio, or DSCR. This number is determined by dividing your annual net operating income by the annual debt payments of your business. The resulting score is used as a metric for determining loan amounts and terms.

Debt Service Coverage Ratio = Annual Net Operating Income / Annual Debt Payments

The DSCR of your business should be higher than 1. This shows lenders that you will be able to make your loan payment even with other debts.

For example, if the annual net income of a business is $150,000 and annual debt payments are $100,000, the DSCR would be 1.5, showing the lender that the business can afford to pay the principal and interest on a loan because income exceeds debt payments.

Another calculation used by traditional lenders is the Debt-To-Income Ratio, or DTI. This formula is used to show the relationship between the debt of the business owner and the owner’s monthly income. To calculate DTI, total monthly debt is divided by gross monthly income.

Debt-To-Income Ratio = Total Monthly Debt / Gross Monthly Income

Let’s say the business owner brings in $5,000 per month in income. The business owner’s monthly debt payments total $2,000. Plugging this into the formula shows that the DTI is 0.4 (or 40%).

In this example, the DTI is a bit high. Ideally, DTI should be around 36% or lower. While some lenders will still finance business owners with higher DTIs, approval may be more difficult and terms may not be as favorable.

Finally, it is important to understand your return on investment, or ROI. This simply means that the total cost of the loan, including interest and fees, is less than the profits that will come in as a result of getting the loan. For example, let’s say you need a loan to hire more employees. With more employees, you will be able to complete more work for your customers and make more money. Over time, this increased productivity will more than pay for the loan.

Understanding the lending process and whether you can afford to take on a business loan is a critical step to take before accepting a loan offer. Read on to learn more about how you can determine if your business can afford to take on a small business loan.

4) Check Your Credit Score

free credit score monitoring service

As with any other loan, a small business loan requires you to have a strong credit score in order to receive the best rates and terms. Before applying for a loan, you need to have an understanding of your credit score and know what’s on your report.

You can get started by obtaining your free credit report online. Read through your report thoroughly to check for any errors that may need to be disputed through the credit bureaus. Take note of any negative items, including but not limited to collections, charge-offs, missed or late payments, or a high number of inquiries. Negative marks will need to be explained to your lender.

How Do I Improve My Credit Score?

Uh-oh. You’ve pulled your credit report and score, and it’s not where it needs to be to get an affordable small business loan. Don’t worry; this shouldn’t be seen as a roadblock, but instead, as an opportunity to boost your credit and understand your finances while putting you on the path to responsible borrowing.

There are several easy ways to boost your business credit score. If you haven’t already, run through your credit report and find any errors. Any erroneous information will need to be disputed with the credit bureaus. This information will be corrected or in some cases deleted, which can instantly boost your score.

Make sure to continue to pay your bills on time every month. Not paying your bills at all or even paying them late will make your credit score take a hit. If something has occurred that prevents you from paying, contact your creditors immediately. In many cases, a grace period is extended. Face your debts head on and never ignore your obligations – or calls from creditors.

To improve your score, you also want to make sure that you keep your credit utilization low. Your credit utilization should be 30% or lower. This means that of your available credit, only 30% or less has been used. If you have high credit utilization, work to pay off as much debt as possible in the shortest amount of time in order to bring your ratio down.

Finally, don’t fall victim to companies that offer to boost your credit score. These services often come at a high price and don’t do anything to your credit report that you can’t do yourself. Read on to learn more about raising your credit score.

Can I Get A Small Business Loan With Bad Credit?

How easy is it to get a small business loan with a bad credit score? While it is possible to get a small business loan with bad credit, the best rates and terms are available to business owners with the highest credit scores. Instead of wondering how to get a small business loan with bad credit (which often involves very high interest rates and fees), shift your focus to increasing your credit score.

While credit score requirements vary across lenders, it’s generally recommended to have a score at least in the high 600s in order to qualify for a business loan. Other options may be available for anyone with scores in the lower 600s or even the 500s, but these are often short-term loans with higher interest rates and lower maximum amounts.

5) Decide What Type Of Loan You Need (And Will Qualify For)

You’ve determined what loan amount you need and how you will use these funds. You’ve reviewed your credit report and score. Now, it’s time to determine the type of loan that will fit your needs, as well as the loans that you will be qualified to receive.

Term Loans

A term loan (or installment loan) is one of the most common types of small business loans. These traditionally-structured loans provide a specific amount of money at a specific interest rate for a set period of time. Interest rates for term loans can be fixed or variable and typically have a monthly repayment schedule. These loans are best for funding large investments, from hiring a team of employees to purchasing commercial real estate.

Term loans are typically the most difficult to qualify for and usually require collateral. Applicants should have a strong credit history, and most businesses that qualify will already be well-established, although loans for startup businesses are available as well.

Short-Term Loans

Short-term loans are loans that are meant to be repaid in one year or less. Sometimes, terms may be much shorter depending on the lender selected.

There are a few different situations where short-term loans may be the best choice. If there are cash flow issues, seasonal upticks that result in rising operational costs, or an unexpected business emergency, a short-term loan may be an option to consider.

These loans are often funded very quickly but are available in smaller amounts than term loans. The short-term loan process is often much easier than the process of applying for term loans, and the requirements (including credit score) are less stringent. However, these loans can come with much higher interest rates than their long-term counterparts, so this type of financing may be very expensive for a small business.

Business Line Of Credit

A business line of credit is similar to a credit card. A small business is provided with a credit limit. The business can spend up to the amount of the credit limit and can make multiple draws if needed. Interest is paid on the funds that have been spent. Payments are made on a scheduled basis.

A business line of credit can be used in many situations. Emergency expenses, purchasing inventory during a busy season, or cyclical cash flow shortages can be funded using a business line of credit. Getting approved is quicker and easier than applying for a term loan, and requirements, including credit score and time in business, are less strict. However, interest rates are typically higher. Because it’s easy to use lines of credit, it’s important to be responsible and only draw on the line of credit when necessary.

Startup Loans

A startup – or a business that has been in operation for less than 2 years – may find that obtaining credit is difficult. This is because the business doesn’t have the documentation to prove that it’s a successful, established business. Other entrepreneurs have big ideas but aren’t sure how to get a loan to start a small business.

In these cases, there are loans available for startup businesses. Startup loans can be used to fund new projects, for research and development, to purchase new facilities, and other expenses. Business owners that apply for startup loans won’t be required to show traditional documentation such as three years of business tax returns. However, a solid, detailed business plan and future financial projections will be required to prove that the business has the potential to be successful.

Equipment Loans

Businesses that need new equipment can take advantage of equipment financing. These loans are used exclusively for the purpose of purchasing equipment.

Equipment loans are similar to term loans in that the total cost of new equipment, plus interest, is broken down into affordable payments. Often, these loans are easier to obtain than traditional loans, especially for borrowers with lower credit scores.

Invoice Financing

Invoice financing is a form of lending that allows business owners to borrow against money that is owed to them by their customers. With invoice factoring, the lender purchases the invoice, paying the small business a percentage of the total invoice amount. When the lender collects payment from the invoiced customer, the remaining percentage is paid to the small business, less interest and fees.

Invoice discounting is also an option. Through this type of loan, a lender will advance a percentage of the invoice total to the small business. Once the invoice is paid, the small business will repay the loan, along with fees and interest.

This is a lending option that works well for businesses that have many outstanding invoices and need money immediately. The accounts receivables serve as the collateral for this type of loan, and borrowers with lower credit scores can be approved.

6) Research Possible Lenders

5 C's of Credit: What Lenders Look For

Now that you know the best type of loan to fit your needs and (and which you’re most qualified to receive), the next step is to find a lender. Since interest rates, repayment terms, and requirements vary by lender, it’s important to take the time to research your options in order to find the most affordable loan for your business. Read on to find out where to get a small business loan.

Banks & Credit Unions

Banks and credit unions are where most people immediately turn when they need financing. For most business purposes, these financial institutions offer great options with low interest rates and long-term repayment options.

Through banks and credit unions, small business owners can take advantage of loan options including:

  • Secured and unsecured lines of credit
  • Business credit cards
  • Term loans
  • Vehicle financing
  • Equipment financing
  • Commercial real estate mortgages
  • Small Business Administration loans (through SBA-approved lenders)

As you can see, banks and credit unions offer a broad spectrum of loan options. While these loans come with extremely favorable terms, certain loans from banks and credit unions can be difficult to obtain. Obtaining a commercial mortgage or term loan can take weeks or even months to complete. For most lending options, banks and credit unions also require borrowers to have a very strong credit score.

Read The Best Banks For Small Business Loans for more information on specific lenders.

The Small Business Administration (SBA)

If you’re wondering how to get a small business loan from the government, look no further than the Small Business Administration. SBA loans are one of the most popular options for small business owners. The SBA, through intermediary lenders, provides funding opportunities for small business owners when traditional loan options aren’t available.

