Should I Use A Business Loan Brokers or a Direct Lender?

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Starting or running a business can be tough. Every step of the process can be a challenge, but perhaps none more so than getting the money you need to move up your business. The saying, “It takes money to make money” is true with all businesses. Even the simplest of businesses need things, so what do you do if you do not have the money to do what you need? Fortunately, there are lenders who are willing to loan you the money for your business. Unfortunately, finding the lender to do so can take some work.

Business Loan Brokers or a Direct Lender?

If you are trying to figure out how to finance a business, your head may be spinning with the available options, but we are going to try to help slow the spin. The first step you should take is choosing to work with a direct lender or going through business loan brokers. By the end of this guide, you should be able to make that decision much easier.

What Are Direct Lenders?

For the most part, direct lenders tend to be banks or credit unions. However, some direct lenders are not affiliated with banks at all. Direct lenders are lenders that loan you money directly from their own resources.

Let’s simplify. Let’s say that you need to borrow $1,000. You know Uncle Bob has it, so you go directly to ask him for the money. If you meet his requirements and agree to his terms, he loans you the money directly from his own pocket or bank account. This is a direct line between you and your lender.

Sometimes direct lenders have a small group of associates that they pool the money from or they even have avenues of crowdsourcing that they use, but they are not separate lenders. They are simply resources that your lender can tap into. The direct lender just uses them to gather the funds they offer to loan you.

Let’s take a look at the pros and cons of going through a direct lender:


  • There are no additional fees besides those that the lender charges. Unlike business loan brokers who charge an additional fee for their services, with a direct lender, you will only pay costs directly associated with your loan. Direct lenders can provide more favorable terms, lower interest rates, and even higher loan amounts to certain businesses.
  • If you have an existing relationship with a direct lender, you just might have a leg up, so to speak. This is not always the case, of course. Some banks care not if four generations of your family have been banking with them. If you do not meet the requirements, you do not get approved. Others, though, take your existing relationship into account. Credit unions and lenders that do not belong to a big chain are more likely to work with you.


  • Direct lenders are usually not helpful for newer businesses, have a lack of credit history, or have no detailed plans to show. They are more apt to work with established businesses or those that can show profitability.
  • They tend to require more paperwork and records. Between this and the need for a detailed business plan, preparing to apply for a loan with a direct lender can take a great deal of time- and give you quite a headache.
  • You have to do your own research for each direct lender you decide to apply through. It can take a while to figure out what a lender requires and then get it together.
  • Direct lenders usually do not have as many products as business loan brokers have access to. Direct lenders typically have one or a few loan types while brokers have connections with several products each.

What Are Business Loan Brokers?

Business loan brokers are more like a middleman. They do not loan money directly but rather cultivate relationships with and build a network of lenders. Going back to our previous example of Uncle Bob, let’s make this easier to understand.

We will say you still need to borrow that $1,000. The difference this time is that Uncle Bob does not have the money himself. However, you know that he is friends with a handful of guys that do. In this case, Uncle Bob would consider your situation- how much you need to borrow, how quickly you could repay, and so on- and determine which of his buddies will loan you the money. His buddy then becomes your lender while Uncle Bob is merely the avenue between you and the lender.

There is a good chance that Uncle Bob is going to want a little something for helping you out. He might just ask you to help clean out his garage. A business loan broker, on the other hand, will add a fee according to what you borrow.

While fees make some people run in the other direction, take some time to think about it first. Remember, the broker is handling pretty much the entire process for you, so of course, it is fair that they ask for a fee. The question is whether or not paying someone is worth it to you. If saving the time and preventing the headache is your priority, the fee should be worth it. Just be sure you ask how much that fee will be prior to signing any paperwork.


  • You do not have to research and find a lender for your business– the broker does it for you. Sometimes the hardest part of getting a loan is finding a lender because they tend to have their own requirements and application process. Business loan brokers know the lenders that are in their networks, so they know which lenders to apply for. They can also look at your financial situation from the get-go and determine who will and will not consider your application, saving you a load of time.
  • Business loan brokers can prevent you from being scammed. Business loan brokers know the ins and outs of business loans, so they can spot a scam. Unless you are experienced in business loans, you may not.
  • Business loan brokers do the work and the applying for you. You skip the headache and worry about other important matters while you let the broker handle his or her specialty.


  • Business loan brokers charge fees for their work. This is in addition to any fees and interest you already owe on the loan. The fee may be anywhere from one percent to 20 percent of the loan amount. On the positive side, they want to be sure they get their fees. This motivates them to find a loan with a lower interest rate so you can afford to pay all you owe.
  • It could take longer than a direct lender, or it could be a lot faster. It really is hard to say and depends on the particular lenders involved. As mentioned earlier, your best bet is to ask all lenders or brokers you are considering how long the process typically takes.

