What Is Collateral And Do I Need It For A Business Loan?

To push your business forward, you’ve decided to apply for a business loan. You’ve decided how much money you need and how you will spend it. Maybe you’ve even done some research on lenders in your area. Now, it’s time to navigate the application process.

For even the savviest business owners, getting a business loan can be a challenge. Selecting the right loan and researching APR and repayment terms can be tricky. Gathering the right documentation and understanding the requirements of taking the loan can be time-consuming. In addition to business and personal documentation, your loan will have other requirements, including collateral.

If you’ve ever taken a loan before, you’re likely familiar with collateral. However, if you’re new to borrowing, this seems like just another piece of the financing puzzle to figure out. Luckily, the concept of collateralizing loans isn’t difficult at all. Read on to learn more about collateral, what qualifies as collateral, and why it’s required for business loans.

What Is Collateral?

Collateral is an asset that is used to secure a loan. In other words, collateral is something of value that shows the lender you are prepared to pay your loan.

Lenders loan money to businesses and consumers, but this can be a big risk. Even though most people and businesses have good intentions, sometimes they fall upon hard times and become unable to make their loan payments. Other times, there may be unscrupulous borrowers who don’t plan to pay back the loan at all. With collateral, a lender can protect itself.

A lender puts a lien on the collateral that is pledged for the loan. If the borrower goes into default, the lender has the right to seize the property, which can then be sold to pay off the debt. This process ensures that if a borrower stops paying on a loan, the lender will get still get paid.

Collateral doesn’t just offer benefits for the lender, though. By pledging collateral, a business owner can show the lender that they aren’t a high-risk borrower. This could lead to reduced interest rates, which ultimately results in a more affordable loan. Collateral can also help open up other financing options for borrowers, such as higher loan amounts or loans that they would otherwise not be qualified to receive.

Can I Get A Business Loan Without Collateral?

Best Cash Flow Loans For Small Businesses

Whether collateral is needed for a loan depends on the amount of the loan, the loan taken, the creditworthiness of the borrower, and the policies set by the lender. For installment loans of a smaller amount, specific collateral is not required. Collateral is generally not required for business loans like lines of credit, credit cards, and short-term loans.

However, it is important to note that while the lender may not require specific collateral, a personal guarantee is usually required for most business loans. This means that all owners (generally anyone with a 20% or more stake in the business) must sign and acknowledge that they will be held personally responsible for the loan. Personal assets can be seized to pay the debt owed. This also means that the lender can take legal action if needed, and any collections, missed payments, late payments, or defaults will appear on the personal credit reports of the owners.

For some business loans, a blanket lien may be required. A blanket lien gives a lender the legal right to seize any and all of the borrower’s assets if the loan isn’t paid.

Collateral requirements, blanket liens, and personal guarantees will be established in your loan contract, so before signing, make sure you understand the collateral policies put in place by the lender.

What Can Be Used As Collateral To Secure A Loan?

While each lender will have their own policies about what type of collateral can be used to secure a loan, in general, anything of value can be used as collateral.

For a business loan, business assets such as equipment, vehicles, buildings, and inventory can be used as collateral. Accounts receivables can also be used as collateral. Any business asset that has value and can be sold by the lender to pay off the loan if necessary can be considered collateral.

As I mentioned above, for many business loans, a personal guarantee is required, which means that personal assets such as vehicles, real estate, or personal cash can be used to pay back the loan in the event of a default.

While some loans may require business owners to pledge a specific asset, other lenders will require a blanket lien. This gives the lender the right to all of a borrower’s business assets, which can be seized to pay off the loan if the borrower defaults.

How Much Collateral Do I Need For A Loan?

The amount of collateral needed for a business loan varies based on a number of factors. The loan amount is one factor that will need to be considered. A loan of a higher value will almost always require collateral. Many lenders require loans exceeding a certain amount to be backed with commercial or personal real estate. Smaller loan amounts may not require specific collateral but will come with a personal guarantee or blanket lien requirement.

Business owners with low credit scores or no credit history may also be able to qualify for a loan by securing it with collateral.

Different types of loans also require different types of collateral. For example, the collateral for equipment financing is the equipment itself. An installment loan, on the other hand, may require the borrower to put up specific business assets or sign a personal guarantee.

Again, it’s important to fully understand what collateral is required based on the loan you’re pursuing. All collateral requirements will be discussed by your lender and included in your contract.

Types Of Business Loans That Commonly Require Collateral

As previously mentioned, most business loans do require some form of collateral, whether it is specific property or takes the form of a personal guarantee. Before jumping into the loan application process, know what type of collateral is required based on the type of business loan you’re applying for.

Bank Loans

Bank loans are very common for business owners since these loans can be used for almost any business purpose and come with extremely competitive rates and terms.

The collateral requirements for bank loans vary. However, at the very least, a personal guarantee or blanket lien is required. With some bank loans, though, specific collateral is required by the lender, especially for higher loan amounts. If specific collateral is required, this could be in the form of business assets including buildings and equipment, or in some cases, personal real estate or assets.

Small Business Administration (SBA) Loans

Small Business Administration loans are loans that are guaranteed by the SBA. These loans are distributed through intermediary lenders, which includes banks, credit unions, non-profit organizations, and Certified Development Companies.

All SBA loans require some form of collateral, even if it’s just a personal guarantee. For example, specific collateral is not needed for SBA 7(a) loans up to $25,000. Standard 7(a) loans that are more than $350,000, on the other hand, will need to be fully collateralized by the borrower. Business assets and in some cases, personal real estate, can be used as collateral. For the SBA 504 loan program, the collateral is the asset being financed with the loan proceeds.

Even when specific collateral is not required, having collateral can potentially help business owners better qualify for some SBA loan programs.

Commercial Real Estate Loans

Commercial real estate loans are loans that are used to purchase land or commercial real estate. These loans can also be used to refinance existing commercial real estate loans or to fund additions to existing facilities.

Commercial real estate loans are similar to personal mortgages when it comes to collateral. Instead of pledging something that is already owned, the real estate being purchased with the loan proceeds serves as the collateral. This means that if the business owner defaults on the loan, the land or building can be seized by the lender and sold to pay off the debt.

Equipment Loans

An equipment loan is used to purchase new equipment needed by a business for operations. Typically, the collateral for this type of loan is the equipment being purchased with the borrowed funds. If the borrower defaults, the equipment can be taken and sold to pay off the remaining balance of the loan.

Inventory Loans

Inventory loans are a type of financing used to purchase inventory for a business to sell to its customers. If the business cannot sell the inventory and is unable to make the loan payment, the inventory purchased with the loan proceeds serves as the collateral.

Invoice Financing

Invoice financing is a type of loan that is given for unpaid invoices. Invoice factoring allows a lender to pay the business a percentage of the invoice. The lender collects payments for the invoices and once paid, pays the remainder of the invoice total to the business, minus interest and fees charged for the service.

Invoice discounting is another type of invoice financing. The business is paid a lump sum for the unpaid invoice, which is generally 90% to 95% of the total amount. Once the business collects the payment from the customer, the loan is paid back to the lender, along with the remaining percentage for interest and fees.

With both types of invoice financing, the unpaid invoices serve as the collateral.

Final Thoughts

Before applying for a loan, make sure that you fully understand the need for collateral. Not only does this provide the lender with the protection it needs to confidently loan money to businesses, but it also can help pave the way for you to get a loan.

Before signing your loan paperwork, make sure that you fully understand what you are putting up as security and analyze your personal financial situation to ensure you’re not stuck with a bad deal further down the road. Shop around for better loan options if you need to. With proper planning, a little knowledge, and responsible borrowing, pledging collateral to obtain a business loan will only help you get the money you need when you need it.

The post What Is Collateral And Do I Need It For A Business Loan? appeared first on Merchant Maverick.


The 10 Best Restaurant Management Software Apps

It’s almost 2019, if you can believe it, and more than fall leaves or pumpkin spice lattes, tech fans like myself relish the smell of a freshly unboxed smartphone (thanks to Apple’s annual September unveiling). But it’s not just consumers who love mobile tech; businesses do too.  As mobile technology becomes more powerful, businesses — including restaurants — enjoy increasingly robust mobile hardware which can handle more powerful and nuanced software functions.

Indeed, restaurant managers, in particular, have an increasing number of mobile management applications at their disposal. From tablet-based POS systems that accept mobile payments to online reservation services that let customers reserve a table with an app, more restaurant management functions are being conducted online and on mobile devices. But with all the restaurant apps out there, how do you know which ones you should use? Think of it kind of like cooking: if you use too much or too little of an ingredient, it ruins the dish. Similarly, if you use too many management apps, there’s too much overlap in services (not to mention the fact that you’ll run out of bandwidth and money), and if you use just one or two services, you may miss out on critical features.

To help you out, I’ve put together this list of the top restaurant management apps in terms of both quality and popularity. From employee management to accounting to raw ingredient tracking, modern mobile restaurant software can help you with every restaurant management task you can imagine.

I’ve divided these top 10 best restaurant management apps into restaurant point of sale (POS) software apps—which are often complete restaurant management systems with few if any third-party add-ons required— and other restaurant management apps which offer more specific, targeted functionality.

Restaurant POS Systems

Toast TouchBistro Breadcrumb ShopKeep Lightspeed Restaurant



Breadcrumb POS by Upserve


Lightspeed Restaurant

ShopKeep alternatives for restaurants

Visit Site 


Visit Site 




Visit Site 


Visit Site 


Monthly fee




Get a quote


Cloud-based or Locally Installed


Locally installed




Compatible credit card processors

Toast only

TouchBistro Payments, Square, PayPal, Moneris, Cayan, Chase Paymentech & more

Upserve Payments only

Shopkeep Payments & some others; contact your processor to see if they are supported

Cayan or Mercury in US; iZettle in Europe

Business size

Small to large

Small to medium

Small to large

Small to medium

Small to medium

The awesome thing about today’s app-based restaurant point of sale systems is that they are often complete restaurant management systems. Or if they do not include essential restaurant management functions, they will typically have integrations that work together with other restaurant management apps (for accounting, staff scheduling, inventory management, etc.). As such, your restaurant POS system is a good basis on which to build any other add-ons to your restaurant application suite.

1. Toast

Review Visit Site


  • Android-based restaurant POS
  • All-in-one restaurant management system
  • Advanced inventory management
  • Add-ons for kitchen display system, kiosk POS, online ordering, delivery management, and more

Try it out: Schedule a Toast demo

Toast is a complete, Android-based restaurant point of sale system and restaurant management system for restaurants of any size. With strong front-end and back-end features, Toast not only takes payments with integrated payment processing, but also tracks your sales, labor, and inventory, organizing that information into useful, internet-accessible reports.

With mobile POS tablets, servers can send orders directly to the kitchen and even process payments right from the table. Kitchen display system and kiosk ordering are some other high-tech add-ons available for purchase from Toast.

Useful Features:

  • Customer data management system
  • Menu creation with comprehensive modifier system
  • Labor management including employee time tracking
  • Inventory management system that includes a recipe costing tool, food cost calculator, and menu engineering chart that shows you your best-selling and most profitable menu items
  • 24/7 customer support
  • Online ordering (extra monthly charge)
  • Delivery management system (extra monthly charge)
  • Customer loyalty program (extra monthly charge)
  • Gift cards (extra monthly charge)

Integrations With Other Restaurant Software:

  • Compeat
  • PeachWorks
  • CrunchTime
  • PayTronix
  • Bevager
  • GrubHub (online ordering and delivery)
  • Samsung Pay
  • Kitchensync

Toast also has an open API which lets you create your own applications, should you be so inclined.

The Quick & Dirty:

Pricing for this complete POS and restaurant management system starts at $79/month. Overall, Toast is a good option for restaurants that want a complete restaurant POS and management system and prefer a non-iPad POS.

2. TouchBistro

ShopKeep alternatives for restaurants


Review Visit Site


  • iPad POS system for restaurants
  • Affordable
  • Locally installed
  • Compatible with multiple payment processors
  • Table management with reservations add-on

Get started with TouchBistro: Get a custom quote

TouchBistro is a bestselling iPad POS app for restaurants. While it isn’t an “all-in-one” restaurant management system like Toast, it’s cost-effective, easy to use, and very good at what it does. TouchBistro runs as an app on via one or more iPads, with multi-iPad setups keeping in sync via a local Apple server.

TouchBistro does have some online reports allowing you to view your restaurant metrics anywhere with an internet connection, but it does not require a WiFi connection to operate, other than to process credit card payments. TouchBistro integrates with multiple payment processors.

Useful Features:

  • Tableside ordering
  • Table management with visual layout
  • Menu management
  • Kiosk option
  • Employee management
  • Loyalty program (extra monthly charge)
  • Reservations function with TouchBistro Pro

Integrations With Other Restaurant Management Software:

  • 7Shifts
  • Xero
  • Shogo
  • Square
  • Quickbooks
  • JUST EAT (for online ordering)

The Quick & Dirty:

In summation, TouchBistro a very capable iPad POS for small-to-medium restaurants that are budget-conscious and may not have a powerful internet connection. Pricing starts at $69/month.

3. BreadCrumb POS By Upserve



  • All-in-one restaurant POS and restaurant management system
  • iPad-based
  • Fully cloud-based
  • Fully integrated online ordering
  • Must use Upserve for payment processing

Compare: Compare Breadcrumb with other top-rated iPad POS software

Breadcrumb is an all-in-one restaurant management and iPad POS system which could perhaps be considered the iPad-based answer to Toast. Comprehensive restaurant-centric management features that let you manage tables, employees, and menu items with a few finger taps make this restaurant software application suitable for any full-service or quick-service restaurant, no matter the size.