The SBA offers multiple loan programs for small businesses, including:

Loan Program Description More

7(a) Loans

Small business loans that can be used for many many business purchases, such as working capital, business expansion, and equipment, inventory, and real estate purchasing.

Review

Microloans

Small loans, with a maximum of $50,000, which can be used for working capital, inventory, equipment, or other business projects.

Review

CDC/504 Loans

Large loans used to acquire fixed assets such as real estate or equipment. 504 Loans are offered in partnership with Community Development Companies (CDCs) and banks.

Review

Disaster Loans

Loans used to rebuild or maintain business following a disaster. 

Review

These loans are backed by the government, so intermediary lenders have more incentive to loan to small businesses. All loans are regulated by SBA standards, keeping interest rates low and repayment terms flexible.

There are some drawbacks to SBA loans, however. For most programs, a strong credit score is required. With the exception of Express Loans, SBA loans also have a lengthy application process, and funding can take several months.

Online Lenders

One of the benefits of the internet is that it has opened up many lending opportunities for small businesses. These loans often require less paperwork than loans obtained from banks or the SBA, and everything can be done online, from the application process to signing the final loan documents.

There are multiple loan options available from online lenders, including:

  • Long-term loans
  • Short-term loans
  • Equipment financing
  • Vehicle financing
  • Lines of credit
  • Business credit cards
  • Invoice financing

Requirements for online loans may be more flexible in terms of credit scores and time in business. However, depending on the loan selected, fees and interest rates may be much higher than other types of funding.

Looking for a good online lender? The following companies offer low rates and reasonable terms to qualified borrowers:

Lender Borrowing Amount Term Interest/Factor Rate Req. Time in Business Min. Credit Score Next Steps

$5K – $500K 3 – 36 months x1.003 – x1.04/mo 12 months 500 Apply Now

$5K – $500K 13 – 52 weeks x1.029 – x1.1872 9 months 550 Apply Now

$2K – $5M Varies As low as 2% 6 months 550 Apply Now

$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

Nonprofit Lenders

Some nonprofit organizations provide financing options for small businesses to fund almost any type of business expense. For qualified borrowers, low interest rates are available.

Low borrowing limits imposed by many nonprofit lenders are a potential drawback for small business owners. In most cases, these loans require a strong credit score and the application process can be lengthy, similar to applying for SBA and bank loans.

Microlenders

Microlenders offer small loans of less than $50,000 to small business owners. These loans can be used for just about business expense.

Microloans are a great choice for startups with limited credit history or small businesses that can’t obtain funding through other lenders. Getting a microloan is one way that business owners can get a boost to their credit score to qualify for larger loans from traditional lenders in the future. For businesses that need more than $50,000, microloans will not be the best option.

Check out these lenders if you’re interested in applying for a small business microloan:

Lender Max. Borrowing Amount Rates Req. Credit Score Next Steps

$250,000

9% – 36% factor rate

500

Visit Site

$500,000

2.9% – 18.72% factor rate

550

Visit Site

$500,000

9.4% – 99.7% APR

500

Visit Site

7) Prepare Your Documents

You’re getting closer to applying for a loan from your chosen lender. Before signing on the dotted line, though, it’s important to be prepared for the application process and know what you need to get a business loan.

Depending on the type of loan you’re applying for, paperwork requirements vary. At the bare minimum, you will be required to show the lender that you have the means to pay back the loan. Some loans, such as term loans from the bank or loans through the SBA, require much more paperwork.

Documentation requirements vary, but in general, you should expect to provide the following documents:

  • Balance sheets
  • Profit and loss statements
  • Personal and business credit reports
  • Personal and business income tax returns
  • Bank statements
  • Business licenses
  • Franchise agreements
  • Quotes from contractors and vendors

For many loans, personal guarantees from all owners may be required. This means that if the loan goes into default, the business owners can be held personally liable for the debt.

Startup businesses without proper documentation may be required to submit other paperwork, including a business plan, resumes for all owners to prove industry experience, and financial projections.

Can I Get A Business Loan Without Collateral?

For certain types of business loans, collateral is not required. For example, with equipment financing, the equipment being purchased is the collateral. For invoice factoring, the unpaid invoices serve as collateral. Smaller loans like microloans also may not require collateral, depending on the policies of the lender.

However, for larger loans, collateral is typically required. The SBA, for instance, requires all 7(a) loans of over $350,000 to be collateralized. Collateral is typically in the form of business assets. However, some lenders will also use personal real estate or assets as collateral for a loan.

8) Apply For Loans & Compare Offers

After following the last six steps, you’re finally ready to begin the application process. Depending on the lender and the type of loan you’ve selected, you may have to visit a financial institution, call the lender, or apply online.

Before applying, it’s necessary to have a general understanding of the requirements of the lender. For example, if their small business loan credit score requirements are over 700 and your credit is 680, applying for the loan will not only be a waste of time but will also create an unnecessary inquiry on your credit report. You also want to do your research to find what lenders offer the lowest rates and best repayment terms.

When applying for a small business loan, you will have to give the lender the reason you’re applying for the loan, as well as the amount you wish to borrow. You should have all of your documentation together to include with your application. Please note, however, that lenders have different requirements and more documentation may be required depending on your chosen loan.

Personal and business credit reports will be evaluated by the lender. If there are any negative items on your credit report, you will need to explain these items to the lender. All documentation will be evaluated to determine whether you qualify for the loan, including creditworthiness and ability to pay back the borrowed amount.

After documentation has been submitted and the application completed, the approval process begins. For business credit cards or lines of credit, this could be almost immediate. For long-term loans, this process could take several weeks.

Once approved, the loan will need to go through underwriting, closing, and funding. Depending on the loan selected, the entire process could potentially take several months. This is especially true for SBA and long-term business loans from banks and credit unions.

If you’ve applied for multiple loans, such as through an online loan marketplace, compare the offers you’ve received to determine which has the most favorable rates and terms.

Once your loan has been funded, it’s time to use the money for your intended business purpose. With careful planning, these funds have the potential to take your business to the next level. The final step is to remember to always pay your loan as agreed like any responsible borrower. This proves that you are a trustworthy business and opens up more lending opportunities for the future.

The post How To Get A Small Business Loan: The Step-By-Step Guide appeared first on Merchant Maverick.

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Emergency Business Loans: 7 Ways To Get Business Funding Fast

No matter how good you are at planning, it’s impossible to prepare for every possible emergency that may affect your business. Acts of God like hurricanes, floods, and fires aside, invoice payments might be late. You may have experienced a fluke sales slump. Or maybe you just need to restock before a big event next week to maximize your sales.

You’ve already shaken out your pants for loose change, so now what do you do? Where do you look for an emergency business loan?

Read on and we’ll try to help you out. Here are seven ways to get business funding fast.

1. Get A Short-Term Loan

fast business loans

If it has been a while since you last looked for financing, you’re probably imagining long, drawn-out loan applications with high credit restrictions.

Those traditionally-structured loans still exist–and tend to have excellent rates–but they’re not much help when you need money fast. An easier way for most businesses to get a lump sum of cash quickly is to get a short-term loan.

Short-term loans usually last less than a year, feature simplified (and usually online) applications, and can get cash into your account within 24 to 72 hours. Most of them don’t even require collateral in the traditional sense.

So what’s the catch? Well, you’ll probably be going through an alternative lender. That means higher rates and fewer regulatory protections than you’d find with a bank.

Because the repayment schedule is accelerated, these loans charge a flat fee instead of instead of interest. This fee is a percentage of the amount you borrowed ($10,000 x 20% = $2,000, so you’ll be on the hook for $12,000). You’ll also be paying it back much more quickly. Repayment intervals are weekly or even daily, with fixed payments automatically withdrawn from your business bank account.

Think a short-term loan is right for you? Check out the following short-term lenders:

Lender Borrowing Amount Min Credit Score Time To Funding Next Steps

$2K – $5M 550 1-2 Days Apply Now

$5K – $500K 550 1-3 Days Apply Now

$5K – $500K 500 2-5 Days Apply Now

$5K – $250K 500 2-5 Days Apply Now

2. Get A Merchant Cash Advance

how to get a merchant cash advance

I know we’re technically talking about “loans,” but if you need money quickly, you’re probably not that concerned with semantics. For the pedantic, a merchant cash advance (MCA) is the purchase of your future credit/debit card sales. So you’re technically selling something, not taking on debt. Confusing, right?

An MCA fulfills a similar niche to a short-term loan and shares a few characteristics with it. MCAs also feature simplified applications and qualifications; they’re even less governed by financial regulations than short-term loans. You’ll also usually have your money in a day or two. MCAs and short-term loans even share a flat fee approach, where the amount you owe is the amount you “borrowed” plus a percentage of that amount ($10,000 x 20% = $2,000, for a total of $12,000).

But wait, didn’t I say the MCA company was actually buying a percentage of your future receivables? How does that work? Rather than making payments, the MCA company will collect a percentage of your daily credit- and debt-based sales until they’ve collected the lump sum they gave you, plus their flat fee. Because your sales may vary from day to day, MCAs don’t have exact term lengths. If your sales are good, you’ll pay the debt off more quickly; if they’re poor, it will take longer to pay off.