Deciding Between Business Loan Brokers and Direct Lenders

If you are still trying to decide between business loan brokers and direct lenders, here are some questions to ask and some indicators to ask:

  • Is your business new or still very young? Business loan brokers are usually a better option.
  • Is your business more established with a decent financial industry? Do you at least have a business plan with financial projections? A direct lender may have better options.
  • Do you need the money quickly or can you take a little more time with the application process? This can lean in both directions. Some say business loan brokers are faster since they have several lenders that they can work with. Others say that business loan brokers take longer since they have to choose between those lenders. The best way to know is to ask the business loan brokers you are considering and check any reviews you can find about that company.
  • Is this your first business loan? Business loan brokers are worth a try.
  • Do you have a relationship with a specific lender, such as your bank or credit union? You should consider trying them first. If they do not work out, you can always try other sources later.
  • Do you understand loans and all of the jargon that goes with them? Business loan brokers can help you through the process while educating you.

Choosing Between Available Business Loan Brokers

If you feel that working with a business loan broker is the right option for you, here are some things to consider when choosing between them:

Ask how many lenders the broker works with. The higher that number, the better chance you have of being approved. If they only want to apply with one lender, you might want to back away. Only applying at one kind of cancels out the benefits of hiring a broker. The point of the broker is to look for the best loan product with the best rates and terms. How can they know which lender will offer you the best if they do not send your information to them?

If the broker insists on applying to just one lender, there is a good chance that the lender or loan they are pushing will provide them with the best benefits. And, we can be honest here, this is about you- not them. If they are not looking out for your best interest, you do not need to do business with them.

You need to find out just what happens to your contact information. If there are no privacy agreements, run the other way. You do not want your information sold to others. It is no fun having random calls from salespeople during dinner.

That is all not including the fact that selling your information to third parties makes you vulnerable to identity theft and hacking. If the broker does not protect your information, find one that does.

How much do they charge in fees? Are they transparent with those fees? If they are not upfront with you about the fees and the loan details, look for someone else. Most of the time, the fee will be a percentage of the loan amount. Therefore, they may not be able to give you an exact amount before hearing from lenders. However, they should be able to tell you upfront exactly what percentage they charge.

And sometimes the percentage changes depending on the amount of the loan. For instance, they might charge 10 percent for loans of $1,000 to $5,000 and 15 percent for loans between $5,001 and $10,000. That is no cause for concern. As long as they can tell you these percentages and the fee scale upfront, you are probably okay. It is when they try to evade your question that you should watch out.

If a broker guarantees that he or she can get you approved for a loan, it is a red flag. Think about it: How can they guarantee something they are really not in charge of? They are not the lender- they just help you find a lender. There is a chance that none of the lenders in their network will approve you for one reason or another. Legitimate brokers will not guarantee anything more than they will do their best for you because that is really all they can guarantee.

Almost- if not all- lenders require credit checks to approve you for a loan. If the lender does not, that is usually because they are secured with something like the title to your car or a check. If a broker says that they do not run your credit, it might be a scam.

I have known brokers that do not run credit checks at the beginning of the process. When clients first go in to speak to the broker, if the borrower can give the broker their credit score, the broker will get a pre-approval according to that instead of putting a hit on your credit too early in the process. Later, when it is time to actually apply, they run an actual credit check. They might not do it up front, but they do run a credit check at some point through the process. If they say they will not run your credit at all, it is probably too good to be true. Watch out.

Check any reviews you can find for the broker. The best references are those from prior customers. If you cannot find any references, you should probably stay away. You have to protect yourself.

Consider SBA Loans

SBA requirementsOne very reputable way to find a business loan happens to be the SBA business loan broker. These are loans that are guaranteed through the Small Business Administration, and they can often help many small businesses that cannot get funding through alternate means.

Bad credit does not automatically disqualify you. The Small Business Administration is specifically intended for helping small businesses, and the organization is aware that not everyone has the qualifications to meet the stringent requirements of most lenders.

Again, specific loans may have additional requirements, but these are most of what the SBA requires for you to qualify for its help.

These loans can range anywhere from a few hundred to millions. The SBA can also often find you loans with low-interest rates and some with education to help you through growing your business. Be sure to check out the Small Business Administration for more information.