Breadcrumb is fully cloud-based and requires no on-premise server. In-house payment processing is provided exclusively by Breadcrumb’s parent company, Upserve.

Useful Features:

  • Customizable interface
  • “Offline” mode allows you to continue using POS and taking payments if internet goes down
  • Table management with color coding and meal progression graphic
  • Choice between “Server” mode with table view and “Quickserve” mode for bartenders and other quick orders
  • Fully-integrated online ordering system
  • Detailed online reporting suite
  • 24/7 support

Integrations With Other Restaurant Software:

  • Grubhub
  • Shogo
  • Restaurant 365
  • Peachworks
  • 7Shifts

The Quick & Dirty:

Breadcrumb pricing starts at $99/month. Again, it’s a solid all-in-one restaurant POS system for iPad with an array of restaurant features. When compared to Toast, however, Breadcrumb might come up slightly short in some respects, such as inventory management. However, Breadcrumb offers integrations with third-party restaurant apps to help fill in any functionality gaps.

4. ShopKeep

Review Visit Site


  • Powerful retail and restaurant tools
  • Available on iPad (Analytics app on iOS)
  • Multiple hardware options available
  • Pricing based on custom quotes 
  • Loyalty program only as add-on

Excellent all-around POS: Get your custom quote

While it can be used for either restaurant or retail environments, ShopKeep is a great all-around POS software system that’s reasonably priced and extremely easy to use. Aimed at small businesses in particular, this iPad POS software has a pleasant, Apple-centric interface with convenient register buttons for the most popular menu items. ShopKeep uses a “hybrid” data storage system in which data is stored locally on your restaurant’s iPads, and then syncs back to the cloud when there is an internet connection.

As with the other restaurant POS apps on this list, ShopKeep has integrations to make up for any restaurant management features it doesn’t have, such as advanced inventory management and online ordering.

Useful Features:

  • Integrated ShopKeep Payments payment processing
  • Comprehensive register functionality
  • Extensive back-office reporting suite
  • Raw ingredient inventory management
  • 24/7 customer support
  • Staff management tools
  • ShopKeep Pocket App to track restaurant metrics from iPhone or Android

Integrations With Other Restaurant Software:

  • MailChimp
  • ChowBot (online ordering and delivery)
  • Quickbooks
  • AppCard

The Quick & Dirty:

ShopKeep is an affordable and capable iPad POS that works well for small restaurants of any type. ShopKeep pricing is customized based on your individual business’s needs and is comparable to TouchBistro or Lightspeed Restaurant. Note that while Shopkeep does provide fairly priced in-house payment processing via Shopkeep Payments, you can also use an outside payment processor.

5. Lightspeed Restaurant 

Review Visit Site


  • Affordable iPad POS for restaurants
  • Fully cloud-based
  • Also works on iPhone and iPod touch
  • Best for small-to-medium restaurants

Try out Lightspeed Restaurant: Free trial offer

Lightspeed Restaurant is an app-based iPad POS system built specifically for—you guessed it—restaurants. Lightspeed is not the most complete restaurant POS out there, but it is highly mobile-friendly and certainly delivers a lot of bang for your buck.

The Lightspeed Restaurant app requires iOS 9.3 or later to operate and you can access the backend via any internet-connected web browser. In addition to iPads, Lightspeed can even be used on an iPhone or iPod touch, though using the app on those two devices is best for basic features such as clocking in and quick orders.

Useful Features:

  • Intricate employee management
  • Raw ingredient tracking
  • Tableside ordering lets servers show pictures of menu items to customers
  • Floor planner
  • 24/7 phone support excluding holidays
  • Ability to set up timed promotions
  • In-depth reports

Integrations With Other Restaurant Management Software:

  • Resengo
  • Orderlord
  • QuickBooks
  • Xero
  • MarketMan
  • AppCard
  • Multiple online ordering services

The Quick & Dirty:

Lightspeed Restaurant pricing starts at $69/month. This cloud-based iPad POS app is perfect for small-to-medium restaurants of any type.

Other Restaurant Management Apps

What follows are some more restaurant management apps. Rather than the complete restaurant management tool that POS systems provide, these apps have a limited, specific function — like reservations or email marketing — and may integrate with your POS system or be used separately.


6. OpenTable

OpenTable is an online reservation and waitlist system that’s convenient to use for both restaurateurs and customers. You can access the app on your smartphone or tablet to view or change reservations, and to see your waitlist in real time. OpenTable is a highly useful tool for restaurant managers and waitstaff alike.

Useful Features:

  • Guests can make online reservations from your website, the OpenTable app or website, or third-party
  • Monitor status of each table in your restaurant
  • Shift management tool

POS Integrations:

  • Aloha
  • Micros
  • POSitouch
  • Heartland Dinerware
  • Squirrel Systems
  • Toast (coming soon)

The Quick & Dirty:

OpenTable is online reservation software for restaurants of any type, especially favored by trendy, upscale bars and eateries. OpenTable’s “Connect” option has limited features but only costs between $0.25 and $2.50 for each booked guest. The “GuestCenter” option with more advanced restaurant management features and POS integration is $249/month + $1 per reservation.

7. Fivestars

fivestars logo

Fivestars is a mobile rewards program for local businesses such as restaurants. Customers sign up for Fivestars’ loyalty program either at your restaurant or via the Fivestars mobile app and start earning rewards and receiving promotional offers via text, email, or push notification. Your staff then redeems your customers’ rewards and offers from your POS or a mobile device.

Fivestars also has a lot of cool marketing features that vary depending on which plan you choose. Whether you want to encourage repeat business or gain a competitive edge on other restaurants in your area, Fivestars will help you do both.

Useful Features:

  • Automated rewards and promotions
  • Send one-time offer anytime your sales need a boost
  • Multiple options for setting up rewards system, e.g., customers could earn points per-dollar, per-visit, etc.
  • Social media integration
  • Customer data collection

POS Integrations:

  • Clover Station
  • Clover Mini
  • QuickBooks POS
  • Harbortouch
  • Aloha
  • Aldelo
  • Windows POS

The Quick & Dirty:

Fivestars online loyalty software is especially popular among cafes and coffee shops, but it’s also used by full-service restaurants, bars, bakeries, smoothie shops, and every other type of brick-and-mortar eatery. Fivestars’ starter plan—which includes two customer-facing tablets, POS integration, the Autopilot program, onboarding and three training sessions—is $279 per month.

Best Accounting Mobile Apps

8. QuickBooks Online

QuickBooks is essential accounting software for small businesses, and restaurants are no exception. In recent years, this quintessential business software has become has become more online and mobile-friendly, with the introduction of QuickBooks Online and excellent mobile apps for iOS and Android.

Besides making accounting tasks simple and affordable for independently owned restaurants, cloud-based Quickbooks Online also integrates with most modern restaurant POS systems.

Useful Features:

  • True double-entry accounting
  • Live bank feeds for easy bank reconciliation
  • Unlimited estimates and invoices
  • Accounts payable with ability to create purchase orders and convert them to bills
  • Easy-to-use payroll and other employee management features (for additional cost)

POS Integrations:

Quickbooks Online integrates with most restaurant POS systems. Usually, the question is not whether Quickbooks integrates with your POS, but rather, the quality of the Quickbooks/POS integration. A direct, seamless integration is ideal. Here you can read about 7 POS system that have direct integrations with Quickbooks.

The Quick & Dirty:

QuickBooks online is cloud-based accounting software for any internet connected device. Depending on which features you need, QuickBooks online will set you back between $15 and $50/month.

Xero logo

9. Xero

Xero is a QuickBooks alternative which many restauranteurs around the world use every day to manage their restaurant’s accounting tasks. Just like QB Online, Xero has both iOS and Android apps and can be accessed via any internet-connected device. Xero also integrates with many cloud-based restaurant point of sale systems.

Xero doesn’t have as many features as QuickBooks; for example, payroll support is limited to only 37 states and there is no job-costing feature. However, Xero also costs a lot less than QuickBooks.

Useful Features:

  • Accounts payable feature with recurring bills and purchase orders
  • Unlimited users with extensive user permissions controls
  • Double-entry accounting
  • Excellent customer service
  • Easier to use than QuickBooks (in most respects)
  • 500+ integrations

POS Integrations:

While Quickbooks is the most popular accounting software system, Xero is catching up and most major POS systems integrate with Xero as well as Quickbooks. Some of these systems include:

  • Square for Restaurants
  • Nobly POS
  • TouchBistro
  • Lightspeed
  • Vend
  • Shopify POS

The Quick & Dirty:

With pricing starting at just $9/month, online accounting app Xero is a more affordable QB alternative for restaurants that don’t need every advanced accounting feature.

10. MailChimp mailchimp logo

MailChimp is email marketing software you can use to boost the online marketing efforts of your restaurant. While most POS apps include some email features, they are usually somewhat lacking. With a fully featured email marketing program like MailChimp, you can set up automated email campaigns to build customer loyalty, advertise promotions, and grow your social media following.

MailChimp is entirely cloud-based; the company also offers a mobile app for iOS and Android devices.

Useful Features:

  • 23 basic templates and hundreds of theme templates
  • Easy list segmentation
  • Advanced email campaign reporting
  • Robust free plan includes up to 2,000 subscribers and sends up to 12,000 emails per month.

POS Integrations:

  • Revel Systems
  • Shopkeep
  • Lightspeed
  • Epos Now

The Quick & Dirty:

MailChimp has a very decent free plan and paid plans start at $25/month, scaling up depending on how large your list is (and how many features you want). This easy-to-use ESP supports both small start-ups and large corporations.

Final Thoughts

A successful restaurant business has the same basic ingredients it did 20 years ago or even 200 years ago: delicious food, happy customers, excellent service, and organized behind-the-scenes processes to keep everything running smoothly. However, the tools used to achieve restaurant success have changed with advances in technology. Everything from taking payments, to advertising, to bookkeeping, to employee management has been digitized.

One important job of restaurant management that can’t be replaced with automation is the restaurant manager herself. Being awesome at your job, I’m sure you will do a great job selecting the management apps that work for your unique restaurant business. Have fun with the selection process and make sure you utilize free trials of all of these apps so you can be sure the restaurant management software you choose works great for your needs before you commit.

The post The 10 Best Restaurant Management Software Apps appeared first on Merchant Maverick.


Applying For Business Loans Online: Everything You Need To Know

The internet has changed the way we do business. Having access to the world wide web allows us to work remotely, communicate with our coworkers and colleagues, market to new customers, and send and receive payments. The internet has also opened up a major resource for business owners in the form of online loans.

Gone are the days when a business owner was forced to go to the local bank branch to receive a loan. Thanks to the magic of the ‘net, we now have more access than ever to affordable business financing. A plethora of lenders and loan options are available to us with just a quick online search and a click of the mouse.

If you’re considering applying for a business loan, an online loan may be exactly what you’re looking for. However, if you’ve never had experience with this type of loan, you probably have some big questions. Why should you work with an online lender instead of your local bank branch? What are the benefits of online loans…and the potential drawbacks?

Read on and we’ll cover all of these questions and more in this guide to applying for business loans online.

What Are Online Business Loans?

Online business loans are loans that you can apply for — and receive — via the internet. To apply for an online loan, you simply visit the lender’s website and input your information through a secure form. You may also be asked to submit documentation through secure web portals, and web applications can even link the lender to your bank account to access your bank statements directly.

Often, the entire process can be completed online, although some lenders may require a phone call to verify or request information. A direct deposit can be set up to receive loan funds, and many lenders offer the option to connect your bank account to make automatic payments.

How Are Online Business Loans Different From Bank Loans?

Online business loans are different from bank loans in a number of ways. Instead of having to drive to a local bank branch to apply for a loan, online loans allow you to apply at home, at the office, or anywhere you have an internet connection.

Online loans are also unique because the process is much shorter. In some cases, loans can be approved in just minutes and funded within days — or even within 24 hours.

There are typically not as many documentation requirements for online business loans as bank loans. Because there are so many different options, online lenders may offer loans for startups and businesses with low credit scores or revenues. Bank loans require high revenues, strong credit scores, and often have a minimum requirement for years in business.

Even though online lending offers more options and provides fast funding, the tradeoff is that these loans often come with higher APRs and terms that aren’t as favorable as bank loans.

How Are Online Business Loans Different From Alternative Business Loans?

The terms online business loans and alternative business loans are often used interchangeably. What are the differences between the two?

An alternative business loan is defined as a loan that is obtained from a source other than a bank. Many alternative lenders – but not all – offer online loan options.

For example, a loan from a credit union is an alternative loan. A loan from a microlender is also an alternative loan. While some credit unions and microlenders may have an online application process, in many cases, a borrower will have to pay an in-person visit or apply over the phone. In this example, these are alternative loans and not online loans.

Types Of Business Loans Offered Online

One of the biggest benefits of applying for an online loan is how many options are available to business owners. No matter what the money will be used for, how much is needed, or even if the borrower has some challenges that disqualify them from conventional loans, online lending offers something for everyone.

Installment Loans

An installment loan is what most people think of when they hear the word “loan.” With an installment loan, a borrower receives a specific lump sum amount of money, such as $10,000 or $25,000. The borrower then repays the loan, plus interest, in equal payments over a set period of time. Typically, this is once per month but payment schedules may vary by lender.

Installment loans are often used to fund larger purchases, such as a commercial vehicle or real estate. This allows a business to make its purchase without having to pay the total amount up front. Interest rates vary, with the lowest rates and best terms going to borrowers with the highest credit scores.

Small Business Administration (SBA) Loans

The Small Business Administration provides many useful resources to small business owners, and one of its most popular offerings is its affordable loans.