Be aware, however, that MCAs are one of the most expensive ways to borrow money.

Want to explore your options? Check out the following providers of merchant cash advances:

Lender Borrowing Amount Min Credit Score Time To Funding Next Steps

$2K – $5M 550 1-2 Days Apply Now

$5K – $500K 550 1-3 Days Apply Now

$5K – $500K 500 2-5 Days Apply Now

$5K – $250K 500 2-5 Days Apply Now

3. Get An Express Bank Loan

What’s an express loan? The definition varies by lender, but in general, this is an option offered by many traditional banks. Thanks, in part, to pressure from alternative lenders, banks have made efforts to speed up the application processes of some of their products. If you need a small amount of money relatively quickly, it may be the way to go.

These loans typically aren’t short-term loans, but medium-term installment loans. That means monthly payments and interest accruing over time.

Compared to short-term loans, express loans will often have better rates but aren’t as easy to qualify for. Depending on the bank, the speed with which you can get funding may be competitive with those of alternative lenders, while others might be a little bit slower. Note that SBA Express loans, while quicker than other SBA loans, probably aren’t going to be fast enough to cover an emergency expense. On the other hand, if your emergency is the result of a regional disaster, you may want to check out SBA disaster loans.

4. Get An Installment Loan From An Alternative Lender

installment loans

Wait, aren’t installment loans–express loans notwithstanding–too slow to be much help in an emergency?

Alternative lenders don’t only deal in short-term loans and merchant cash advances. Some offer products that more closely resemble traditional installment loans. These loans feature longer-terms and regular monthly (sometimes weekly) payments.

Installment loans, even those from alternative lenders, don’t necessarily promise the 24-48 hour turnarounds that are common with short-term loans and merchant cash advances. Some do, however. And even the ones that don’t may still be fast enough to help resolve your emergency.

These alternative lenders offer loan products that might work for your situation:

Lender Borrowing Amount Term Interest/Factor Rate Req. Time in Business Min. Credit Score Next Steps

$5K – $500K 3 – 36 months x1.003 – x1.04/mo 12 months 500 Apply Now

$5K – $500K 13 – 52 weeks x1.029 – x1.1872 9 months 550 Apply Now

$2K – $5M Varies As low as 2% 6 months 550 Apply Now

$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

5. Use A Business Credit Card

Best merchant online credit card processing companies image

Another way to handle emergency expenses is to have lines of credit in place ahead of time. The easiest to use are probably business credit cards.

Business credit cards can be a convenient way to pay for emergencies, provided the emergency costs are on the smaller side and can be paid with plastic. A balance that sits on your card month after month will quickly become more expensive than a loan. On the other hand, if you’re able to pay your business credit card off in full within your grace period (usually 20-25 days after you make the purchase), you won’t owe any interest at all. Better yet, you can take advantage of the rewards programs most of these cards offered.

Avoid taking out a cash advance with your credit card, though, as the fees and interest rates on those transactions make them a very expensive way to bail your business out.

Looking for a business credit card? Chase Bank offers some of the best options for small business:

Card Card Name Annual Fee Introductory Rate Rewards Next Steps

Chase Ink Business Preferred℠

$95 None
  • 3 points per $1 on travel, shipping, internet/cable/phone, and internet advertising (max $150,000 per year)
  • 1 point per $1 on all other purchases
Apply Now

Chase Ink Business Cash℠

$0 0% APR for the first 12 months
  • 5% cash back on internet/phone/cable and purchases at office supply stores (max $25,000 per year)
  • 2% cash back at restaurants and gas stations (max $25,000 per year)
  • 1% cash back on all other purchases
Apply Now

Chase Ink Business Unlimited℠

$0 0% APR for the first 12 months
  • 1.5% cash back on all purchases
Apply Now

6. Set Up A Line Of Credit

Business credit cards aren’t the only way to set up an “insurance policy” against unplanned expenses. In fact, they may not even be the best way, especially if you encounter expenses you can’t easily pay for with a card.

Banks and some alternative lenders offer business lines of credit. A revolving line of credit is a lot like a credit card (technically a credit card is a revolving line of credit, but not all revolving lines of credit are credit cards. Make sense?). Your lender will approve your business for a certain amount of credit, for a certain period of time, typically a year. During that time, you can draw upon your line of credit in any increments you want so long as the total amount you’ve drawn doesn’t exceed your credit limit. You only make payments and owe interest on the amount of credit you’re using. As you pay off your balance, that credit becomes available to use again. A non-revolving line of credit works the same way, except that once you use your credit, it does not become available again after you pay it off.

Some lines of credit are easier to use than others. Depending on your lender, you may have to pay a draw fee each time you withdraw cash. Some lenders charge annual, or even monthly, fees to maintain your line of credit. It’s not uncommon for banks to link a line of credit to a Visa or Mastercard, allowing you to use it almost exactly like a credit card. Some lenders may let you write checks against your line, while others will necessitate a cash transfer from your line to, say, a checking account.

The following lenders offer lines of credit to businesses at reasonable rates:

Lender Borrowing Amount Draw Term Draw Fee APR Next Steps

$6K – $100K 6 months None Starts at 13.99% Apply Now

$2K – $5M Varies Varies Varies Apply Now

$5K – $5M 6 months 1.50% per draw 21% – 65% Apply Now

$1K – $100K 12 weeks None 12% – 54% Apply Now

7. Use Invoice Factoring

Do what now? A quick and unorthodox way to get emergency financing without putting yourself at too much risk is invoice factoring. Factoring companies will purchase your unpaid invoices for around 80 percent of their face value, minus a small fee. It’s essentially getting an advance on your invoices by signing them over to a third party.

What about the remaining 20 percent? The factoring company will pay you that balance when the invoice is paid by your customer.

The catch is that you’ll need to have unpaid invoices in hand for invoice factoring to be of any use to you.

If you think invoice factoring might be the right choice for your business emergency, we recommend starting with a reputable company like BlueVine.

Get Started With BlueVine

Final Thoughts

It’s easier than ever to get emergency funding for your business. The trick is making sure you get it on the schedule you need, at a rate you can afford.

Not sure where to start looking?

We can help you out.

Loan Type What Is It? Typical Time To Funding

Short-Term Business Loans

Loans disbursed in one lump sum and repaid in periodic, fixed installments. Fees for borrowing are determined by a factor rate.

2 – 5 days

Online Lines of Credit

Credit lines from which the business can draw funds at any time, without going through an application process.

2 – 7 days for the initial application; 1 – 2 days for funds when the credit line is secured

Invoice Financing

Financing in which the business’s unpaid invoices are leveraged to access business funds.

2 – 5 days

Bridge Loans

Fast business loans used to fulfill funding needs until slower financing comes in.

2 – 7 days

Traditional Installment Loans

Loans disbursed in one lump sum and repaid in periodic, fixed installments. Borrowing fees are determined by an interest rate.

1 – 3 weeks

Business Credit Cards

Credit lines for everyday business expenses.

About 7 days

SBA Disaster Loans

Loans offered by the SBA to businesses that have been affected by a disaster.

7 – 21 days

The post Emergency Business Loans: 7 Ways To Get Business Funding Fast appeared first on Merchant Maverick.

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Commercial Real Estate Loans: Types, Rates, and How To Apply

Whether a startup company is moving into a commercial building for the first time or an outdated warehouse needs to be brought into the 21st century, there comes a time when the next step for a small business owner is to build, purchase, or update their commercial space. Because most businesses don’t have the cash flow to pay out of pocket, a commercial loan is critical to taking this next step toward growth.

Small business owners should know their options, shop around, and find the money they need with the best rates and terms. The process can be overwhelming, but we’ll break down the different types of commercial real estate loans, the associated terms and rates, and what to expect during the application process.

SBA CDC/504 Loans

The Small Business Administration, or SBA, is known for providing low-interest, long-term loans to business owners. For the purchase of commercial real estate, there are few programs out there better than the SBA CDC/504 loan program.

How Do CDC/504 Loans Work?

SBA loans are acquired through an intermediary lender. These lenders are more willing to take on the risk of loaning money to small businesses because a portion of the loan is guaranteed by the government. An intermediary can be an SBA-approved bank or even a nonprofit organization.

CDC/504 loans are a bit different in that there are two lenders involved in the process. A Certified Development Company, or CDC, is regulated and certified through the SBA. These nonprofit organizations are tasked with promoting economic development, and this is done primarily through commercial loans with favorable rates and terms.

With this type of loan, the CDC provides 40% of the total project costs. The borrower must find another lender, such as a bank or credit union, to provide 50% of the project costs. It is then up to the borrower to pay the remaining 10%.

Loan proceeds can be used toward purchasing commercial real estate, buying land or paying for land improvements, the construction of new facilities, renovating existing commercial properties, or purchasing long-term machinery. Old debt related to the purchase of new property or upgrading facilities can be refinanced with a CDC/504 loan.