When you are trying to figure out how to finance a business, you can easily find yourself drowning in a sea of information. That is why it is good to start with deciding which avenue to go through- direct lenders or business loan brokers. Making this decision first can help minimize the amount of research you need to sift through and make a plan of action. There are also and online lenders for your business loan, where you can apply for a loan from your office or home. But about them, another time.

If you have a partner in your business, be sure to discuss this decision with them. And, as always, consider seeking professional advice if you feel it necessary. Your business’s future is too important to leave to chance.


Merchant Cash Advance When Money Today Matters Most

Owning your own business can be a tricky thing. It takes a special kind of business owner to be able to make sound financial and administrative decisions. Even if you have made the best decisions for your business, you may find yourself in need of funds quickly. There could be a wide range of reasons why you may need funds. Your reasons for needing money could dictate how quickly you need to obtain the money. It is helpful if you know all of the options that are available to you before you actually need the money. This article outlines everything you need to know about merchant cash advance (MCA). In this way, you can inform yourself before you have to make a decision.

What is a Merchant Cash Advance?

While a merchant cash advance can give you money quickly, it is not truly a loan. It is a cash advance based upon the credit card sales of your business. As a small business, you could apply for a merchant cash advance and have money in your account fast. There are specific providers of merchant cash advances. They evaluate risk and credit in a different way than a typical banker. In this case, the provider is not called a lender and they look at your daily receipts from your credit card sales to figure out how much you are able to pay back. You are essentially selling a percentage of your credit card sales in the future to get money today.

You make an agreement with the provider that addresses the payback amount, the amount that is advanced, and all the terms of the agreements. Once you sign the agreement, they put the money into your bank account. After that, each day a certain percentage of your daily credit card sales is withheld to pay back the agreement. This percentage is called a holdback and happens every day until the amount is repaid. The higher the amount of money that you earn in credit card sales means the higher the amount of money you can borrow and the faster you can repay the money.

The Benefits to This Type of Cash Advance

There are a wide variety of benefits to a merchant cash advance when you are looking for how to finance a business. Some of the benefits that you will get from taking advantage of a merchant cash advance include your ability to have fast access to the money you need when you need it. The approval process for this type of lending is easy and quick. You do not have to have any type of collateral to obtain approval for a merchant cash advance.

One of the great aspects of this type of lending is that your credit does not make a huge impact and even the worst credit is accepted. You can use this option for a large range of business needs. You can choose to make your repayment schedule on a daily or weekly basis. This can allow you to repay the money much faster. You have direct access to the merchant account which gives you an extra layer of advanced security.

You do not have to make an actual payment to repay this cash advance because it is automatically taken from your credit card receipts. Most providers offer online access. You can apply for this type of lending quickly over the internet.

The Negatives To This Type Of Cash Advance

When you are considering a merchant cash advance, there are also some negative aspects that you should consider. It is important that you have a complete understanding of all the good and bad aspects of a merchant cash advance before you make the decision to move forward with this type of transaction. This type of cash advance usually charges higher fees than what you would typically find with traditional loans. You do not have as much flexibility when looking for a merchant service provider. There are limited options available and as a result, you may not be able to change providers.

You are repaying the cash advance with a daily deduction to your credit card receipts. This means that you are reducing the amount of cash that is coming into the business because it is going towards paying back your cash advance.

How Can I Qualify For A Merchant Cash Advance?

This is a fairly easy job, which you don’t hear often in the financial world. However, there are some minimum requirements for your business to be able to qualify for a merchant cash advance. Fortunately for you, the minimum requirements are fairly easy for most businesses to achieve. While this type of lending is great for a business that has a limited history of existence, your business does have to be operating for at least two years. Some businesses have low credit scores because it is hard for them to keep their finances in order while running a business. A low credit score typically will not prevent you from qualifying for this type of cash advance, however, you do need a credit score of at least 550.

Keep in mind, you are repaying the cash advance with your daily credit card receipts. So this means, you are paying back the money you borrowed with a portion of the money you make each day. Therefore, the more money you make, the more you are able to repay and the more willing the merchant may be to let you borrow money. As a result, you should expect that you must generate an annual revenue of at least $180,000. This type of lending is intended to be a short term financing tool to assist you with purchasing inventory, paying debt, or some other unexpected payment that you need to make.

What Documents Do I Need?

While applying for a merchant cash advance is a simple process, there are some documents that you need to provide to the merchant along with your application. Remember, you pay back a merchant cash advance with your credit card transactions on a daily basis. Since that is the case, the merchant wants to look at your credit card statements to see how much you earn through credit card transactions. They want to make sure you have enough volume to repay the cash advance. Many merchants also want to see bank statements and will put your credit report to see your credit score.