The SBA has set the guidelines for multiple lending programs that are offered through intermediary lenders, which could include banks, credit unions, or non-profit organizations. These guidelines keep interest rates low and terms favorable for borrowers, while the SBA’s guarantee on loan proceeds protects intermediary lenders.

Available programs include 7(a) loans for a wide variety of uses (from working capital to purchase of inventory), 504 loans for commercial real estate purchases and improvements, and Microloans of up to $50,000.

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.



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


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.


Disaster Loans

Loans used to rebuild or maintain business following a disaster. 


Some intermediary lenders provide online services for qualified borrowers. SBA loans are best for businesses with strong credit scores and who have time to devote to the lengthy loan process, which could take several weeks or longer.

Looking for an online loan facilitated through the SBA? SmartBiz has you covered.


Visit Site

Streamlines SBA loan process for:

  • Debt refinancing
  • Working capital
  • Commercial real-estate


  • Suited for small and large businesses
  • Excellent terms and fees
  • No prepayment penalty

Business Lines of Credit

A business line of credit allows a business to make multiple draws up to and including a set credit limit. Interest is charged only on the portion of credit that has been used. A line of credit is very useful for businesses that need emergency funding or working capital.

Business lines of credit are available to borrowers with all types of credit scores, although lower scores may have higher interest rates, lower credit limits, and a need for collateral.

Many lenders offer business lines of credit online, and in most cases, applications are approved within days.

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

Short-Term Loans

A short-term loan is another popular online loan option. Short-term loans are similar to installment loans, but they are typically for much smaller amounts and will need to be paid back in a shorter period of time, which is typically one year or less.

Short-term loans often have much higher interest rates than other types of loans. Businesses with lower credit scores or revenues or a short time in business may turn to short-term loans when they are unable to qualify for other types of funding.

Merchant Cash Advances

A merchant cash advance is a type of loan that provides a lump sum amount to a borrower in exchange for a portion of the business’ future credit card sales. This can be done in two ways. The first way is by taking an agreed-upon percentage on a regularly scheduled basis. This is an option chosen by many businesses that may experience slow periods. When sales are down, the payment is lower. When business picks back up, the payment is higher.

The other way that businesses can pay back merchant cash advances is with a regularly scheduled payment that never changes. This could prove to be a burden for businesses that experience a slowdown in sales, as the payment remains unchanged.

With these loans, payments are made on a more frequent basis through ACH withdrawals. This payment schedule could be weekly or even daily. Merchant cash advances have very high rates and are one of the most expensive forms of credit. However, this may be an option to consider for businesses with very low credit scores or revenue, a lack of collateral, or that face other challenges when applying for other types of business loans.

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

Equipment Loans

Businesses that need to purchase new equipment may consider applying for an equipment loan. With this type of financing, businesses can purchase the equipment they need through affordable monthly payments instead of paying cash up front.

Equipment loans usually have fewer requirements than installment loans, including lower credit scores. No collateral is typically needed because the financed equipment acts as the collateral.

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

Businesses that have cash flow shortages due to unpaid invoices can receive invoice financing. With this type of funding, businesses receive money immediately for unpaid invoices without having to wait for customers to pay. The accounts receivables act as the collateral with invoice financing.

Invoice factoring is one type of invoice financing. A lender pays a percentage of the invoice as a lump sum to the borrower. The lender collects payment on the invoice, and once it is paid, the remaining amount is paid to the borrower, minus fees and interest charged by the lender.

With invoice discounting, as much as 95% of the invoice total is paid to the borrower. The borrower collects the invoice total from the customer. Once collected, payment is submitted to the lender to repay the loan and pay interest and fees.

Online Business Loan Pros & Cons

online loan companies

Online business loans may sound great to you so far, and they do have many benefits over other types of loans. However, they also come with their own set of drawbacks. Before diving into an online application, it’s important to understand these pros and cons to determine if an online loan is the financing route you want to take.


One of the biggest benefits of online loans is that the application process is fast. For some loans, approvals are instant and money can be in your bank account in just a few days. For businesses that need money immediately for an emergency, this is a much better option than waiting weeks for a conventional loan. Borrowers can go through the process on their own timetable without having to make a visit to a bank branch or other institution.

The online lending process is easy. With traditional loans, lots of paperwork has to be compiled and submitted with the application before the business even gets an approval. With online loans, documentation requirements are not as strict and all paperwork can be submitted quickly online.

There are also many different loan options available through online lenders. No matter the reason for needing the money, there’s an online lender that offers a business loan to fit that need, from equipment financing to installment loans and lines of credit.

Online loans provide options for almost any business owner, even ones that have trouble qualifying for conventional loans. Whether it’s a credit issue or cash flow challenges, business owners can overcome their financing hurdles with online loans.


While online loans offer many benefits over traditional options, they don’t come without their drawbacks. One of the main drawbacks is that these loans are often more expensive than other options like bank loans because of high APRs. However, borrowers with strong credit scores can find online loans with competitive interest rates.

Repayment terms may not be as long with online loans, resulting in higher monthly payments. There are some loans, however, that offer excellent repayment terms, such as SBA loans.

Online loans can also come with additional fees that banks and other traditional lenders may not charge. Some loans may have prepayment penalties, so it’s important to fully read through the loan contract and only work with online lenders that are transparent about their fees and terms.

How To Apply For Online Business Loans

While the application process varies by lender, there are a few main steps that a borrower must take when applying for an online business loan. The first step is to visit the lender’s website and begin the secure application process.

The applicant will be required to provide personal information including but not limited to:

  • Legal name and business name
  • Personal and business contact information
  • Business tax ID
  • Social Security number
  • Income/revenue information

Typically, the lender will require the applicant to submit documentation. Initial documents may include bank statements and financial statements. For larger loans, additional information and documentation may be required.

After submission, the application will go through the lender’s approval process. For certain types of loans, approval could be instant. With other loans, such as SBA loans, more time may be required. The lender may also require additional documentation or a phone call to verify information.

In order to obtain a loan, specific collateral (business or personal assets that are used to secure the loan) may be required. Other times, specific collateral is not required. However, a personal guarantee or blanket lien will typically be included within the contract. A personal guarantee will hold the borrower personally liable for the debt, meaning that the lender can take legal action or seize personal assets if the loan goes into default. A blanket lien gives the lender the legal claim to seize business assets in the event that the loan is not paid.

Once the loan has been approved, the next step will be based on the lender’s funding policies. Some online lenders provide funds within days or as soon as 24 hours. All applicants should fully read and understand a loan contract before signing. Once signed, online loans are deposited directly into the borrower’s bank account. At this time, the borrower may also be able to log into their account through the lender’s website to have access to the signed loan documents and features such as autopay.

How To Find Online Business Loans

Since online loans are found through the internet, a quick query on a search engine will yield thousands of results. However, wading through all of the different lenders can be overwhelming. Instead of sorting through the many lenders offering online loans, start your search with the most reputable lenders.

Begin by comparing lenders side-by-side to see which best fits your needs. Once you’ve found a lender (or a few) that have captured your interest, check out our in-depth reviews to learn more about rates, requirements, and navigating the application process.

A business loan should only be used to boost your business. You want to ensure your return on investment outweighs the full cost of the loan, including all fees and interest. It’s easy to fall for the idea of fast money, but you should take the time to do your research to find the most affordable loan option that meets your business needs.

Final Thoughts

Online business loans make it easier than ever to get the money you need for your business. While these loans are great for getting fast funding, it’s important that you take the time to understand the loan process and fully review any offers you’ve received. While it’s okay to take on extra debt to advance your business, taking on debt that you don’t need or can’t afford can hurt your business in the long run.

The post Applying For Business Loans Online: Everything You Need To Know appeared first on Merchant Maverick.


What Are High-Risk Business Loans And Where Do I Get One?

Qualifying for a loan can be frustrating for a business owner. With so much paperwork and so many requirements, the process is confusing, long, and — all too often — ultimately futile. Maybe your credit score is too low. Maybe your business hasn’t been in operations long enough to prove it can be profitable. Whatever the case, finding the right loan can be a challenge.

Don’t despair, though. Before throwing in the towel on finding a loan, you can explore the options available to what lenders consider “high risk” borrowers. With alternative loan options, business owners can get the financing they need while also building a positive credit history for the future.

Read on to learn more about high-risk business loans and where to get them.

What Businesses Are Considered High Risk?

When considering whether to approve a loan application, lenders will always focus on the risk posed by the borrower. After all, lenders are out to make a profit on the money they loan. They want to work with businesses and individuals that make payments on time every month. They lean toward approving businesses and individuals that have documentation proving that they can afford to pay the loan with interest. On the flip side, lenders are wary of working with businesses that are seen as risky.

But what makes a business risky? There isn’t just one factor. In fact, there are several things lenders consider before making their approval decision. If your business is defined by any one of the following four characteristics, it may fall in the high-risk category, often making it more difficult to obtain financing:

Startups & New Businesses

One entrepreneur may have the next great idea that she knows will change the world. Another entrepreneur needs money to start a business that’s been his lifelong dream. Both are ready to put in the work to make their endeavors successful. Both have confidence in their businesses — all they need is the money to get their ideas off the ground. Unfortunately, lenders don’t have the same level of confidence.

Startups and new businesses are considered riskier borrowers because they don’t yet have a proven track record. An established business can approach a lender with bank statements, profit and loss statements, and years of income tax returns proving that it is profitable. On the other hand, startups and new businesses haven’t yet built a reputation and don’t have the paperwork to verify their success.

This doesn’t mean that startups and new businesses are out of the running entirely when it comes to getting a business loan. What it does mean is that these businesses will have to prove themselves to lenders in other ways, like coming up with a detailed business plan and future profit projections. These borrowers should look into SBA (Small Business Administration) loans for startups and may also need to consider other forms of lending outside of traditional methods like banks and credit unions.

Businesses With Low Revenue

Lenders want to see that a business is making enough money to cover all of its debts in addition to a new loan payment. For businesses with high revenue, this is no problem. There’s plenty of money flowing in; all they need is a financial boost, perhaps for a larger purchase like real estate or equipment.

On the other hand, businesses with low revenues will encounter problems when applying for a loan. Maybe a seasonal lull has contributed to recent low revenue, or the business has many unpaid customer invoices that affect incoming cash flow. Unfortunately, the reason for your low revenue doesn’t typically matter to a traditional lender. Regardless of why current revenue is poor, lenders will call into question whether or not your future revenue will be enough to pay back a loan as agreed.

While seeking traditional loans may be challenging — or even impossible in some cases — there are financing options available for businesses with low revenue.

Businesses With Bad Personal Credit

Every business owner has a credit score. For most lenders, this score is one of the most important factors taken into account when deciding whether to approve a loan. The higher the credit score, the higher the odds for approval. Not only is a business owner with a great score more likely to get approved, but they’ll also receive the best rates and terms.

However, sometimes credit scores aren’t exactly where they need to be. Old medical bills, late payments to creditors, and high credit card utilization can all contribute to a lower credit score. Even having too many inquiries when shopping for a loan can make a credit score drop by several points. In some cases, a business owner may not even have started building a solid credit history, and the lack of credit is viewed similarly to bad credit by lenders.

Having bad personal credit certainly makes it more difficult to qualify for a loan, but it’s not impossible. There are bad credit options available for business owners. While some of these loans may have higher interest rates or terms that aren’t as favorable, these loans can give business owners the cash they need while also helping them to build a solid credit history.

Businesses In A High-Risk, Unstable Industry

In some cases, businesses that are in high-risk, unstable industries may also be seen as high-risk borrowers. Whether the industry itself is dangerous and unsafe or the business itself is at risk of becoming obsolete, lenders consider industry factors when approving loans.

Remember, lenders want to work with businesses that are going to be able to pay off the loan. If the future of the business could be in question, this throws up a red flag for lenders.

However, like the other high-risk businesses previously mentioned, there are alternative lending options available. Small business owners just need to know where to look and how to obtain these loans.

What Are My Options For High-Risk Business Loans?

High-risk businesses aren’t going to be able to just walk into a bank and walk out with a loan. But even though traditional loan options may not be available, that doesn’t mean there aren’t any lending options out there. In fact, there are several available to high-risk businesses. However, every business owner should have an understanding of how each loan works to ensure that the financing decision is a wise one that benefits the business.

Short-Term Loans

Short-term loans are loans that are paid off in a short period of time – usually one year or less. In some cases, short-term loans may be paid off in just a few months or weeks.

Qualifying for a short-term loan is easier than qualifying for other loans (like long-term installment loans). Credit requirements are not as stringent for short-term loans, so business owners with low personal or business credit scores may qualify.

Revenue and time in business requirements are also less strict for short-term loans, opening this type of funding up for startups, new businesses, and businesses with low revenues. Often, the application process is straightforward and easy and funds are available quickly.

Not only will receiving a short-term loan provide business owners with the capital they need, but making timely payments on a short-term loan can boost credit and open up other financing options for the future.

With short-term loans, however, rates can be very high, so it’s necessary to shop around for the best terms. Some banks offer short-term loans, while alternative lenders also provide this type of financing. Learn everything there is to know about short-term loans before moving ahead with the application process.

Merchant Cash Advances

A merchant cash advance is a type of financing that is based on credit card sales. With a merchant cash advance, a lender advances a sum of money to a business. Instead of taking monthly payments and using collateral to back up the loan, the cash advance is paid back through a percentage of future credit card sales. This is typically an option chosen by businesses that may have slower sales periods. With this model, the business would pay less toward the cash advance when sales are down and more when sales pick up. Usually, the percentage paid is between 10% to 20%, but this varies by lender.