SBA CDC/504 Loan Terms, Rates & Down Payment

The maximum loan amount distributed through this program is $5 million. The interest rates on CDC/504 loans are based on the market rate of 5-year and 10-year Treasury issues. As of October 2018, interest rates will not exceed 5.25%. Interest rates are fixed, and there are no balloon payments. Repayment terms of 10 years for equipment and 20 years for real estate are available with CDC/504 loans. It’s important to note that these rates and terms apply only to the 40% portion funded by the CDC.

The required down payment is 10% of the project cost but this can rise up to 30%. Typically, the collateral for the loan is the project itself and no additional collateral is needed in most cases. A personal guarantee is required by all owners with at least a 20% stake in the business.

SBA 504 Loans

Borrowing Amount

No maximum, but the SBA will only fund up to $5 million

Term Lengths

10 or 20 years

Interest Rates

Fixed rate based on US Treasury rates

Borrowing Fees

  • CDC servicing fee, CSA fee, guarantee fee, third party fees (however, most of these fees are rolled into the interest rate or cost of the loan)
  • Possible prepayment penalty

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral required; usually the real estate/equipment financed

Down Payment

10% – 30%

SBA CDC/504 Loan Borrower Requirements

To qualify, the business must meet the SBA’s definition of a small business. The net worth of the business should not exceed $15 million, and the average net income should be $5 million or less after federal taxes. The business may also have a certain number of employees to qualify as a small business, but this number varies by industry.

All businesses must be for-profit and should not be engaged in illegal or passive activities. As previously mentioned, all owners with a stake of at least 20% must sign a personal guarantee. Credit score is a factor in qualifying for the CDC/504 loan program, and while there are no minimums, generally a score of 680 or higher is recommended for the best chance of approval. The borrower should have no defaults on prior government-backed loans, foreclosures, or bankruptcies.

Where Do I Find SBA CDC/504 Loans?

Business owners interested in obtaining a CDC/504 loan can find a participating CDC through the SBA website. Applicants can also get a referral to an SBA-approved lender through their own financial institutions.

How To Apply For A CDC/504 Loan

An application will need to be submitted to an SBA-approved CDC. Along with the application, paperwork will be required by the business. This includes but is not limited to personal financial statements, business and personal income tax returns, income statements, and purchase agreements if the loan is being used to purchase an existing building.

Is An SBA CDC/504 Loan Right For Your Business?

An SBA CDC/504 loan is a great option for any small business looking to expand through the purchase, upgrade, or construction of new facilities. High limits, low down payments, and competitive terms and rates make this one of the best commercial real estate loans.

However, the process for obtaining one of these loans is lengthy. Any small business owner that needs funding fast should consider other options. Small business owners that would prefer to work with just one lender should also look into other types of loans. Learn more about the SBA CDC/504 loan program to make the smartest financing decision for your business.

SBA 7(a) Loans

The CDC/504 loan isn’t the only program offered by the SBA to purchase or update commercial real estate. The organization’s most popular loans through the 7(a) program can also be used for this purpose.

How Do SBA 7(a) Loans Work?

7(a) loans are the most popular SBA loans and for good reason. With low interest rates, lengthy repayment terms, and flexibility in how the funds are used, these are easily one of the best loan options on the market today.

SBA 7(a) loans can be acquired through intermediary lenders. Up to 85% of the loan is guaranteed by the SBA, taking the risk off of the lender. This allows intermediaries to provide competitive loans to small business owners.

SBA 7(a) loans can be used for just about any business purpose. This includes the purchase of commercial real estate, financing equipment, acquiring a new business or franchise, or using for working capital.

SBA 7(a) Loan Terms, Rates & Down Payments

Up to $5 million in financing is available through the SBA 7(a) program. Interest rates are based upon the base rate plus an added percentage of no more than 4.75%. When purchasing real estate, the maximum repayment term is set at 25 years.

Loan Amount Less Than Seven Years More Than 7 Years

Up to $25,000

Base rate + 4.25%

Base rate + 4.75%

$25,000 – $50,000

Base rate + 3.25%

Base rate + 3.75%

$50,000 or More

Base rate + 2.25%

Base rate + 2.75%

Down payments for SBA 7(a) loans typically range between 10% and 20%. In some cases, collateral is required. Loans for $25,000 or less do not require collateral. Personal real estate can be used as collateral if needed. As with other SBA loans, a personal guarantee is required.

SBA 7(a) Loan Borrower Requirements

As with the SBA CDC/504 loans, all businesses receiving an SBA 7(a) loan must fall under the organization’s definition of a small business.

SBA 7(a) loans require the borrower to have a good credit score. A minimum score of 680 is typically recommended. Bankruptcies, foreclosures, and defaults on government-backed loans typically disqualify an applicant. A reasonable explanation for any negative items on a credit report is also expected by any SBA-approved intermediary.

Where Do I Find SBA 7(a) Loans?

SBA 7(a) loans can be obtained through an SBA-approved intermediary lender. A lender can be found through the SBA’s Lender Match service, an online loan broker, or through a referral from a small business owner’s financial institution.

How To Apply For An SBA 7(a) Loan

An application will need to be submitted to the chosen intermediary lender. Similar to CDC/504 loans, the proper paperwork will need to be submitted with the application. An online service such as SmartBiz can also be used to apply for SBA 7(a) loans.

Is An SBA 7(a) Loan Right For Your Business?

The SBA 7(a) loan is one of the most flexible options for small business funding, making it an ideal choice for most businesses. However, 7(a) loans are not attainable if the business owner has a low credit score. If fast funding is needed to scoop up a commercial real estate deal, other options may need to be considered, as approval, underwriting, and funding SBA 7(a) loans can take several months. Still undecided? Read on the learn more about SBA 7(a) loans for small businesses.

Bank Commercial Mortgages

When consumers want to purchase real estate, they usually head to the bank. For small business owners, banks offer mortgages that can be used to purchase commercial property.

How Do Bank Commercial Mortgages Work?

Commercial mortgages through traditional financial institutions are similar to mortgages for residential property with one big exception: commercial mortgages can be harder to obtain.

This is simply because commercial mortgages are not backed by the government. Residential mortgages are backed by entities like Freddie Mac and Fannie Mae. This is not the case with commercial mortgages, making them a bigger risk for banks. With that said, it isn’t impossible to get a commercial mortgage, but it’s important to understand that the process can be time-consuming.

With a commercial mortgage, banks lend a certain percentage of the property value to the borrower. The borrower will then pay this loan back over a set number of years, along with interest. Because these loans are riskier for lenders, commercial mortgage interest rates and down payments may be higher than other types of commercial real estate loans.

Bank Commercial Mortgage Terms, Rates & Down Payments

Interest rates vary from lender to lender and are also affected by the applicant’s creditworthiness. With good credit, though, an applicant can receive interest rates around 5% to 7%. There is no maximum loan amount, although the approved amount is based on the borrower’s ability to repay the loan.

Typically, commercial mortgages are available for 65% to 85% of the property’s LTV ratio. Depending on the loan selected, the borrower will be required to pay 15% to 35% as a down payment. The typical maximum maturity for commercial mortgages is 30 years, but terms may be longer or shorter depending on the lender selected.

Bank Commercial Mortgage Borrower Requirements

Credit requirements vary by lender, but applicants should have a score of at least 700 for a higher chance of qualifying. There should be no major negative items, including foreclosures or bankruptcies, on the applicant’s credit report.

Where Do I Find Bank Commercial Mortgages?

Bank commercial mortgages can be obtained from most financial institutions. Small business owners should start with banks and credit unions with which they already have an existing relationship. Potential borrowers can also compare rates, terms, and requirements across financial institutions online before applying.

How To Apply For A Bank Commercial Mortgage

To apply for a bank commercial mortgage, applicants can call, go online, or visit their local branch to get the process started.

Much of the same paperwork required for SBA loans will be needed to apply for a commercial mortgage from a bank. This includes business and personal income tax returns, and personal and business financial statements.

Is A Bank Commercial Mortgage Right For Your Business?

Bank commercial mortgages are a good choice for anyone that needs a loan that exceeds the $5 million limits put in place through SBA lending programs.

Commercial mortgages from financial institutions can take months from application to funding, so other options should be sought if quicker approval and funding is needed. Another loan option may be better if the applicant’s score falls below 700. Small business owners that don’t have a lot of money to use toward a down payment may also want to consider other loans.

Commercial Bridge Loans

While the previous commercial real estate loans were long-term options, sometimes a short-term loan just makes more sense. If that is the case, a commercial bridge loan fits the bill.

How Do Commercial Bridge Loans Work?

Sometimes, opportunities arise and business owners have to take action fast or get left in the dust. Traditional commercial real estate mortgages and SBA loans can take weeks or even months to get approved and funded. A hot real estate deal could be gone from the market much sooner than that.

If commercial real estate funding is needed fast, a commercial bridge loan will get the job done. This is a short-term funding option that comes with short turnarounds, even as short as a few days. This allows a small business owner to move quickly on a deal without having to shoulder the entire cost.

However, even though funding is fast, so are repayment terms for bridge loans. These loans aren’t spread out over 20 or 30 years. Instead, interest payments are made over a short period of time, such as 6 months or 1 year. At the end of this period, the balance will need to be paid in full. This can be paid in cash, or the business owner may opt to refinance the loan.

Commercial Bridge Loan Terms, Rates & Down Payments

There are no maximum loan amounts for commercial bridge loans. Most lenders will provide up to 90% of the Loan-to-Value, leaving the borrower with just 10% to pay as the down payment. However, other lenders may fund just 80% of the LTV, leaving the borrower with the remaining 20% to pay as a down payment.

Interest rates vary by lender but generally start around 6.5%. Some lenders may have interest rates of 9% or even higher. Loan terms also vary by lender but may be as short as 6 months. Six months and 1-year repayment terms are typical, but some lenders may offer slightly longer terms.

Commercial Bridge Loan Borrower Requirements

Bridge loans have less stringent borrower requirements than other types of commercial real estate financing. An applicant’s credit score should be at least 650 but higher scores yield better interest rates. Borrowers must also be able to pay back the loan at the end of the short repayment term either by paying the balance in full or refinancing the loan.

Where Do I Find Commercial Bridge Loans?

Commercial bridge loans can be obtained from banks, credit unions, and even online lenders. Small business owners should begin at their own financial institutions. If commercial bridge loans aren’t available there, business owners can look into other local institutions or compare options online.

How To Apply For A Commercial Bridge Loan

There are fewer requirements for commercial bridge loans versus getting a traditional bank mortgage or SBA loan. However, the Debt Service Coverage Ratio (or the amount of cash flow to pay current obligations) will be considered. Some lenders may also require applicants to have previously used a short-term loan option to finance commercial real estate, but this is dependent upon each lender’s specific requirements.

Is A Commercial Bridge Loan Right For Your Business?

A commercial bridge loan is a reasonable choice for anyone who needs to obtain financing quickly. It is usually the best option for a business owner that needs to move fast to take advantage of a great real estate deal that will sell quickly. This type of loan is not a good choice for anyone who wants to obtain long-term financing.

FAQs About Commercial Real Estate Loans

What type of commercial real estate loan has the best rates and terms?

With interest rates at just over 5%, SBA CDC/504 loans have some of the best commercial real estate loan rates on the market. Combined with just 10% down and a 20-year term, a 504 loan is one of the most affordable loan options for small business owners. It is important to note, however, that the additional lender contributing 50% to the total project cost should also have competitive rates to keep the loan cost as low as possible.

SBA 7(a) loans are excellent alternatives. Though the interest rates are slightly higher, they remain competitive. With just 10% to 20% down and a 25-year term, this is also one of the best options for small business owners.

Can I get a commercial real estate loan without a down payment?

Most commercial real estate loans require a down payment. While some private lenders may offer “no money down” loans, added fees, interest rates, and shorter terms make these loans more expensive in the long-term.

There are many loan options that require just 10% down and come with low interest rates and affordable monthly payments spread over 20 or more years. These are the best, most affordable loans to pursue.

What is the fastest way to get a commercial real estate loan?

One of the fastest ways to get funded is through a commercial bridge loan. However, these loans are short-term and will require pay-off or refinancing in a much shorter period of time.

Traditional bank mortgages and SBA loans can often take months. However, the SBA Express loan program is available in amounts up to $350,000 and comes with an approval within 36 hours. Another option is applying for an SBA loan via SmartBiz, which can significantly cut down the timeline for SBA loans.

I’m a veteran. What are my best options for commercial real estate loans?

The SBA offers the Veterans Advantage program for military veterans, service members, reservists, National Guard members, and qualifying spouses. Through this program, veterans enjoy the same benefits of the 7(a) loan program along with reduced fees.

I have bad credit. Can I get a commercial loan?

To qualify for loans with the best rates and terms, an applicant’s credit score should at least be in the high 600s. While some private lenders may opt to loan to applicants with low credit scores, higher down payments could be required and terms and rates may not be as favorable.

Small business owners with bad credit should work to improve low credit scores in order to take advantage of the most affordable commercial loan options.

Final Thoughts

Getting a commercial real estate loan takes time but it doesn’t have to be difficult. By shopping around, knowing what rates and terms to look for, and working with a reputable lender, the process for obtaining a loan can go smoothly, providing business owners with the funding they need to grow their businesses.

The post Commercial Real Estate Loans: Types, Rates, and How To Apply appeared first on Merchant Maverick.

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Business Auto Loans: Rates, Terms And Where To Find Them

From equipment to commercial real estate, it takes many resources to successfully run a business. For many businesses, vehicles are just another important part of operations. Whether it’s to deliver products to customers, drive sales, or to commute from one location to another, many businesses need reliable, dependable vehicles.

However, most small businesses don’t have the capital to purchase a vehicle with cash. This becomes an even bigger problem when multiple vehicles need to be purchased. In these situations, there is a solution: obtaining a business auto loan. Read on to find out more about the types of business auto loans, why you should consider a loan, and what to expect during the loan process.

What Are Business Auto Loans?

Business auto loans, or commercial auto loans, are a type of financing used to purchase vehicles used for business purposes. A business auto loan provides business owners with money that can be used to buy a vehicle from a dealership or private seller.

The advantage of commercial vehicle loans is that the business does not have to pay the full purchase price up front in order to take possession of the vehicle. Instead, the lender provides the needed funding, allowing the business owner to pay the total loan amount, plus interest and fees, over a longer period of time.

This is extremely beneficial for business owners, as they won’t have to pay tens of thousands of dollars out of pocket. Instead, they will have more manageable monthly payments while being allowed to use the vehicle. Essentially, the process works exactly as it would for a personal auto loan, only it is more tailored to businesses.

Business car loans can be obtained by businesses that need vehicles for any purpose. Whether it’s for delivery vehicles, commuter vehicles for employees, or vehicles to be used by salespeople, a business can receive one or even multiple loans in order to fund these purchases.

Commercial Auto Loans VS Leases

When evaluating funding options for business vehicles, there are two major options to consider: commercial auto loans and commercial auto leases. It’s important for a business owner to understand the differences between the two before starting the application process.

Commercial vehicle loans are used to pay for the vehicle over a period of time (typically 5 years, though terms can be longer or shorter). The borrower pays a set payment each month for the entire length of the term. This loan payment applies to both the principal amount that was loaned, as well as the interest paid to the lender for advancing the money.

While payments are being made, the lender will be listed as a lienholder on the title of the vehicle. This gives the lender the right to repossess the vehicle if the borrower goes into default. However, once the balance is paid in full, the lender will no longer be a lienholder. The title will be given to the borrower, who will then have full ownership of the car and can continue to use the vehicle, trade it in for another vehicle, or sell it outright.

The other type of financing is leasing. Leasing is more like a long-term rental. A lessee (in this case, the business owner) agrees to make monthly payments on the vehicle. The lease period will be for a set period of time, such as 3 years; during that time, a set number of miles per year can be driven. The car must be well-taken care of and not damaged while in use.

At the end of the lease period, the business owner has two options: they can pay off the balance of the lease and own the vehicle, or they can return it. When business owners return leased vehicles, they have the option to enter into another lease for a newer vehicle. Through a lease, the business owner will never own the car unless the vehicle is paid for with cash at the end of the lease period.

When Should I Get An Auto Loan?

An auto loan is a great choice for businesses that want to keep the vehicle for a longer period of time. Making payments to eventually own the vehicle is typically the best option for businesses that aren’t concerned about having the latest and greatest cars.

Auto loans are also the better choice for businesses that will rack up a lot of mileage. Since a lease restricts the number of miles driven annually, business owners that travel extensively in their leased vehicle could end up paying 10 to 20 cents per additional mile – costs that really rack up through the year.

A commercial auto loan may be the best choice for anyone that has a higher risk of damaging the car. Damage to the interior or exterior of the vehicle would result in wear-and-tear fees, which could add hundreds to the cost of a leased vehicle.

When Should I Get An Auto Lease?

A commercial auto lease may be the wiser choice for businesses that want to upgrade every few years to a newer model. If the car is taken care of and not driven too many miles each year, a lease could be a financially-sound decision.

A lease is also less expensive in the short-term. Down payments are often much cheaper for a lease, while monthly payments may be reduced as well. For short-term use, this may be ideal for business owners. At the end of a lease, the car can be purchased for a large lump sum payment. If the business doesn’t have the money, another lease can be signed for a different vehicle. However, this will start the cycle all over again; entering into leases repeatedly is ill-advised as it will result in thousands of dollars in payments without ever actually owning the car.