Other times, a lender advances money to a business, then takes a fixed payment through weekly or daily ACH withdrawals. Regardless of the number and amount of sales, the payment remains the same.

Because this method of financing is based on sales, credit score and time in business is typically not as important of a factor as it is with installment loans or other types of financing. A lender will evaluate the cash flow of the business to determine how much money the business is eligible to receive, as well as work out the payment schedule.

While these cash advances could help businesses that are in a bind, it should be noted that interest rates can be high, with some annual interest rates soaring into the triple digits. Merchant cash advances are available through some banks and many alternative lenders. Before accepting an offer, all businesses should evaluate other loan options and weigh out the benefits of taking the loan versus the overall costs to avoid getting trapped in a cycle of debt. Learn more about the merchant cash advance process.

Looking for a reputable MCA provider?

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

Invoice Financing

Few things are more frustrating to a business owner than having money they can’t access. This is what happens when a business has unpaid invoices. Whether the invoices aren’t yet due and an emergency situation has popped up or a customer is late in making their payment, unpaid invoices can pose a challenge for any business.

The good news is that there are options. Businesses that just can’t wait to get paid from their customers can take advantage of invoice financing. With invoice financing, there are two different options to consider.

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

The first option is known as invoice factoring. With invoice factoring, the lender will pay the business a percentage of the invoice total. The lender will then collect the payment from the customer. Once the invoice has been paid, the remaining invoice total will be given to the business, less any fees and interest charged by the lender.

The second option is invoice discounting. The lender will loan the business an amount of money based on a percentage of the invoice (for example, 90% or 95% of the invoice total). Once the business collects payment from the customer, the loan is paid back, along with interest and fees.

Invoice financing is an easy way for businesses to resolve cash flow issues due to unpaid invoices. This option can be used by businesses with a low credit score, lack of collateral, or a limited time in operations. Thinking of applying for invoice financing? Learn more before getting started.

Fundbox and BlueVine are two of the most trusted invoice financing providers around. Compare rates below.

Fundbox BlueVine

Up to $100,000

Credit Facility

$20,000 – $5,000,000


Advance Rate

85% – 95%

0.4% – 0.7% per week

Discount Rate

0.3% – 1% per week


Other Fees

Possible $25 wire transfer fee (no ACH transfer fee)

12 or 24 weeks

Term Length

13 weeks (91 days)


Monthly Minimums



Recourse Or Non-Recourse



Notification Or Non-Notification


Personal Loans For Business

Traditional business loans can be difficult to obtain. Business and personal credit scores are taken into consideration, while documentation to prove the success of the business through incoming cash flow is required. The process can be even more difficult for new businesses and startups with a lack of business credit or a limited time in business.

Instead of getting a business loan, some business owners may opt to use their own personal credit score and income to qualify for a personal loan to use toward business expenses. Since it is a personal loan, the revenue of the business or its credit score will not be a factor in approving the loan.

Business Loan Personal Loan

Borrowing Amount

$2 million+

Max. $100,000

Term Length

6 months – 25 years

1 – 7 years


4% – 99%+

5% – 36%


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

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


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

Usually unsecured

Personal loans for business use are available through banks and alternative lenders. An applicant will need to prove that they are able to pay the loan by submitting documentation such as pay stubs and bank statements.

Creditworthiness is also a factor. While there are options available for applicants with low credit scores, the best interest rates and terms are given to those with higher credit scores. Learn more about applying for a personal loan for business.

In some cases, collateral may be required in the form assets and property (including real estate or vehicles). Whether collateral is required and how much collateral is needed is based upon the amount of the loan, the borrower’s creditworthiness, and the lender’s policies.

Asset-Backed Business Loans

As we’ve established, lenders want to make sure they get paid before loaning money to borrowers. When revenue or income isn’t where it needs to be or a credit score is low or non-existent, the borrower seems like a big risk. However, sometimes lenders are willing to take a risk on these borrowers provided they have adequate collateral.

Asset-backed business loans are business loans that are backed by collateral. This simply means that the borrower pledges to put up assets in the event that the loan goes into default. If the borrower fails to pay, the lender has the right to seize the assets, which can then be sold to pay off the loan.

Assets and property, including real estate, equipment, and accounts receivables, can be used as collateral. Typically, business assets are used as collateral, but in some cases, personal real estate and assets may be used.

These loans are available through banks and alternative lenders. The amount of collateral needed to secure the loan is dependent upon the amount borrowed and creditworthiness. The full amount of the loan will generally need to be collateralized.

Business Credit Cards

Many businesses have business credit cards, and it’s easy to see why. Business credit cards allow a business owner to have access to funds on-demand, the application process is typically quite easy, and even borrowers with lower credit scores can get approved. Some credit cards even come with rewards, such as cash back bonuses or airline miles.

Business credit cards are available through many banks and financial institutions and can be used just like personal credit cards. Multiple draws can be taken up to the amount of the maximum credit limit. Borrowers pay back the balance plus interest that is applied to the used funds.

With so many credit card options, it’s easy for a business to qualify for one, even when the business has lower revenues or credit scores. Some borrowers may have lower credit limits and higher interest rates, while others may need to pay a security deposit.

Businesses that opt to use credit cards should always keep their balances as low as possible, as a high credit utilization can have a negative impact on credit. In order to avoid paying interest month after month, business credit cards should be paid down or the balance completely paid off as quickly as possible.

Do you have excellent personal credit, even though your business is considered high-risk? Check out these 0% interest rate business credit cards.

Credit Card 0% Introductory Period Next Steps
American Express Blue Business Plus 0% APR on purchases and balance transfers for the first 15 months Compare
Chase Ink Business Unlimited 0% APR on purchases and balance transfers for the first 12 months Apply Now
American Express SimplyCash Plus 0% APR on purchases for the first 9 months Compare
Capital One Spark Cash Select For Business 0% APR on purchases for the first 9 months Compare
Bank of America Business Advantage Cash Rewards Mastercard 0% APR on purchases and balance transfers for the first 9 months Compare

Final Thoughts

Every business faces financial challenges which are made even more difficult when the business is seen as high-risk by lenders. However, there are financing options open to these high-risk businesses, whether they’re in an unstable industry or are just building up their credit and reputation.

Before accepting any offer, don’t forget to evaluate the full cost of the loan. A loan should only be used to help the business, not drag it into debt. Shopping around for offers and weighing out the pros and cons for each type of financing is a critical step before signing on the dotted line. Responsible borrowing — and making payments as scheduled each month — is the best way for businesses to receive more favorable loan options in the future.

The post What Are High-Risk Business Loans And Where Do I Get One? appeared first on Merchant Maverick.


Credit Union Small Business Loans: Types Of Loans And How To Qualify

For many business owners, a bank is the first stop when it’s time to take out a business loan. After all, with the ready availability of business bank accounts, credit cards, and loan options, a bank is a one-stop shop for financial services.

However, more business owners are moving away from traditional banks and are turning to credit unions for their business financing needs. In fact, nearly 6,000 credit unions across the United States have over 100 million members. Offering many of the same services as traditional banks, credit unions are becoming the go-to resources for smart business owners.

Why should you consider applying for a business loan with a credit union? Read on to find out more about the benefits and drawbacks, how to apply, and the loans offered by these financial cooperatives.

What Are Credit Unions?

Before taking out a business loan from a credit union, it’s important to understand how credit unions work. Although they appear to work in similar ways as banks, there are big differences between the two. Unlike banks, which operate for profit, credit unions are non-profit cooperatives.

Because the account holders at a credit union are also technically the owners, they are members, not customers. Any profit that is made by a credit union is reinvested or given as a dividend to its members. As non-profit organizations, credit unions do not have to pay taxes, so they are able to offer extremely competitive interest rates to members.

Credit unions offer many of the same financial services as banks, including business and personal checking and savings accounts, vehicle loans, personal and business credit cards, mortgages, and business loans.

How Do I Qualify For A Loan From A Credit Union?

project management software

Another way credit unions differ from banks is in how to join. With a bank, most people can simply supply personal information, deposit money into the account, and become a customer. Remember, though, account holders at credit unions are members, not customers. In order to become a member, certain membership requirements must be met.

This sounds difficult, but it’s usually surprisingly easy to join a credit union. Consumers and business owners can be eligible to join a credit union through:

  • Employers or industries
  • Military affiliation
  • Alumni associations
  • Religious institutions
  • Geographic location
  • Family members
  • Other group memberships, including labor unions and homeowners associations

When a suitable credit union has been found, an application must be filled out to open a checking and/or savings account. This application process is very similar to the process for opening a bank account. Once the application has been submitted and approved, a deposit is usually required in order to open the accounts.

After the applicant becomes a member of the credit union, they are then eligible to apply for additional financial services, including personal and business loans.

Types Of Business Loans Offered By Credit Unions

Like banks and other lenders, credit unions offer a variety of different loan options targeted at businesses. Since each loan comes with its own set of requirements, terms, and limitations, having an understanding of the available financing options out there will be beneficial for business owners seeking a loan that fits their own unique needs.

Installment Loans

An installment loan is one of the most common types of loans, and one that most business owners have probably had experience with in the past. With an installment loan, sometimes called a term loan, the credit union loans a specific lump sum of money. Regular payments, or installments, are made by the borrower on a scheduled basis, which is typically every month on the same day. This payment will be applied to the principal amount (or the amount that was borrowed), as well as to interest charged by the credit union. Mortgages and car loans are just two examples of installment loans.

Rates and terms vary on installment loans. Smaller installment loans may be paid off within a few months, while larger loans may be paid over a lengthier term, such as 20 years or longer. Interest rates on these loans vary and are primarily determined by creditworthiness. Installment loans are available in various amounts, with some limits at credit unions reaching $50,000 or higher, depending on the institution’s lending policies. Installment loans are best used for larger purchases, such as long-term equipment, that will allow a business to purchase the asset without paying the full sum up front.

For larger installment loans, collateral from the borrower is typically required. This could include business assets such as equipment or personal assets like real estate. Collateral policies vary by lender.

Lines Of Credit

A business line of credit from a credit union is very similar to a credit card. With a line of credit, a borrower is given a credit limit. Multiple draws can be made on the account by the borrower up to and including this amount. This differs slightly from installment loans and other types of loans, which are distributed as one lump sum payment.

Lines of credit for businesses can be used in multiple ways, from covering emergency expenses to resolving cash flow issues during slow seasons. A line of credit can also be used to purchase supplies, inventory, or pay for other business expenses.

Interest rates for lines of credit are typically higher than for other financial products such as installment loans, since they are considered a bigger risk. Interest will only be applied to the portion of the credit line that has been used by the borrower. Learn more about how lines of credit can give a financial boost to businesses.

The application process for a line of credit is usually much easier than the process for a term loan, and credit requirements may not be as strict. For many businesses, collateral for a line of credit is not required. However, borrowers with lower credit scores or that are otherwise seen as “high risk” by lenders may be required to pay a security deposit or put up assets or property as collateral to use the line of credit.

SBA Loans

Small business owners with a strong credit history and an established business can turn to credit unions for Small Business Administration loans. These loans have become popular throughout the small business world for their low rates and extremely favorable terms. The SBA does not lend directly to business owners. Instead, intermediary lenders — like credit unions — provide the loans. A large percentage of each loan (up to 85%) is guaranteed by the government, making it less risky for credit unions and other lenders to loan money to small businesses.

The application process for obtaining an SBA loan is notoriously long and difficult, but it’s not impossible. Small businesses that are lucky enough to get these loans will enjoy some of the most competitive interest rates on the market through a number of programs designed to help small businesses succeed. Since SBA loans are so competitive, businesses with strong business and personal credit histories have the best odds of approval.

There are several programs to choose from when applying for an SBA loan. This includes the standard 7(a) program, which provides up to $5 million for almost any business expense, as well as the 504 program that provides up to 40% of funding for commercial real estate improvements or purchases. Types of loans and requirements vary by credit union. Learn more about the rates, terms, requirements, and how to apply for SBA loans.

Startup Loans

Business loans are difficult for any business to obtain, but new businesses and startups face a greater challenge. Most businesses are already viewed as risky by lenders, but a business without a history of solid financial documentation presents an even higher risk.

Whether you’ve been operating for a just few months or haven’t actually opened your doors yet, there are options available. Startup loans are available through credit unions. Some institutions have their own programs, while others offer SBA loans to qualified startups. You may also consider getting a personal loan through your credit union and use the money to fund startup projects and business expenses.

Because new businesses won’t have much of the documentation typically required by credit unions to receive a loan, other documentation will be required, which we’ll discuss a little later in this article.

Business Credit Cards

Many credit unions offer business credit cards to qualified business owners. A business credit card works just like a personal credit card, but can be used by business owners and other named cardholders for business expenses.

Business credit cards come with a maximum credit limit. Borrowers can spend up to this limit at any location where major credit cards are accepted. Interest rates are applied against the balance of current charges, not against the entire line of credit. Monthly payments are used to pay off the balance, plus the interest. As the balance is paid down, the funds again become available for use by the borrower.

Credit card interest rates through credit unions are competitive with those of other lenders. However, rates may be higher for credit cards than you’ll see with other financing options (like installment loans or traditional lines of credit).

Commercial Mortgages

Businesses that need a loan to purchase land or commercial real estate, add on to their existing building(s), or even refinance an existing commercial mortgage can often do so through a credit union. Many credit unions offer commercial mortgages that can be used to purchase real estate or fund improvements to expand a business.

These loans have competitive down payment requirements and interest rates. In addition to offering their own programs, credit unions may also offer 504 or 7(a) SBA loans that can be used toward commercial real estate. Rates, terms, and requirements vary by lender.