Business Auto Loan Borrower Requirements

While business car loan requirements vary by lender, an applicant should expect to gather similar documentation regardless of the chosen lender. Business and personal documentation are required to receive a business auto loan. Items such as business licenses and articles of incorporation will be required to prove ownership of the business. A federal Employer Identification Number will also be needed for the application. Sole proprietors without an EIN will be required to submit their Social Security numbers.

The borrower will need to prove that they are able to make the monthly payments on the loan or lease by submitting documents like tax returns, cash flow statements, and bank statements.

Business credit history will be considered during the loan process. In most cases, the personal credit history and score of the applicant will also be evaluated.

It’s important to note that there may be limitations on the financed vehicle if the business plans to save money by purchasing a used car. The borrower may be limited on the age of the vehicle, the mileage, and the value of the vehicle when purchasing a pre-owned car.

Can I Get A Business Auto Loan If I Have Bad Credit?

Business auto lenders will evaluate the credit score of the business. If the score is bad or limited, personal credit will be considered. But what happens if the applicant has a low credit score?

Commercial vehicle loans for bad credit do exist. However, business owners with poor credit should expect to receive higher commercial vehicle loan rates, which will increase the monthly payment amount. Higher down payments may also be required for borrowers with low credit scores. This is because an applicant with bad credit is seen as a higher risk to the lender.

Business owners with poor credit scores should evaluate the affordability of the loan. Acquiring a commercial vehicle will not only result in a monthly loan payment but also other expenses, including property taxes, insurance premiums, gas expenses, and maintenance and repair costs. High monthly payments could prove to be too much for a small business, leading to a default on the loan. This would result in another hit to credit scores, as well as repossession of the vehicle and possible legal action by the lender. In most cases, it makes more sense for a business owner to at least get their personal credit in order before accepting an auto loan.

Business Auto Loan Interest Rates & Terms

The best commercial auto loan rates are reserved for borrowers with the strongest credit histories and proven track records of cash flow. Currently, rates for the most qualified borrowers are under 3%. This rate could go as high as 18% or more for borrowers with poor credit scores or startup businesses. On average, most borrowers receive a rate of just over 4% over a 5-year repayment term.

Business owners who choose to refinance their loans in the future can save on payments with interest rates starting at 2.99%. Refinancing is a great option for small business owners that have high-interest loans and would like to reduce their monthly payments after building a positive credit history.

On average, business owners should expect to put 10% of the total vehicle cost toward the down payment. Maximum terms vary, but 60 months is a typical repayment term for most auto loans. However, this term may be longer or shorter depending on the policies of the lender.

Commercial truck loan rates may be different than for commercial vehicle loans. If a commercial truck is needed, a business owner will need to inquire as to the rates on these heavy-duty vehicles. Currently, interest rates for the most qualified borrowers are below 5%. On average, a 15% down payment on a commercial truck loan is required, but down payments may be as high as 25% of the total cost of the truck. In some cases, a lower down payment or even no down payment may be required, but this would only be available to applicants with strong credit histories and cash flow.

Can I Get A Business Auto Loan Without Signing A Personal Guarantee?

With most business auto loans, all owners with at least a 20% stake in the business are required to sign a personal guarantee. This means that all owners will be held personally liable for the debt. This is almost always the case for applicants with low business or personal credit scores.

Businesses with high credit scores may qualify for business auto loans without personal guarantees. This policy varies by lender and is typically reserved for applicants with the best credit scores. In some cases, a business auto loan refinance is possible after multiple payments have been made on time. During the refinance process, it is possible to put the loan solely under the name of the business without a personal guarantee.

Can I Get a Business Auto Loan Without Making A Down Payment?

Some lenders may offer no down payment options for the most qualified buyers. However, before accepting this offer, it’s important to think about the potential drawbacks.

Financing a vehicle with no down payment will result in higher monthly payments. Also, if the business wants to sell or trade in the vehicle during the life of the loan, they may be unable to do so without putting their own money into the transaction. This is because the loan payment may be “upside down,” which means that more money is owed on the vehicle than what it is actually worth. Entering into a loan with no down payment increases the odds of being upside down on the loan.

If the business doesn’t have the funds to pay a down payment, there are several options available. The first is to wait until there is enough money to make a sizable down payment of at least 10% of the total cost of the vehicle. If a car is needed immediately, other options can be explored, such as taking out a business car lease, which often has lower down payment requirements. Vehicles that are owned by the business and will no longer be in use can also be traded in at a dealership. Financed vehicles may be traded in toward the purchase of a new vehicle as long as there is equity.

Where To Get Business Auto Loans

Once a business has made the decision to move forward with a commercial auto loan, it’s time to begin the application process. The first step is to find a reputable lender to work with. While it is possible to go to an auto dealership to obtain a commercial vehicle loan, this usually results in multiple inquiries on a credit report, which can lower a credit score. Instead, business owners should shop around on their own and have funding in place before making the purchase. There are several options available.

The Small Business Administration (SBA)

Smart small business owners know that loans through Small Business Administration programs are extremely competitive. Though these loans can be difficult to obtain, they often come with great interest rates and repayment terms. While there isn’t a specific SBA commercial vehicle loans program, there are several programs available that provide loans that can be used toward the purchase of a commercial vehicle.

The 7(a) program, for example, offers up to $5 million for almost any business expense, including the purchase of equipment and vehicles. The SBA Express loan program is another option, providing up to $350,000 in funding and a guaranteed approval decision within 36 hours. These loans are obtained through intermediary partners of the SBA, including banks and credit unions.

SBA Microloans are another program to consider for smaller funding needs. If the vehicle to be purchased costs less than $50,000, this may be an option. These loans can be received through SBA-approved non-profit intermediary lenders.

Interest rates and terms are kept low due to the SBA’s program standards. SBA-approved loans are also backed by the government, so intermediary lenders are more willing to work with small businesses, even providing options for new businesses that have been in operations for under 2 years.

One potential drawback is that, with the exception of Express Loans, approval for these loans can take a long period of time. These loans are also reserved for business owners with higher credit scores at least in the high-600s. Think an SBA loan sounds right for your business? Read on to learn more about more about the pros and cons of SBA loans.

Banks & Credit Unions

Most banks and credit unions offer commercial vehicle loan options. Getting a commercial vehicle business loan from a financial institution is much the same as getting a personal auto loan. An application is filled out and documentation is required, including proof of ownership of the business and proof of cash flow.

Banks and credit unions will calculate a Loan-to-Value ratio. This equation involves dividing the total dollar value of the loan by the actual cash value of the vehicle. This percentage can be reduced with the down payment made toward the vehicle. Most banks and credit unions have limitations on the LTV of a financed vehicle, which varies by lender.
When applying for an auto loan through a bank or credit union, business and personal credit will be considered.

Interest rates and terms will be reliant on the applicant’s credit history. Applicants should have at least a credit score of 650 before applying. Lower scores may be accepted but will come at an increased cost. Commercial vehicle finance rates vary by lender; these loans can be approved more quickly than SBA loans but for larger amounts or more complicated credit situations, the process from application to funding can take several weeks or longer.

Most businesses opt to work with the financial institutions with which they have existing relationships. However, business owners that want to shop the best rates should read on to find out more about the banks with the best rates on business loans.

Alternative Lenders

Alternative lenders can be considered when a business doesn’t have a high credit score or a long time in operations. These lenders focus less on credit scores and the length of time in business and more on incoming cash flow. Typically, applications can be filled out online and the loans are funded in a short period of time.

However, there are drawbacks to working with alternative lenders. Typically, business auto loan rates and fees are much higher through these lenders. The overall cost of the loan may be much higher than it would be with a bank, credit union, or an SBA-approved lender. However, if obtaining the auto loan will benefit the business by improving operations and cash flow, this is a high return on investment that outweighs the cost of the loan.

With so many alternative lenders offering loans, it’s hard to decide which is best for business. Check out the top small business lenders that can help you purchase your next commercial vehicle.

Final Thoughts

There comes a time for many businesses when the purchase of a commercial vehicle is necessary. While it’s easy to want to rush the process and accept the first loan offer available, it’s important for a business owner to fully evaluate the needs of the business, as well as the overall cost of the loan.

Interest rates and requirements of business auto loans lenders should be fully understood before you sign on the dotted line. When applying for and accepting a commercial auto loan, the smart business owner will make a careful, calculated decision that will boost the business, not draw it deep into debt.

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Small Business Loan VS Personal Loan: Which Should You Get For Your Business?

business loan vs personal loan

To make money, you must first have money.

This is the iniquitous catch-22 of entrepreneurship. There’s no scarcity of solid business ideas out there. However, when it comes to the funding necessary to actually take these ideas from inception to reality, a would-be entrepreneur’s options are limited and flawed. Despite America’s rhetorical veneration of the small business owner, rates of new business formation have been declining ever since the 1970s — evidence of an economic system that prioritizes pre-existing wealth over hard work and ingenuity.