Pros & Cons Of Getting A Business Loan From A Credit Union

Cheaper alternatives to Shopify

The choice to take out a business loan should always be carefully weighed-out by a business owner. You should consider the return on investment, or ROI, of the loan. In other words, will borrowing money help your business prosper in the long run, or will it drag the company into a cycle of debt?

In addition to deciding how much to borrow, how the funds will be used, and what type of loan to pursue, smart business owners also need to decide what lender to work with. Credit unions are often at the top of the list, but before diving into the application process, businesses should have a full understanding of the pros and cons of getting a business loan from a credit union.


One of the biggest benefits of getting a loan from a credit union is the very low interest rates for qualified borrowers. Because credit unions are non-profit organizations, they do not have to pay state and federal taxes. This allows these financial institutions to offer extremely competitive interest rates to their members, often beating out the rates offered by banks.

Another benefit is that credit union account holders are seen as members and not just as customers. Because of this, there’s usually better customer service, and the institution may be more flexible and willing to accommodate its members when it comes to lending policies. Working with a credit union to receive a loan can be easier and more effective for new businesses or for members who have made mistakes on prior credit reports.


One of the biggest drawbacks of getting a loan from a credit union is actually finding one that offers the lending services that are needed. Credit unions are often very small and do not have multiple branches all throughout the country. Not only does a business owner have to qualify for membership, they also need to make sure that the credit union offers the lending service they seek, such as a commercial mortgage or SBA loan. Not all credit unions are the same and each have their own lending programs and policies in place.

Another potential drawback is the requirements set by some credit unions before a member can apply for a loan. This could include building up a savings account or being a member for a set period of time. A credit union may also offer loans that don’t quite fit the needs of the borrower. For example, a business owner seeking hundreds of thousands of dollars in financing will be out of luck if the credit union offers maximum loans of $50,000. This is why it’s important to shop around for a credit union that offers many lending services for businesses, in addition to competitive interest rates and great terms.

Working with a credit union may be easier than getting a loan from a bank, but some loans still have limitations. Borrowers with very low or limited credit or low revenues may encounter challenges when applying for credit union loans. If this occurs, you can consider other options through the credit union, or explore additional small business loan options from alternative lenders.

What Interest Rates Can I Expect From A Credit Union?

Like banks and other lenders, credit unions offer different interest rates to their members based on a number of factors, including, not limited to, the type of loan, the loan amount, and the borrower’s creditworthiness.

In general, credit union members should expect to pay interest rates that are competitive with banks, and in many cases, even lower. For the most qualified, low-risk borrowers, interest rates below 5% are available for installment loans. For SBA loans, credit unions base their interest rates on the standards set by the SBA, which are extremely competitive.

Interest rates also vary by the type of loan selected. For instance, installment loans will almost always have lower rates than other types of financing like lines of credit or credit cards.

How To Apply For A Business Loan From A Credit Union

The application process varies from lender to lender, but there is some documentation that is required by all lenders when applying for a business loan.

The business owner will need to prove that they own the business and can do that with documents including business licenses and articles of incorporation. The business will also need to state how much money they are seeking and how the funds will be used.

The credit reports of the business and any owner of at least 20% of the company will be required to determine loan eligibility and interest rates. Documentation will also need to be provided to prove that revenue is high enough to pay back the loan plus interest, taking into account the company’s current debt obligations. Common documentation needed for a loan application include profit and loss statements, personal and business financial statements, balance sheets, and income tax returns.

Depending on the loan selected and the borrower’s credit history, collateral may be required. If the business is seeking a loan to purchase real estate or improve existing facilities, items including vendor and contractor quotes and purchase agreements may also need to be provided.

For most loans, a personal guarantee by all owners with at least a 20% stake in the company is required. This simply means that if the loan goes into default, the owners of the business will be held personally liable for the debt.

For new businesses and startups, some business documentation may not be available. For these businesses, a solid business plan will need to be submitted with the application. The borrower should also be prepared to prove that he or she has sufficient industry experience. Financial projections for at least one year may also be required.

After submitting all documentation and an application, the credit union will make an approval decision. If approved, the underwriting process will begin and the loan will be funded. The length of the entire process depends on the type of loan selected. For example, a line of credit or credit card may be approved and used within days, while an installment loan, commercial mortgage, or SBA loan may take several weeks or months from start to finish.

Final Thoughts

In addition to offering checking and savings accounts for business owners, credit unions can provide many affordable loan options for business expenses. With more personalized customer service and a wide range of financial services available, credit unions should always be a consideration for any business owner seeking a competitive loan.

The post Credit Union Small Business Loans: Types Of Loans And How To Qualify appeared first on Merchant Maverick.


Commercial Loans: Types, Rates, And Where To Find The Best

Have you seen the term “commercial loans” in an ad from a bank or alternative lender and wondered what, exactly, that meant? Or where you’d look for one? Or what the terms of a commercial loan might be?

We’re here to help!

What Are Commercial Loans?

A commercial loan is simply a financial agreement made between a financial institution or private lender and a business (as opposed to an individual) where the business takes on debt in exchange for capital. This money can then be used for business expenses, inventory, or operating costs. Though individual institutions may use the phrase a little differently, commercial loan is more or less a synonym for “business loan.”

Commercial loans aren’t specific types of loans but are rather a category of loans or loan-like products that lenders offer to businesses.

Who Offers Commercial Loans?

While they’re not the only game in town anymore, banks are still one of the best sources of lending available to businesses that fall within their territory. Lending standards are still fairly tight compared to those before the 2008 financial crisis, however, so bank loans may be out of reach for newer businesses or those with bad credit. Still, if you’re looking for the most competitive rates, you’ll probably find them at a bank.

Filling the niche missed by traditional lending institutions is the private, alternative lending market. These lenders tend to have easier qualifications and quicker applications. Additionally, most have more of a national focus, which is helpful if your business is located in an underserved area. The trade-off is usually, though not always, higher rates and stricter repayment regimens since these loans represent investment opportunities in the form of private capital rather than banking services.

What Types Of Commercial Loans Are Available?

This is where it gets interesting and more complex. If you’re entering the market just looking for a “loan” you may quickly be overwhelmed by the terminology, buzzwords, and marketing gimmicks. On top of that, individual lenders will brand their financial products, making it harder to make a 1:1 comparison between different company’s offerings.

The good news is, once you cut away all the gimmicks, there aren’t that many different types of products to wrap your head around.

Term/Installment Loans

Sometimes called medium or long-term loans, term loans what most people think of when they hear the word “loan.” In most cases, a business that successfully applies for a term loan will receive a lump sum of cash which can then be used for business expenses. In some cases, there may be restrictions on what the money can be used for. These loans will generally last between one and 10 years, accruing interest along the way. The longer the term, the more expensive the loan will be.

In most cases, you’ll make fixed, monthly payments to your lender. The loan is considered paid off when you’ve paid back the money you’ve borrowed plus interest.

Short-Term Loans

Isn’t a short-term loan just another type of term loan? You’d think so, but short-term loans are actually pretty different than their medium- and long-term cousins. Short-term loans don’t last that long,  as the name would suggest — usually less than a year — so they don’t have time to accumulate a lot of interest. Because of that, most short-term loans charge a flat fee rather than a true interest rate. This flat fee may be expressed as a percentage (18%) or as a multiplier (1.18). In either case, to figure out how much your flat fee is in dollars, simply multiply that number by the amount you’re borrowing.

Short-term loans are both faster and more expensive than other term loans, featuring expedited application processes. Unfortunately, your repayments are also sped up, with fixed payments made weekly or even daily. These payments are almost always automatically deducted from your bank account. As in the case of term loans, these payments are fixed (with some rare exceptions).

SBA Loans

The Small Business Administration (SBA) is a federal agency tasked with promoting and assisting American small businesses. The term SBA loan is a little bit misleading because the SBA doesn’t usually originate their own loans. Instead, they work through banks and privates lenders, guaranteeing a percentage of the borrower’s debt. This reduces the risk to the lender and allows businesses to qualify for rates and terms they may otherwise be unable to get.

The two most popular programs are the SBA 7(a) and the CDC/504. The 7(a) loan is the more popular of the two. It covers typical working capital expenses as well as site improvements and business acquisitions. 504 loans are oriented more around economic development.

The major drawback to SBA loans is that they have a longer and more complicated application process than similar term loans. While SBA Express loans speed up the process a bit, don’t expect to have the money in your account right away.

Equipment Loans

If you plan on buying equipment with your loan, you may want to consider an equipment loan. Equipment loans look a lot like term loans, but rather than being open-ended are specifically used to cover a percentage (85% is typical) of the cost of a specific piece of equipment.

Why would you want this?

Equipment loans use the equipment you’re purchasing as collateral, meaning you get the benefits (lower rates, longer terms) of a secured loan without putting up any of your own assets.

Lines Of Credit

Not sure how much money you’ll need in the coming year? Do you anticipate needing to make a large number of small purchases over a period of time? Do you just want to have something to fall back on in an emergency?

When you get a business line of credit, your company is approved up to a certain credit limit (a line of credit is very similar to a business credit card in that respect). Let’s say you’re approved for $100,000. You can draw upon that line of credit any number of times, in any amount you want, until you’ve accumulated $100,000 worth of debt. You only pay interest on the amount of credit you’ve used. This makes lines of credit far more versatile than other types of loans.

If the line of credit is revolving, any balance you pay off becomes available for use again. If it’s a non-revolving line of credit, it’s a one-shot deal. You can still withdraw in increments, but once the credit is used, it won’t become available again.

This convenience tends to come at a premium. Lines of credit usually have higher qualifications than loans, and many come with annual or even draw fees. They usually feature variable monthly payments, although some offer no-interest grace periods.

Alternative Financing

These products aren’t loans, commercial or otherwise, but you’re probably going to run into them if you’re looking for commercial loans. Here’s a quick rundown so you won’t be caught off-guard.

Merchant cash advances (MCAs) are an alternative way to get working capital. Rather than lending you money, the funder buys a percentage of your future credit/debit card sales. MCAs fill a similar niche to short-term loans. You’ll still get a lump sum, be charged a flat fee, and make daily payments. But rather than imposing fixed payments, your funder will claim a percentage of your daily card sales. Because MCAs aren’t loans, they aren’t governed by laws affecting loans. This allows them to be offered to riskier “borrowers,” and at a higher rate.

Capital leases are an alternative to equipment loans. Though the word “lease” suggests renting, they’re actually designed with ownership in mind. In exchange for a higher interest rate, you’ll get the full cost of the equipment covered. Like you would with a term loan, you’ll pay a capital lease off monthly. At the end of the lease, there will be a small remainder (as low as a $1) you’ll need to pay to close the transaction. This is called a “residual.”

Invoice factoring is a way to get an advance on your accounts receivable by selling them to a factoring company at a small loss. That company then collects on the invoice in your place. You’ll be paid the majority of the invoice’s value as a lump sum up front, with the remainder paid out to you — minus a fee — when (and if) the factoring company collects on the invoice.

Qualifying For A Commercial Loan

An easy way to narrow down your options is to eliminate any options for which you do not qualify. This will save you time and, potentially, money. Qualifications will vary from lender to lender, but these are the main things you’ll want to consider.

Credit Rating

There’s no way to completely get around it: your credit rating matters when you’re looking for financing. The question is “how much does it matter?”

For the more conservative lenders, your credit rating is a line in the sand. If you don’t meet their minimum standard, they simply won’t work with you. For traditional banks and SBA loans, that line is usually somewhere in the mid-to-high 600s.

With alternative lending, the guidelines aren’t so hard and fast. Some lenders impose minimums below which they absolutely will not go, but others don’t use credit scores for rule-out criteria.

That said, pretty much every lender, traditional or alternative, will use your credit history to determine what kind of rates you’re offered.

Time In Business

Lenders are going to want to know that your business is real and has staying power. A business that’s been afloat for five years inspires more confidence that one that is three months out from opening.

That said, not everyone is looking for the same thing. A traditional bank may want to see two to three years in business before they’re willing to take a risk on you. An online short-term lender may only be looking for six months — or even three months, in some cases.


Any reasonable lender is going to want to know that you’re capable of paying them back. Even alternative lenders with loose credit prerequisites, especially those dealing in unsecured loans, will want to see your bank statements to get a sense of your cash flow. The more revenue you regularly take in, the more credit your prospective lender will be willing to extend you.

Location & Industry

This one’s out of your control, but the lender you’re looking at may not lend to businesses in your industry or even to your state. Banks tend to lend mainly through their physical branches and may require you to have a business checking account with them. Alternative lenders operate primarily online, but due to differences in lending regulations between states may not be able to lend to you, or may not be able to offer all their products.


If you’re seeking a secured loan or line of credit, you’ll need to be able to put up collateral to secure your funding. What qualifies as collateral varies between lender and product, ranging from cash deposits to inventory, equipment, or real estate. Make sure you can put up the necessary collateral.

What To Look For In A Commercial Loan

Qualifying isn’t enough. It’s important that a lender meets your standards as well. So what should you look for?

Borrowing Limits

Most lenders have minimum and maximum amounts they’re willing to lend to businesses. You’ll want to be certain the lender is capable of giving you the lump sum you’re seeking. Of course, your revenue will have to be sufficient to cover your debt.

Banks are capable of offering larger amounts of money than most alternative lenders. One of the easier ways for a small business to qualify large amounts of money is through an SBA loan.

Term Lengths

How long do you need to pay your loan off? This can be a complex question; there’s no “right” answer. For any individual product, a shorter term length usually means lower interest rates than a longer one. However, paying off a loan quickly may stress your cash flow in the short-term. Having a good sense of your business’s ebb and flow before applying for any financing.

But don’t make the mistake of thinking short-term lending products come with lower interest rates or fees than long-term loans. In fact, those products tend to be among the most expensive in the industry. That said, the speed with which short-term lenders or merchant cash advance providers can get money into your hands may make them the best choice if you have time-sensitive expenses.


It goes without saying that you want to get the lowest rate you can whenever you borrow money.

APRs serve as one of the easiest ways to make direct comparisons between different products. Even though short-term loans use flat fees rather than interest rates, there are tools available to help you make the conversion.

Remember that lenders don’t always mean the same thing when they say “interest.” The percentage you see may be annual or monthly. In some cases, a flat fee may even be described as an interest rate.


Not to be confused with interest rates or flat fees, these are costs associated with the loan beyond interest rates. Not all lenders charge fees for every product, and some may have promotions that waive fees.

The most common fee you’re likely to encounter is the origination fee. Usually ranging between 1% – 4% of the amount of money you’re borrowing, this is not a fee you pay out of pocket. Instead, it is deducted from the lump sum you receive from the lender, so you’ll want to take it into account if you’re counting on every cent.

Additional fees may be charged for setting up accounts from which to withdraw automated payments, for late payments, or even just miscellaneous “administration fees.” Approach any lender who charges anything beyond an origination fee with caution and factor those costs into the amount of debt you’re taking on.

Commercial Lenders

Hopefully, we’ve answered some basic, nagging questions about what commercial loans are and how they work. With so many potential options, finding a lender can be an overwhelming prospect. Not sure where to look? We can help get you started.

Loan Type What It Is Typical Rates Learn More

Traditional Term Loans

Loans in which you borrow money in one lump sum and repay in fixed installments. Term loans can be used for most business loan purposes.

4% – 36% APR

Our top picks

Small Business Administration (SBA) Loans

Loans offered by the SBA in partnership with banks and other financers. SBA loans are backed by an SBA guarantee and originated by banks and other partners. 

6% – 12% APR

Our top pick

Commercial Real Estate Loans

Loans used to finance the purchase or commercial real estate.

4% – 36% APR

Our top pick

Business Lines of Credit

Credit lines used for business purposes. Borrowers can draw from their credit line at any time and only pay interest on the amount borrowed. 

8% – 65% APR

Our top picks

Short-Term Loans

Business financing with short term lengths, which normally have a one-time fixed fee instead of interest.

8% – 99% APR

Our top picks

Startup Loans

Loans used to finance the costs of starting a business.

4% – 36% APR

Our top picks

Equipment Loans

Loans used to purchase equipment. The purchased equipment is normally used as collateral to back the loan. 

5% – 24% APR

Our top picks

The post Commercial Loans: Types, Rates, And Where To Find The Best appeared first on Merchant Maverick.


SBA 504 VS 7(a) Loans: Which Is Right For Your Small Business?

Loans from the Small Business Administration are some of the most highly sought-after financing options by small business owners. SBA loans provide benefits for both the borrower and the lender. Small businesses get to take advantage of competitive interest rates and excellent terms, while intermediary lenders can feel confident in loaning money through these government-backed programs. Because these loans are backed by the government, there’s less risk for lenders, opening up more opportunities for small business owners who may not qualify for traditional loans.

However, the process of choosing an SBA loan can be confusing for small business owners. These loans aren’t “one-size-fits-all” and different programs are available, each with their own terms, rates, and requirements. Two of the most popular loans provided through the SBA are the 504 loans and 7(a) loans. Business owners not well-versed in SBA loans may be unsure of which loan to choose, so it’s important to break down the differences between the two in order to move toward making the right financial decision.

SBA 504 VS 7(a) Loans: Loan Uses

SBA 7(a) Loans SBA 504 Loans
  • Working capital
  • Commercial real estate purchasing
  • Equipment purchasing
  • Purchasing a pre-existing business
  • Refinancing debt
  • Purchase an existing building
  • Purchase land and land improvements
  • Construct new facilities
  • Renovate existing facilities
  • Purchase machinery and equipment for long-term use
  • Refinance debt in connection with renovating facilities or equipment

The SBA 504 program has very specific guidelines as to how loan proceeds can be used. This program provides funding for fixed assets that are used to expand or update a small business. This includes commercial real estate, land, and long-term machinery purchases. Land improvements such as grading and landscaping can also be financed, as well as renovations to commercial buildings or the construction of a new building. Proceeds from the SBA 504 loan can also be used to refinance prior debts related to updating or constructing new facilities.

The SBA’s 7(a) loan is more flexible in terms of how the proceeds can be used. These loans can be used for just about any business expense. A 7(a) loan can be used to purchase equipment, fixtures, and inventory. It can be used to refinance existing debt or as working capital for the business. A 7(a) loan can also be used to purchase real estate or land, or renovate existing buildings and land, similar to the 504 loan.

SBA 504 VS 7(a) Loans: Borrower Requirements

SBA 7(a) Loans SBA 504 Loans
  • For-profit business considered “small” by the SBA
  • Engaged in business in the United States
  • Not in an ineligible industry
  • Strong personal and business credit
  • Strong business financials
  • Strong business plan
  • For-profit business
  • Tangible net worth less than $15 million
  • Average net income less than $5 million
  • Engaged in business in the United States
  • Not in an ineligible industry
  • Strong personal and business credit
  • Strong business financials
  • Strong business plan

SBA 504 Requirements

To qualify for an SBA 504 loan, borrowers must find an SBA-approved Certified Development Company to fund 40% of the project. Another lender, such as a bank or credit union, must provide 50% of the project’s cost. The borrower will be responsible for paying the remaining 10% of costs.

Borrowers of the 504 loan must own a small business according to the size standards of the SBA. The SBA imposes limits on the number of employees you can have to qualify as a small business. These numbers vary by industry, but the organization has created an easy-to-use size standards tool to determine if a business qualifies for loans and other resources. The business must also have a net worth of less than $15 million and an average net income of less than $5 million for the previous two years.

To qualify for an SBA 504 loan, a business must be for-profit. Businesses that engage in passive, speculative, or non-profit activities are disqualified from receiving funding through the 504 program. All qualifying small businesses must be based in the United States.

While there is no minimum credit score required to qualify for an SBA 504 loan, a strong score raises a business owner’s odds of approval. A score of 680 is typically recommended but not required. Credit reports should be free of bankruptcies, foreclosures, and past defaults on government-backed loans.

Applicants for the 504 loan program will be required to submit documentation with their application. This includes but is not limited to personal financial statements, federal income tax returns, balance sheets, and income statements. Cost documentation, including contractor estimates and real estate purchase agreements, will also need to be submitted with the application. New businesses in operation for less than 2 years will be required to submit a cash flow analysis.

Applicants will be required to submit a letter of intent from their lender stating that they will be providing 50% of the project costs. The lender also must specify why they will not fund the full cost of the project.

All existing buildings purchased with 504 loan proceeds or a refinanced building must be at least 51% owner-occupied. If a building is being constructed, it must be at least 60% owner occupied upon receipt of the loan and increase to 80% by the 10th year.

SBA 7(a) Requirements

Requirements for the 7(a) loan are very similar to the requirements for 504 loans. Borrowers must show a need for the money and all other financing options must have been exhausted prior to applying for the 7(a) loan. Borrowers must also show that they are considered a small business based on the SBA’s standards. All borrowers must be for-profit businesses based in the United States.

There is no set credit standard in place but as with other SBA programs, borrowers should have a strong credit score and a credit report free of foreclosures, bankruptcies, and defaults on government-backed loans. All negative items reported will need to be explained to the lender in order to qualify for 7(a) loans. A score of at least 680 is recommended for all applicants. Learn more about boosting your credit score to qualify for SBA loans and other financing options.

The documentation required to apply for a 7(a) loan includes, but is not limited to, federal income tax returns, financial statements, income statements, and balance sheets. Real estate purchase agreements are required when real estate is being bought with loan proceeds. If debt is to be refinanced with the 7(a) loan, notes, leases, and payment transcripts for the last 3 years will be required.

Don’t qualify for an SBA program? Don’t worry — there are more options available. Check out this comparison of small business loans that may fit your needs.

SBA 504 VS 7(a) Loans: Rates & Terms Comparison

SBA 7(a) Loans SBA 504 Loans

Borrowing Amount

Max. $5 million

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

Term Lengths

7 – 25 years

10 or 20 years

Interest Rates

Variable rate of a base rate plus a markup of 2.25% – 6.5%

Fixed rate based on US Treasury rates

Borrowing Fees

Guarantee fee, other fees from lending partners

CDC servicing fee, CSA fee, guarantee fee, third party fees (most 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

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


Collateral required; specifics vary based on business and loan use

Collateral required; usually the real estate/equipment financed

Down Payment


10% – 30%

Borrowing Amounts

The maximum amount that can be borrowed under the SBA 504 loan program is $5 million. An SBA-approved CDC will loan up to $5 million to cover 40% of the total project costs. As previously mentioned, another lender will cover 50% of the costs, while the borrower will fund the remaining 10%.

Through the 7(a) program, up to $5 million can be borrowed through an SBA-approved lender.

Loan Term Lengths

Term lengths for 504 loans vary based on how loan proceeds will be used. Equipment purchases come with a repayment term of 10 years, while real estate has a maximum term of 20 years.

SBA 7(a) loans also have different terms based on how funds will be used. Repayment terms for equipment are up to 10 years, while 25-year terms are available for the purchase of real estate.

Interest Rates

Interest rates for 504 loans are based on the rates of 5-year and 10-year Treasury issues. Interest rates for the remaining 50% funded by the other lender will vary.

Interest rates for 7(a) loans are based on the prime rate plus an additional percentage not to exceed 6.5%. Interest rates are determined by the repayment terms and borrowed amount.

Other Fees

Borrowers that take out a 504 loan may have to pay various fees based upon the policies of the lender. This includes origination fees up to 3.5%, packaging fees, broker fees, and closing costs. Fees can be added to the cost of the loan.

SBA 7(a) loans come with a guarantee fee, though for loans of $150,000 or less, there are no guarantee fees. Fees of up to 3.75% are charged to borrowers based on the total amount of the loan for any amount over $150,000. Additional fees may be assessed, including but not limited to origination fees, packaging fees, and appraisal fees for collateral.

Personal Guarantee & Collateral

SBA 504 loans require all owners with a 20% or more stake in the business to sign a personal guarantee. Collateral is typically not required. Instead, the project being funded serves as the collateral for these loans.

Personal guarantees by all owners will also be required when applying for a 7(a) loan. Loans of $25,000 or less do not require collateral. Loans up to $350,000 are subject to the lender’s policies. Loans that exceed $350,000 will require adequate collateral valued up to the total amount of the loan. If business assets are not available to fully collateralize the loan, personal real estate can be used. It’s also important to note that an intermediary will not reject an application solely based on the lack of collateral.

Down Payment

A down payment is required for the SBA 504 loan. Generally, this amount is just 10%. However, in some cases, such as with a startup business that has been operating for 2 years or less, the down payment could be as high as 30%.

A down payment is also required for the SBA 7(a) loan program. Down payments for this loan program are typically 10%.

When Should I Apply For An SBA 504 Loan?

An SBA 504 loan is best for businesses that are looking to expand through new or updated facilities. The down payments required for this loan are typically lower than those for other forms of financing, while interest rates and repayment terms are some of the best for commercial real estate.

Because these loans are backed by the government, they are also much easier to obtain than other means of financing, like commercial bank mortgages. Read on to find out more about 504 loans and how they can benefit your business.

When Should I Apply For An SBA 7(a) Loan?

The SBA 7(a) loan is one of the best loans for any business purpose. Whether it’s for working capital, purchasing inventory, or other business expenses, the SBA 7(a) loan is one of the best small business loans available thanks to low interest rates and long repayment terms. Small businesses with legitimate needs for funding and strong credit won’t go wrong by obtaining an SBA 7(a) loan.

SBA 7(a) loans are great for most businesses, including startups, because lenders are more willing to loan money under this program. Up to 85% of funds are backed by the government, providing lenders with security and confidence to lend while giving small business owners a low-cost loan option. Find out more about SBA 7(a) loans to determine if this is the right funding option for your business.

Final Thoughts

SBA 504 loans and 7(a) loans both offer benefits for small business owners. Both loan options should be evaluated carefully to determine which is best for a business’ needs, and in some cases, other business loans may be a better fit. With responsible borrowing, the SBA loan programs and other loans offer benefits that can take a small business to the next level of success.

The post SBA 504 VS 7(a) Loans: Which Is Right For Your Small Business? appeared first on Merchant Maverick.


First Time Applying For A Business Loan? Here’s What You Need To Know

Whether you’re facing an emergency or have been planning to make a big purchase like commercial real estate, there comes a time when every business owner needs a loan. If you’ve reached this point in your entrepreneurial journey, it’s easy to feel overwhelmed. With so many lenders out there, how do you choose? Which loan best fits your needs – and which is the most affordable? What if you’re facing challenges such as a low personal credit score or you’re a brand new business?

Blindly applying for a loan can make the process daunting and confusing. However, by knowing what to expect (and what to avoid), you’ll be cruising through the process in no time. Get on your way to receiving the money your business needs. Read on for everything you need to know before applying for a business loan for the first time.

Before You Apply For Business Loans

free credit score monitoring service

Getting a business loan doesn’t start with filling out the loan application. Instead, the process should begin before you even talk to a lender. Before you hop online to fill out your application or head to your local bank branch, prepare ahead of time by taking the following steps:

Look Up Your Credit Score

Lenders want to make sure they’re working with low-risk borrowers who will pay their loans as scheduled. To assess risk, lenders look at a number of factors, including credit scores. Your credit score is one of the most important factors lenders consider when deciding whether to approve your loan application.