It’s a lot to swallow for a new generation of businessfolk — one burdened by the exploitation of inflated rents and crushing student debt — to be forced by circumstance to consider debt financing. However, in an age where ideal solutions are nonexistent, loans remain one of the primary means of funding a business. For those launching a startup or running a new business, this typically means one of two things: seeking a business loan or a personal loan. Let’s compare and contrast these two approaches to see which option best fits your circumstances as you seek to turn your dream into a thriving enterprise.

What Is A Personal Loan & How Can I Use It For Business?

A personal loan is a loan that is issued to you, personally, and not to any entity associated with you. Therefore, your ability to qualify for a personal loan — and, if so, the interest rate you will qualify for — is based solely on your own personal credit score along with other personal factors such as your income and credit history.

You can apply for a personal loan “offline” through a bank or credit union. For the sake of convenience, you might instead choose to apply for a personal loan from home through one of the many online lenders out there.

The personal loans offered by most loan vendors top out at about $50K — much smaller than the largest business loans (though it is possible to obtain a $100K personal loan from certain loan vendors). Term lengths typically run from one to seven years. And once you receive your personal loan, you can absolutely use it to fund your business operations, though you will have to disclose the intended purpose of your loan during the application process.

If you’re thinking of applying for a personal loan to fund your business, check out this article we wrote about personal loans and when/how to use them for business funding. You might also want to research some of the leading personal loan vendors.

What Is A Business Loan & How Can I Use It?

A business loan is a loan obtained by a business owner for the purpose of funding a business. As I will explain, business loans are more difficult to qualify for than personal loans, as business loans tend to be much larger than personal loans.

Due in part to the much larger amounts of money in play compared to a personal loan, the requirements for approval for a business loan are much more onerous. Essentially, you need to demonstrate the credit-worthiness of your business, not just yourself. Furthermore, if you apply for a business loan from a bank, you may well have to apply in person. However, just as with personal loans, there are online business lenders who won’t require your offline presence.

Business Loan vs. Personal Loan: How To Qualify

When you apply for a personal loan, even if you specify to the lender that you intend to use your loan to fund your business, the lender will determine your fitness for the loan by looking solely at your personal financial situation and not that of your business. Your personal credit score/history and income will be examined, and your debt-to-income ratio will likely be evaluated. If you qualify, both fixed and variable interest rates may be offered, and repayment periods range from 1 to 7 years.

Qualifying for a business loan is fundamentally different. While a business loan vendor will consider your personal credit in evaluating your worthiness for the loan, your business finances and business credit score will be examined as well and will be weighed even more heavily than your personal finances. Business tax returns, bank statements, and a detailed plan as to how you will use your borrowed funds will probably be required.

The extra work required speaks to the fact that borrowing amounts can be much greater with business loans than with personal loans. You can borrow more than $2 million with a business loan. In fact, you can borrow up to $5.5 million through a Small Business Administration (SBA) loan, though those loans can be difficult to obtain, particularly for startup companies.

When you apply for a business loan from a bank, you’ll probably need to apply in person and bring all your relevant business information with you. However, many online lenders offer business loans as well, and you may only have to submit your business’s financial details online.

Business Loan vs. Personal Loan: Rates & Terms

Business Loan Personal Loan

Borrowing Amount

$2 million+

Max. $100,000

Term Length

6 months – 25 years

1 – 7 years

APR

4% – 99%+

5% – 36%

Fees

Possible origination fee, assessment fee, packaging fee, referral fee, guarantee fee, or others

Possible origination/closing fee, application fee, referral fee, or others

Collateral

Possible personal guarantee, UCC-1 blanket lien, and/or specific collateral such as accounts receivable, real estate, or equipment

Usually unsecured

When To Get A Personal Loan For Business

Business loans are very difficult to qualify for if you’re running a startup business with little-to-no business history. If you’re looking for a loan to fund your brand spanking new startup, you’re far more likely to be able to qualify for a personal loan. It also helps if you have excellent personal credit and you don’t mind putting your personal credit score on the line (because it will be).

Another factor to consider: You can be approved for a personal loan and get funded much more quickly than with a business loan. Business loan applications can take weeks or months to process, whereas when you apply for a personal loan, you can get approved and get funding in a matter of days. Remember this if time is of the essence.

You’ll also have to consider whether or not you’re willing to put up assets as collateral. Personal loan vendors typically do not require putting up collateral, while business loan vendors typically have collateral requirements. With a personal loan, you may be risking your credit score, but at least you won’t be risking having your hard-earned assets seized.

If you’re seeking a personal loan to fund your startup, have a look at our startup loan comparison page in which we compare some of the top vendors of personal loans.

Ready to apply for a personal loan for business?

Lender Borrowing Amount Term Interest Rate Min. Credit Score Next Steps

$1K – $50K 3 or 5 years 6.82% – 26.75% 620 Apply Now

$2K – $35K 3 or 5 years 6.95% – 35.99% APR 640 Apply Now

lending club logo

$1K – $40K 3 or 5 years 5.32% – 30.99% 640 Compare

$2.5K – $35K 3 – 7 years 6.99% to 24.99% 660 Compare

Is It Okay To Mix Personal And Business Finances?

When you’re trying to get your startup off the ground, it may not be possible to entirely separate your business and personal finances. Life can be messy like that. However, you should separate the two as soon as you can.

Consider setting up a separate business bank account for the funds obtained through your personal loan, and try to use said funds exclusively for business purposes. You’ll be glad you did, as this will greatly simplify your taxes and your accounting. If you want to learn more about keeping your business and personal finances separate for legal purposes, check out 12 Tips For Preventing A Tax Audit.

When To Get A Small Business Loan

If you’ve been running your business for two years or more, you’re far more likely to qualify for a business loan than if you have a shorter business history. It’s possible to get a business loan with just one years’ worth of business history, particularly with some online lenders (a few of which require only 6 months of business history), but it may be more difficult. If your startup is brand new and you have no business history, pursuing a business loan will probably be a futile endeavor.

It also helps to be making decent revenue. You’ll typically need a monthly revenue of at least $10,000 to qualify for a business loan, though some online lenders have more relaxed requirements.

Additionally, consider the amount of funding you need. The absolute maximum amount you can borrow with a personal loan is $100,000. If you need significantly more money than that for your business operations, you’ll want to apply for a business loan, as the borrowing amounts can be much higher. Also, if you’re looking for something other than a term loan, like invoice financing or an equipment loan, you’ll need to go to a business loan vendor.

If a business loan sounds right for you, check out our small business loan comparison chart where we compare leading business loan vendors.

Ready to apply for a small business loan?

Lender Borrowing Amount Term Interest/Factor Rate Req. Time in Business Min. Credit Score Next Steps

$5K – $500K 3 – 36 months x1.003 – x1.04/mo 12 months 500 Apply Now

$5K – $500K 13 – 52 weeks x1.029 – x1.1872 9 months 550 Apply Now

$2K – $5M Varies As low as 2% 6 months 550 Apply Now

$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

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Small Business Microloans: What They Are And Where To Get Them

Most small business owners already know they can turn to lenders for help to cover large expenses, like the purchase of a fleet of vehicles, expensive equipment, or commercial real estate. However, these loans are often difficult to obtain from traditional lenders like banks, particularly for very small or newly established businesses.

Whether you need a relatively small loan amount or don’t qualify for funding from traditional lenders, there are options out there. In fact, one of the best ways small business owners can fund their business expenses is via microloans.

Ready to explore alternative business loan options? Read on to learn more about microloans and why today’s small business owners are leaning on this source of financing to bolster their businesses.

What Are Microloans?

business loan vs personal loan

A microloan is defined as a small loan that is typically for $50,000 or less. Microloans offer an alternative to traditional bank loans. These loans are for smaller amounts, so they are easier to qualify for, opening up options to small businesses that aren’t eligible for conventional loan options, either due to low revenue or lack of establishment.

How Can Microloans Be Used For Business?

Microloans can be used for almost any business purpose. Microloan proceeds can be used for a startup project or to get a business off the ground. Loans can be used to expand a business through the purchase of equipment, an office lease, or the hiring of employees. Microloans can also be used as working capital. Specific microlenders may have their own policies surrounding what expenses can be paid using loan proceeds.

What Type Of Business Would Benefit From A Microloan?

The businesses that would benefit most from microloans are smaller businesses with fewer employees and lower capital needs. A business that needs a large sum of money for a big expense, like purchasing commercial real estate, should consider other options.

Business owners that would not qualify for traditional bank loans are also great candidates for microloans. This includes startups and new businesses that may not have the documentation, years in business, or revenue required for other loan options. Microloans can be a great choice for women-owned and minority-owned businesses, as well as businesses in underserved and low-income areas.

Because requirements are not as strict, business owners with lower credit scores may qualify for microloans. In addition to getting the money that is needed at the moment, when the loan is paid as agreed, it can help a business boost its credit score to potentially qualify for larger loans in the future.

What Interest Rates Can I Expect From A Microloan?

Like other types of loans, microloan rates vary based on a number of factors, including the chosen lender’s policy and the creditworthiness of the borrower.