A low credit score indicates that a borrower is high-risk. If your credit score is too low, a lender may outright deny the loan application. In other cases, loan options may be available but at a higher price for the borrower  — think higher APRs, down payment requirements, and the need for collateral.

Instead of allowing your credit score to creep up and startle you during the loan process, know where you stand before you even apply for a business loan. The internet makes it easier than ever to get your credit score, and best of all, many sites allow you to view your score for free.

To receive the best loan offers, a score that is at least in the high 600s is required for many business loans, including loans from the Small Business Administration and banks. However, some alternative lenders will give loans to borrowers with scores as low as 500. A lower score may result in fewer options and higher costs over the life of the loan in most cases.

If your credit score is very low, you may choose to work on raising this score before applying for a loan. You can do this by reviewing your credit report, disputing any erroneous items, working to pay down outstanding debt, and always making your payments on time. If a loan is needed immediately and you don’t have time to boost your credit score, weigh out the costs of any loan offer provided to you. If you accept, make all payments on time as scheduled in order to help build your score to qualify for more options in the future.

Decide Why You Want The Loan & How Much You Need

Before taking on the debt of a loan, it’s important to establish why you need the loan. It’s easy to just grab for the money right in front of you, but you need to determine whether your reasons for taking the loan are sound.

Before applying for a loan, consider your return on investment. In other words, will taking out a loan and paying fees and interest be worth it? If the loan will benefit your business and outweigh the costs, proceed with the loan process. If there is no real benefit to receiving a loan, reconsider taking on this extra debt.

You’ll also need to decide how much money you need. Once you’ve determined how you’re going to spend the loan proceeds, this step shouldn’t be too difficult. If you’re buying a new piece of equipment, shop around to get price estimates. If you’re updating your facilities, get bids from vendors and contractors. If your goal is to purchase commercial real estate, look at comparable commercial properties in your area to get an idea of what you’ll spend.

Not only will knowing 1) why you want the money and 2) how you’re going to spend it help with your own planning, but lenders will need this information to determine if you qualify for one of their loans.

Calculate How Much You Can Borrow

You know how much you need to borrow. Now, you need to calculate how much you can afford to borrow.

Before applying for a loan and taking on debt, you’ll want to calculate your debt service coverage ratio or DSCR. This shows the relationship between the income and debt of your business.

Debt Service Coverage Ratio = Net Operating Income / Debt Obligations

To calculate DSCR, divide your net operating income by your debt obligations for the current year. Your net operating income will include all revenue minus operating expenses. Your debt obligations will include all debt, including interest and fees, for the next year.

After plugging your numbers into the formula, your DSCR should be at least 1.25. This shows you (and your lender) that you are bringing in enough income to cover your current debts and can take on additional debt, such as a business loan.

Let’s say that your business brings in $150,000 in net operating income. You have $110,000 in debt obligations for the current year. Plugging these numbers into the equation results in a DSCR of 1.36.

Now that you know that you can afford a loan, the next step is to calculate your borrowing amount. You can do this by dividing your net operating income by 1.25. Once you have your answer, subtract your current debt obligations from this number. This will provide you with the amount of additional debt you can take on.

This may seem confusing, so let’s take a look at the example from earlier. Your net operating income is $150,000. Divide this number by 1.25. This results in a total borrowing amount of $120,000. However, you already have $110,000 in debt obligations. Simply subtract this from the total borrowing amount, and the result is $10,000. This means that you can borrow a maximum of $10,000.

Not only will this help with your own budgeting purposes, but these numbers are used by lenders to determine if you will be able to afford the loan you are requesting. Read on to learn more about calculating how much you can borrow.

Bolster Your Online Presence

Lenders want to loan money to borrowers that are low-risk and will pay their loans back as agreed. This is why the loan process can be so tedious. Lenders evaluate your credit score, your business revenues, and … your social media?

Believe it or not, many lenders are now turning to the internet to learn more about loan applicants, especially small business owners. In fact, it’s been reported in the past that FICO is considering using social media as one of the factors to measure creditworthiness.

Before applying for a loan, consider bolstering your online presence. Make sure that any online resumes are completed updated. Reach out to your clients and customers and encourage them to review and rank your business through social media and review sites like Yelp For Business. You want to show lenders that you are a trusted, well-established business.

It’s also important to never complain about work or discuss financial challenges online. This doesn’t just look negative to lenders, but it’s a general best practice that will help you maintain a veneer of professionalism to your customers, clients, and anyone that searches for you or your business online.

Prepare Your Documents

There’s one thing that can never be avoided when applying for a loan: submitting your paperwork. Although requirements vary by lender, the amount of money you’re requesting, and the type of loan you’re applying for, there are a few basic documents you will need to prepare ahead of time to submit with your application.

For most loans, you will need to show your most recent income tax returns. Prepare a minimum of 2 years’ worth of returns to submit with your application. You may also be required to show bank statements. Although as few as three may be needed, plan ahead by having at least the last 6 or 12 months’ worth of business bank statements.

Additional documentation surrounding income and revenue may also be required. This includes profit and loss statements and balance sheets.

For many loans, you’ll also need to prove that you are the owner of the business. This can be done with business licenses, certifications, and other documents.

If you are purchasing real estate, a purchase agreement may be required. If you’re using the loan to refinance existing debt, you’ll need information related to your debt, including but not limited to account numbers and statements.

Clearly, if you’re a new business or startup, you may not have access to many of these documents. Instead, you’ll need to have a solid, detailed business plan as well as future income projections. You may be required to prove experience in the industry, so you will need to submit your resume with your application, as well as the resumes of any other owners of the business.

You should also know that going into the loan, collateral may be required. Collateral requirements vary by lender, and in some cases, specific collateral is not needed. However, most loans do require a personal guarantee to be signed by every owner of the business. This guarantee holds business owners personally liable for the loan and allows the lender to pursue legal action and even seize personal property if the loan goes into default.

How To Find the Right Lender

You’ve determined why you need a loan. You’ve figured out how much money you need, and this amount aligns with your calculations of how much you can borrow. You’ve gathered your paperwork, and now you’re one step closer to applying for a loan.

However, there are so many lending options out there, where do you even begin? The lender you use depends on various factors, including the amount of the loan, the type of the loan, your creditworthiness, and your time in business. Most business owners turn to three main types of lenders for their business loan needs: banks, the Small Business Administration, and alternative lenders.

When You Should Apply For A Bank Loan

When they need a business loan, many business owners turn to a source they already use for other financial purposes: the bank. Bank loans are popular with business owners because they have extremely low interest rates and excellent repayment terms. Banks offer some of the most affordable loan options on the market.

Banks can also provide high loan amounts, ideal for large expenses like acquiring a business, purchasing a franchise, buying real estate, or improving facilities.

Bank loans are best for applicants with strong credit histories. A credit score in the high 600s and sometimes even at least 700 is needed to qualify for these loans. There should be no bankruptcies, foreclosures, or other major negative items on an applicant’s credit report.

Banks also have extensive paperwork requirements, and collateral is typically required for larger loans. The loan process from banks can potentially take months from start to finish, so business owners with immediate loan needs should seek other lenders.

When You Should Apply For An SBA Loan

Small Business Administration loans are extremely competitive because of their low rates and flexible terms. Because these loans are backed by the government, lenders known as intermediaries have more incentive to loan to small businesses that have trouble qualifying for conventional loans.

The SBA has many loan programs available for business owners. This includes the 7(a) program, which provides up to $5 million for almost any purpose. The 504 program is best for the purchase or improvements of real estate. Microloans are smaller loans of $50,000 or less that are a great choice for startups and businesses that don’t require a large amount of capital. The SBA also has the Veterans Advantage program for military veterans and service members, as well as the Community Advantage program for businesses in underserved areas.

SBA loans require a strong credit history with no previous defaults on government loans, foreclosures, or bankruptcies. Credit scores should be in the high 600s to qualify. For higher loan amounts, collateral is required. Startups may qualify for some programs. Applicants must also fall under the SBA’s definition of a small business, which limits the number of employees, annual revenue, and the company’s net worth.

Because there are so many different programs available through the SBA, these loans are great for just about any business expense. Qualified business owners can apply for these loans through SBA-approved banks, credit unions, non-profit organizations, and Certified Development Companies. SBA loans have similar documentation requirements as banks, as well as similar timelines for approval and funding.

When You Should Apply For An Alternative Loan

More businesses are turning to alternative loans for a number of reasons. Difficulties qualifying for conventional loans and the need for fast financing are two of the biggest reasons alternative lenders are becoming more popular in the small business world.

Alternative loans typically have requirements that are less strict than bank and SBA loans. This means that businesses with lower credit scores, startups and new businesses, or businesses that don’t have a lot of revenue can qualify.

The process for getting approved and funded is also much quicker and easier. There are usually fewer paperwork requirements, and in most cases, the entire process can be completed online. Depending on the type of loan selected, the loan amount, and the lender’s policies, some loans may be funded in just 24 hours.

Credit requirements for alternative loans are not as strict, although higher credit scores yield lower interest rates and better repayment terms. Scores as low as 500 may be approved for certain types of alternative loans. In some cases, collateral will be required for loans, particularly for larger loan amounts or for applicants with lower credit scores.
It is important to note that these loans often come with higher interest rates. Because alternative loans are more expensive, qualified business owners with high credit scores should consider more affordable options.

Business Loan Application Best Practices

You’re almost ready to apply for your loan, but before you do, it’s important to understand a few best practices. While it’s easy to focus solely on the money, it’s also critical to present yourself as a professional, trustworthy business owner to lenders.

Be Thorough

To expedite the process as much as possible, make sure that you’re thorough in every step of the way. From performing your calculations to determine how much money you need and how much you qualify for to gathering your paperwork, your preparations should start even before you apply for your loan.

Do your research and shop around with lenders to ensure you’re getting the most affordable option. When actually applying for the loan, make sure that you’re prepared as well: know what you want to say and how you want to present your business, and have everything you need to back it up.

Be Honest

Lenders want to work with trustworthy, low-risk borrowers. Lenders don’t want to work with anyone that’s dishonest. Be upfront with your lender about everything, from how you plan to use the money to your current financial situation. Outright lying or even just hiding relevant information will not just make you look unprofessional — it will get your loan application rejected.

In addition to being honest with the lender, be honest with yourself. For example, when calculating how much you can borrow, take a good hard look at the numbers. Lying to yourself will only hurt your business in the long term, leading to unnecessary debt and the potential consequences that come with it.

Be Available For Follow-Up Questions

Once you’ve submitted your application, you’re in the clear and it’s just time to wait for your approval, right?

Not necessarily.

The lender may require more documentation or have more questions for you. Minor delays are common, but these minor delays can become major if you’re unavailable to your lender. Always show respect to your lender by answering phone calls or emails as soon as you’re available.

Final Thoughts

Applying for a business loan can be intimidating, but with careful planning and a little knowledge, you can move through the loan process like a pro. Be prepared, know your numbers, keep in contact with your lender, and stay professional, and you’ll soon be on your way to securing your first business loan.

The post First Time Applying For A Business Loan? Here’s What You Need To Know appeared first on Merchant Maverick.


Business Credit Cards With The Best Reward Programs

In many cases, a good rewards program sets a credit card apart from its peers. Businesses can then take advantage of a rewards program to save money and earn bonuses. Depending on how much a business spends, it could net thousands of dollars in rewards every year.

However, not every rewards program fits every business. For instance, some rewards programs grant more points at hotels—a boon for businesses that require frequent travel. Meanwhile, others give extra rewards for purchasing office supplies—a great fit for businesses that are always improving their workspaces. There is simply so much variety.

After noticing this complexity, we at Merchant Maverick decided to do a thorough breakdown of the business credit cards with the best rewards programs. Read on through below!

Best For Cash Back Rewards: American Express SimplyCash Plus

American Express SimplyCash Plus


Annual Fee:



Purchase APR:

13.99% – 20.99%, Variable

Put plainly, cash back business cards are an easy and convenient way to save money. With a cash back card, you earn back a certain percentage of what you spent each time you make a purchase. Cash back cards have the added bonus of usually being less complicated than points reward structures.

Why It’s Our Pick:

If you make frequent purchases at office supply stores and on wireless telephones, the American Express SimplyCash Plus is a no-brainer. That’s because this card features 5% cash back via statement credit for purchases within both categories (up to $50,000).

On top of that, American Express lets you pick one category on which to get 3% cash back (up to $50,000), allowing you to tailor the card to fit your business. Available categories in the 3% range include airfare, hotel rooms, car rentals, gas stations, restaurants, advertising, shipping, computer hardware, software, and cloud computing.

Besides those tiers, SimplyCash Plus offers 1% on all other purchases. In addition, there’s no annual fee and 0% APR for the first nine months. To get full details, visit Merchant Maverick’s in-depth review.

Honorable Mention: Chase Ink Business Cash

Chase Ink Business Cash

Apply Now

Annual Fee:



Purchase APR:

14.99% – 20.99%, Variable

Like SimplyCash Plus, Chase Ink Business Cash offers 5% on purchases at office supply stores. Instead of just wireless telephones, this card also features 5% on internet, cable, and phone purchases. However, the rewards cap out at $25,000 instead of $50,000. Additionally, Chase has set the second reward tier at 2% cash back (up to $25,000) and it’s only for gas stations and restaurants. All other purchases receive 1% cash back.

Still, this is a solid option if you’re looking for something different than what American Express is offering. Plus, it features no annual fee and a 0% APR for 12 months. Check out our complete review for all the details.

For more cash back cards, check out our best picks.

Best Airlines & Travel Rewards Program: Chase Ink Business Preferred

Chase Ink Business Preferred

Apply Now 

Annual Fee:



Purchase APR:

17.74% – 22.74%, Variable

If your business requires lots of travel you may want to get a business credit card that includes benefits for airlines and travel. Getting a card with specific travel benefits could reap greater rewards than you’d get from just a standard cash back card.

Chase Ink Business Preferred gets our top pick for travel business credit card because you earn three points per $1 spent on travel (as well as on shipping, internet/cable/phone services, and online advertising). On top of that, points are worth 25% more if you redeem them for travel through Chase Ultimate Rewards. Additionally, you can transfer your points on a 1:1 basis to other travel programs, such as United MileagePlus and Marriott Rewards. Get the full picture via Merchant Maverick’s review.

To compare more travel cards, we’ve got you covered with our list of the best business travel cards.

Best Hotel Rewards Program: Starwood Preferred Guest American Express Luxury Card

Starwood Preferred Guest American Express Luxury Card

starwood luxury amex

Annual Fee:



Purchase APR:

17.49% – 26.49%, Variable

Businesses that spend a decent chunk of change on hotels may want to look for something even more specific than a generic travel rewards card. That’s because a card geared toward hotel rewards can offer you better rewards when used properly.

The Starwood Preferred Guest American Express Luxury Card is our top pick because it doles out six points per $1 spent at participating SPG and Marriott Rewards hotels. Beyond that, you can earn three points per $1 spent at restaurants and airlines. Points can then be redeemed for free nights at SPG and Marriott Rewards hotels, as well as for flights and car rentals. Learn more by reading our review.

Best Rewards Points Program: American Express OPEN Business Gold Rewards

American Express Business Gold Rewards

amex business gold rewards review

Annual Fee:

$0 the first year, then $175


Purchase APR:

N/A (This is a charge card)

Going with a points-based system (instead of one that gives cash back) can be an excellent option should the points be redeemable for a service you frequently use. For instance, if you have a card that allows you to redeem your points on a specific hotel, you could be able to save money on bookings or get free room upgrades.

The American OPEN Business Gold Rewards charge card features an enticing and well-rounded points program. You get three points per $1 spent on the category of your choosing (out of airfare, advertising, gas stations, shipping, and computer hardware, software, and cloud computing), two points per $1 for each the four categories you didn’t choose, and one point per $1 on everything else. Points can be redeemed at an array of airlines, hotels, and merchants. Do note, however, that because this is a charge card, you’ll have to pay off your balance every month. Read Merchant Maverick’s review for more info.

Best Overall Rewards Program With No Annual Fee: American Express Blue Business Plus

American Express Blue Business Plus


Annual Fee:



Purchase APR:

12.99% – 20.99%, Variable

If you’re looking for a well-rounded rewards program with no annual fee, it’s hard to go wrong with the American Express Blue Business Plus. This card packs in two points per $1 spent (up to $50,000) on all purchases, making it very attractive to businesses that buy from a range of categories. After you pass the $50,000 threshold, you earn one point per $1. Beyond rewards, it features 0% APR for the first 15 months. Get squared away with all the facts in our review.

Frequently Asked Questions:

Is my personal credit score used to determine approval?

Yes, almost all issuers check with consumer credit bureaus when you apply for a business card.

How can I build my business credit fast?

Unfortunately, it’s difficult to build credit fast. As long as you pay off your debts and keep your accounts from running delinquent, your credit score should rise. Find out more by reading the Merchant Maverick guide to building business credit.

Do I lose rewards on returned purchases?

In most cases, you will lose your rewards on returned purchases. However, you may be able to keep rewards points if you accept in-store credit for the returned item.

Will I lose rewards points if I pay my credit card balance early?

In most situations, you earn your points based on when you bought an item or service. It doesn’t matter when you pay your balance; you should still earn your reward points when paying the balance early.

How do I redeem my credit card rewards?

It depends on the rewards program. Some allow you to request cash back via statement credit or check. Others offer points you can redeem for gift cards, physical items, flights, car rentals, or hotel rooms.

Now What?

If you want to compare more credit cards for small businesses, visit our comparison page. Those with good credit may also want to check out the best business cards for good credit. Making a big purchase? Read up on our list of the best 0% intro APR cards.

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Alternative Business Loans: What They Are And Where To Find Them

Years ago, banks were the go-to sources for business loans. If you needed financing to expand your business, you walked into your local bank branch, filled out an application, and most of the time, walked out knowing that you would soon have the money you needed. And if you didn’t qualify? In most cases, you were just out of luck.

However, times have changed. The growth of the internet has offered a platform for a new form of lenders: alternative lenders. This couldn’t have come at a better time, either. Although the economy is bouncing back from the recession, banks are still hesitant to loan to businesses, especially new businesses, startups, and business owners with less-than-stellar credit scores.

Business owners have more choices than ever thanks to alternative loans. But what are alternative loans? Where can a business owner apply? How do alternative loans differ from traditional bank loans?

Read on to learn more about alternative loans and how they can benefit your business in a big way.

What Are Alternative Small Business Loans?

Alternative small business loans are loans that are issued outside of the context of a bank. This is why they’re also known as non-bank business loans. Alternative lenders provide loans and other forms of financing for business purposes. This could include the purchase of commercial real estate or equipment, working capital needs, or any other business expense, large or small. Small businesses often turn to these alternative lenders when they cannot qualify for a traditional loan from a bank.

How Are Alternative Business Loans Different From Bank Loans?

While bank loans are available only through banks, alternative loans are available through financial groups, nonprofit organizations and community groups, or even individual investors.

Bank loans can only be obtained through a bank branch. This often requires an in-person visit or at least a phone call from the applicant. On the other hand, alternative business loans can typically be completed online from start to finish. The application process, submission of documentation, and even approval and funding can be handled via email or secure online portals.

Qualifying for an alternative business loan is typically easier than qualifying for a bank loan because requirements are not as strict. There are fewer paperwork requirements and more flexibility. Alternative loans are also approved and funded more quickly than bank loans.

Bank loans are known for their favorable rates and terms. While interest rates vary across lenders, alternative loan rates are typically higher than those offered by bank loans, with the best interest rates reserved for borrowers with the best credit scores.

Types Of Alternative Loans

best online lenders

One of the best things about working with alternative lenders is that there are many different options available to fit the needs of small business owners.

Installment Loans

Installment loans are one of the most common types of financing. An installment loan provides a business owner with one loan disbursement for a set amount. The loan is paid back with fees and interest over a set period of time through scheduled payments.

Installment loans are generally the most flexible of all business loans. These funds can be used for any business expense. Installment loans are best for businesses that need money for larger purchases, such as real estate or company vehicles. For the most qualified buyers, interest rates for installment loans can be competitive with bank loans.

Business Lines Of Credit

A business line of credit works just like a credit card. A business can make multiple draws against the line of credit up to and including the credit limit set by the lender.

A business line of credit is great for emergencies or for use as working capital. Interest is paid only on the portion of the credit line that has been used.

Short-Term Loans

A short-term loan is a loan that is paid back like an installment loan, only the repayment period is much shorter – typically one year or less.

Short-term loans often come with the highest interest rates, so it is best to only use these for emergencies. These may also be an option for business owners with low credit scores. Taking out a short-term loan and repaying it as promised can also help business owners boost their credit scores to qualify for more affordable loans in the future.

Invoice Financing

Unpaid invoices can leave businesses in a bind. Instead of waiting for customers to pay, business owners can use invoice financing to get the money they need immediately.

There are two types of invoice financing. With invoice factoring, a portion of the invoice is paid to the business. The lender then collects the total invoice amount from the customer. The remainder of the invoice is paid to the business owner, minus any fees and interest charged by the lender.

With invoice discounting, the lender pays a large percentage of the invoice to the business owner. The business owner then collects the payment from the customer. Once payment has been collected, the loan is paid back, including interest and fees.

Most business owners that use invoice financing do so to resolve cash flow issues. These loans are distributed quickly and often do not require high credit scores to qualify.

Why Get An Alternative Business Loan?

Getting a loan from a bank can be difficult, even for the most qualified borrowers. Small businesses often have unique financing challenges that require flexible and creative financing options that only alternative lenders can offer.

You Need A Loan Fast

Bank loans are great because of their low interest rates and great repayment terms, so many businesses find that these loans are worth waiting for. Often, though, the waiting period can be weeks or even months if complications arise during the process — and this can be a hardship if a business needs money immediately. This is when alternative lenders are beneficial.

Most alternative lenders offer a fast and easy online application process. Because there isn’t as much paperwork typically required, this also helps shorten the timeline. Depending on the lender’s policies, the amount of the loan, and the loan type selected, some alternative business loans can be approved and funded in just days – and in some cases, as short as 24 hours.

Waiting for weeks to obtain a loan can at times be detrimental to a business if an emergency arises or even during slow seasons. Alternative lenders can work quickly to provide a business loan exactly when it’s needed.

You Have Poor Personal Credit

A poor credit score can affect anyone. There are a lot of factors that can bring down a credit score, including a history of late payments, high balances on credit cards that are slowly being paid off, or too many credit inquiries. As many small business owners have discovered, most banks will speedily reject a business loan application due to a poor credit score.

Since bank loans boast such favorable rates and terms, these are typically reserved for business owners with the highest personal credit scores. While those scores in the high 600s may qualify for bank loans, scores of 700 or above are typically preferred. This is why many business owners with low credit scores turn to alternative lenders.

Alternative lenders often have less stringent credit score requirements. In some cases, scores in the 500s may even be approved, depending on the loan selected and the amount of the loan. As with other types of loans, the better the credit score, the better the interest rates and terms with alternative loans.

You Haven’t Been In Business Very Long

Most bank loans require a business to be in operation for at least two years. New businesses and startups may be able to get a loan from a bank, but it’s much more challenging than for an established business. Being unable to find financing when it’s needed can stall a new business before it even gets off the ground.

Fortunately, alternative lenders provide a variety of funding options for new businesses and startups when banks and other conventional lenders turn them down. While time in business requirements vary by lender, in many cases, a business only has to be in operation 6 months to qualify for some alternative loan options.

You Don’t Make Very Much Money

Bank loans typically go to the most low-risk borrowers: the borrowers with the best credit, the most years in business, and the most revenue. Unfortunately, some business owners seek a loan because they aren’t making enough money to fund a much-needed purchase. They go to the bank but are rejected because they aren’t earning enough money, so they can’t get the help they need to boost their business. It’s a vicious cycle.

With alternative loans, though, there are options for businesses that aren’t bringing in high revenues. Revenue requirements are more flexible with alternative lenders – think $25,000 annually or $10,000 monthly. For many small businesses, this is an easier requirement to meet than the revenue criteria set by banks.

How To Qualify For Alternative Business Loans

Requirements for alternative business loans vary by lender. However, there are a few things to keep in mind regardless of what lender is used and what type of business loan you need.

Your personal credit score is a factor when qualifying for a loan, although alternative lenders will typically approve borrowers with lower credit scores. Borrowers with scores as low as 500 may qualify for some alternative loans, although options may be more limited. The best APR, repayment terms, and monthly payments will generally go to borrowers with scores over 600. Having collateral may help borrowers with lower scores qualify for additional loans or higher limits.

Many alternative lenders will require collateral. For some loans, though, additional collateral is not needed. For example, with invoice financing, the unpaid invoices serve as the collateral.

Even if specific collateral isn’t required, a blanket lien or personal guarantee may be a condition of the loan, which is why all loan contracts should be fully understood before signing on the dotted line.

There are no set revenue requirements, but generally, at least $25,000 in annual revenue is needed to qualify. However, lower limits may be available through some alternative lenders. There are also no set requirements across the board for required time in business, although most alternative lenders require that a business is in operations for at least 6 months. Lower time in business requirements may be available through select lenders.

Borrowers will need to request the loan amount needed and describe how the funds will be used during the application process. Borrowers should be prepared to offer collateral, if needed, and should be aware that repayment frequency may vary. While banks traditionally offer a monthly repayment schedule, alternative lenders may have weekly or even daily payment requirements.

It’s also important to view loans from the lender’s perspective. By understanding the five Cs of credit, you’ll have a better idea of what to expect during the application process and how to boost your odds for approval.

How To Find Alternative Business Lenders

You have an understanding of alternative business lenders and you’re ready to apply, but you’re not sure where to begin. Since these lenders are online, it’s easy to find them with a simple search. However, not all alternative lenders are equal. Your search may yield predatory lenders with out-of-this-world interest rates, unclear terms, high prepayment penalties, and unnecessary fees.

Sometimes, it’s easy to jump into a loan without thinking of the long-term costs, especially when an emergency occurs. However, it’s important to understand all rates, terms, fees, and collateral requirements before entering into the loan contract.

Instead of navigating the alternative lender landscape on your own, check out our small business loan comparison chart. You’ll be able to compare requirements, loans offered, maximum loan amounts, and repayment terms without spending hours shuffling through search engine results. When you’re ready to learn more about each lender, take a look at our in-depth reviews to find the lender that’s the best match for you.

You can also check out a loan matchmaking service like Lendio. With Lendio, just one application is all it takes to be matched with more than 75 lenders. You’ll receive the best possible rates and your loan can be funded in as little as just 24 hours. This eliminates the need to fill out multiple applications and helps you avoid many of the hassles associated with finding the best alternative lender for your business loan.

Final Thoughts

From emergencies to expansions, every small business will encounter financial hurdles that require a little bit out of outside help in the form of a loan. Alternative lenders open up more opportunities for business owners, so you can find the money you need for your business, regardless of what challenges you’ve faced in the past when applying for a loan.

The post Alternative Business Loans: What They Are And Where To Find Them appeared first on Merchant Maverick.