Credit score is still an important consideration for microlenders, although minimum score requirements are typically lower than they would be for bank loans and other conventional business loans. Borrowers with the highest credit scores will receive the best interest rates, while borrowers with lower scores will typically be approved with much higher rates.

Other risk factors may be evaluated when determining the interest rate of a microloan. This may include time in business or whether collateral will be required. Borrowers that have collateral to offer may qualify for lower interest rates and better terms.

With all of these considerations, what kind of interest rates should a borrower expect to see when applying for a microloan? On the lower end, an average rate of about 6% for the most qualified borrowers is possible through some lenders.

However, most borrowers should expect to receive interest rates between 8% and 18%. Borrowers with lower credit scores may receive even higher interest rates – sometimes 30% or more.

While these interest rates are higher than those of other loans, easier qualifications and the resources provided by microlenders make them an appealing choice for many small business owners.

Microloan Borrower Qualifications

Borrower qualifications for microloans are much less stringent than they are for other types of small business loans. Requirements vary by lender, but there are a few general rules to remember.

Some microlenders, such as Small Business Administration intermediaries, have their own definitions of a “small business,” which may limit the number of employees, annual revenue, and net worth of the business.

Business owners that seek out microloans should also have a credit score of at least 620. Most microlenders require a score in the low- to mid-600s, at a minimum. While some lenders may accept lower scores, interest rates will typically be much higher.

Borrowers of microloans must not request funding over the organization’s limits, which is usually $50,000. It is important to note here that many organizations receive federal grants and have a limited amount of money to give, so a borrower may not be approved for the maximum amount. Microloan borrowers must also use the loan proceeds only for approved business expenses.

Collateral may be required for some microloans but will depend upon the creditworthiness of the borrower, the amount of the loan, and the lender’s own policies. Even if specific collateral is not required, a personal guarantee or blanket lien is typically part of the loan contract.

Where To Find Microloans

Does a microloan seem like it will be the logical financing choice for your business or startup? If so, the next step will be to begin the application process, which starts with finding a microlender.

The Small Business Administration (SBA)

Loans through Small Business Administration programs have gained a solid reputation among business owners because of their low rates and favorable terms. The SBA’s Microloan program is no exception.

SBA 504 Loans

Borrowing Amount

$500 – $50,000

Term Lengths

Up to 6 years

Interest Rates

6.5% – 13%

Borrowing Fees

Possible fees from the loan issuer

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral normally required, but depends on the lender

Down Payment

  • No down payment for most businesses
  • Possible 20% down payment for startups
  • Possible 10% down payment for business acquisition loan

SBA Microloans are not issued directly through the organization. Instead, loans are obtained through non-profit intermediaries. Funding of up to $50,000 is available, but the average loan amount distributed through this program is $13,000.

Funds from the SBA Microloan program can be used for the purchase of supplies, inventory, fixtures, machinery, and equipment. It can also be used as working capital. Loans cannot be used for the purchase of real estate or to refinance existing debt.

The maximum repayment term for SBA Microloans is 6 years and interest rates range between 8% and 13%. Collateral may be required, as well as a personal guarantee. Loans are available to for-profit small businesses and non-profit childcare centers.

Non-Profit Lenders

There are many non-profit lenders that provide millions of dollars in microloans each year. One of the most popular is Grameen America, which provides microloans of $1,500 and financial training to female entrepreneurs.

Another popular microlender is Kiva, which provides up to $10,000 at a 0% interest rate. Borrowers prove their creditworthiness by inviting friends and family to loan to them, then can fundraise to over 1.6 million lenders through Kiva’s platform for 30 days. Borrowers have up to 36 months to repay the loan.

Other nonprofit lenders serve particular regions in the United States. For example, Accion New Mexico provides lending services and business counseling to borrowers in New Mexico, Nevada, Texas, Colorado, and Arizona. Opportunity Fund is another microlender that services business owners in the state of California. A quick online search will yield non-profit lenders in your area, or you can ask for microlender referrals through colleagues, friends, family, or your financial institution.

Alternative Lenders

Alternative lenders have risen in popularity in recent years because they have simplified the lending process. While most alternative lenders do not classify themselves as microlenders, they often have smaller loans available for small businesses.

A few of the most popular options include Credibly, LoanBuilder, and OnDeck.

Lender Max. Borrowing Amount Rates Req. Credit Score Next Steps

$250,000

9% – 36% factor rate

500

Visit Site

$500,000

2.9% – 18.72% factor rate

550

Visit Site

$500,000

9.4% – 99.7% APR

500

Visit Site

These loans are top choices for business owners because of easier requirements and faster approval and funding. However, interest rates for these loans may be higher than other options and terms not as favorable. When choosing an alternative lender, it’s important to fully assess the total cost of the loan, including interest and fees, to ensure it’s a wise business decision.

How To Apply For A Microloan

Once a lender has been selected, it’s time to begin the application process. This process varies from lender to lender, but there are generally a few similarities across the board.

Before you start the application, pull your credit report and score. This is an easy step, since you can access your credit score online at no cost. Review your score and make sure that it aligns with the requirements of your chosen lender. If not, consider other options or work to clean up your credit before applying.

Once you’re ready to apply, an application will need to be submitted along with documentation. This may include personal and business financial statements, bank statements, and financial projections. Some lenders require a detailed business plan, especially from startups and new businesses. Documentation requirements vary by lender, and more paperwork may be required after you begin the process.

For some microloans, specific collateral may be required, especially for larger amounts. However, if specific collateral is not required, a blanket lien may be included in the loan contract, or you may be required to sign a personal guarantee holding you liable for the debt if the loan goes into default.

One of the best things about microloans is that the application process can be much more personalized. Microlenders are often very willing to walk you through the entire process and provide advice and resources if needed.

Some microlenders require borrowers to go through training or classes before the loan will be approved and released. You should take advantage of these resources, which can help put you on the path to operating a successful business.

Once all documentation is submitted and requirements have been met, the microlender will come to an approval decision. This could take just a few days (with alternative lenders) or a few weeks or longer (with SBA and non-profit organizations). Once approved, the loan will be distributed based on the lender’s policies.

Alternatives To Small Business Microloans

If you need a smaller loan but don’t want to go through the process of finding a microlender and applying for a microloan, there are alternative options available that could better fit your needs.

Business Credit Cards

If you don’t qualify for a microloan or would rather have access to your funds much more quickly, business credit cards may be the answer. Business credit cards are typically approved in just days and are often available to businesses with low credit scores.

Business credit cards can be used toward any business expense. The card can be used up to and including the credit limit set by the issuer. A business credit card can be used for startup costs, larger purchases, or as working capital. Interest is applied only to the portion of the credit limit that has been used.

It’s important for anyone getting a business credit card to understand the interest rates. Borrowers with lower credit scores will often be stuck with a higher APR, so it’s important to use these cards responsibly. Borrowers should also be aware of any fees that are associated with having the account to understand the true cost of using the card. As with any other financial product, credit cards should be used responsibly. This includes spending only when necessary and paying the balance down as quickly as possible to avoid paying years of interest.

Personal Loans for Business

Getting a business loan can be difficult, especially for startups and new businesses. Many banks and lenders will turn these businesses away because they don’t have a solid reputation. However, borrowers with high personal credit scores can consider taking out a personal loan for business.

With a personal loan, the history of the business, including its credit, will not be a consideration. Instead, the income and the credit score of the borrower will be used to determine eligibility. Some lenders do provide personal loans to applicants with low credit scores, but these loans can often be very expensive because of high interest rates.

Invoice Financing

If unpaid invoices are causing cash flow issues, a conventional loan isn’t the only solution. Instead, businesses can look to invoice financing to resolve these cash flow challenges.

There are two different options to consider for invoice financing. The first is invoice factoring. A lender will pay a percentage of the unpaid invoice to the borrower. The lender will then collect from the customer. Once the invoice has been paid, the remaining amount will be paid to the borrower, minus fees and interest charged by the lender.

Invoice discounting is the other option. A large percentage of the invoice is paid to the borrower by the lender. The borrower collects payment from the customer and pays back the loan, along with interest and fees.

Invoice Financing Invoice Factoring

Uses invoices as collateral for a line of credit

Sell invoices for immediate cash

You are granted a credit facility based on the value of your unpaid invoices, and can draw from your available funds at any time

Factor gives you an advance when the invoice is sent and sends you the rest once the customer pays (minus a factoring fee)

You are responsible for collecting invoice payments

Factor is responsible for collecting invoice payments

Invoice financing is best for businesses that have unpaid invoices and need cash immediately. The invoices serve as the collateral for the loan, while credit requirements are not as strict as with other loan options.

Final Thoughts

Microloans can provide much-needed funding for small businesses that have faced challenges when applying for other types of loans. While these loans can certainly help a business get off the ground or overcome financial hurdles, as with any loan, be aware of the costs of the loan to ensure there will be a return on investment and compare all of your options to ensure you’re making a sound decision for your business.

The post Small Business Microloans: What They Are And Where To Get Them appeared first on Merchant Maverick.

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