Typically, you can apply for this type of cash advance online and the application is often approved the same day that you apply for the cash advance. You should keep in mind that you pay the price for fast money. Also, you need to provide proof of identity when you apply for a merchant cash advance. You must present a valid picture ID, such as a driver’s license. A merchant may also ask you to provide your business taxes as well as a voided business check.

Some vendors may ask you to provide additional documentation, such as proof of citizenship and any leases that you have on the building in which your business operates. The merchant may ask for other information, too. You want to provide whatever documentation they request as quickly as you can. Failure to provide this information could result in the merchant denying your request. You do not want to be denied simply because you did not respond timely.

How Difficult is it to Repay?

It is not that difficult to repay a merchant cash advance because they automatically deduct the money from your credit card sales. However, there are some repayment details which you should be aware of. They typically use a factor rate and not an interest rate, like more standard loans. The factor rate runs anywhere from 1.14 to 1.48. You then multiply the amount you borrow by this number and that gives you the full amount that you owe. It may seem like a low number when interest rates typically start around 8 percent, but not so fast. When you translate this number to a percent, it ends up being around 15 percent but can go much higher. However, the typical borrower ends up paying 20 to 40 percent more than the amount borrowed.

The merchant understands that when you are wanting a cash advance, you are probably more of a risk. Naturally, they want to make sure they protect themselves from that risk. It usually takes about 8 to 9 months to fully pay off your merchant cash advance. However, you may be able to get a term as short as 4 months and as long as 18 months depending on how much you earn. You should also keep in mind that this limits the amount of cash that you have coming into the business while you are repaying this cash advance.

The amount you pay back daily is called the holdback amount. This is a daily percentage of the credit card sales receipts. This is not the same percentage as your repayment amount, or factor rate. The holdback amount is based on the amount of money you are advanced, the amount of your credit card sales, and the amount of time you take to repay the advance.

I will give you an example to highlight what I said above.

You have an advance of $5,000 and you are paying back $6,500. That means your factor rate is 30 percent. However, your holdback rate is 15 percent until you have paid back the $6,500. The amount of time it takes you to repay the $6,500 depends of your credit card sales. If you have consistent sales of $10,000 per month, that means you are paying $1,500 per month and it would take you a little more than 4 months to repay the money.

Are There Other Types of Business Loans?

As a business, you have some options other than a merchant cash advance available to you. Before making a final decision, you should shop around to business loan companies to find out what you may obtain. Small Business Administration (SBA) loans are a great option for many small businesses and offer a wide range of benefits. The SBA does not give out the loans, however, they work with lenders that will provide the loans to small businesses. They are a federal agency that sets the rules and parameters for the loans by combining with lenders, institutions, and community organizations. They make it easier for many small businesses to obtain loans.

These loans are for long term planning, which is different from merchant cash advances. You may need collateral for this type of loan. However, these loans have fixed and variable rate options. The SBA backs the loan up to 90 percent so the lender feels secure in allowing you to borrow the money. If you default on the loan, the SBA covers up to 90 percent of it. The repayment terms can be for an extended period of time, up to as long as 25 years.

You should be aware that the application can take a considerable amount of time and you may need to provide a large amount of documentation, such as background checks, financial reports, and tax documents.

Can I Get a Personal Loan Instead?

When you are considering a merchant cash advance, it may seem odd to also consider a personal loan, but it is an option that is available to you. While a personal loan is not technically for business purposes, you can use it for anything for which you want to use it. You are taking personal responsibility for it. So if you are willing to do so and spend it for a business need, you can do that. This could be a good option if your business is fairly new and does not have a good amount of credit built up on its own.

Your credit score is a large factor in determining your interest rate. The lower your credit score means your interest rate will be higher. When you apply for a personal loan, your income matters. So if you are not taking a salary from the business and you are not showing any type of income, you may have a difficult time getting a personal loan. It’s important to find a credible lender.

Is a Line Of Credit Loan a Better Idea?

One other option you may want to consider when you are thinking about a merchant cash advance is a line of credit. In this case, a lender extends you a certain amount as a line of credit over a certain period of time and you can use those funds however you wish. Once you reach the end of the time frame, you are no longer able to use the line of credit. You can use as much or as little as you wish of the amount the lender gives you.

You pay interest on the amount you use, not the full amount of the line of credit, unless, of course, you use the full amount. The lender and you agree to the repayment amount before the line of credit is extended to you. When you pay off the amount you have used, you can usually use that amount again until the term is up. Most of the time, you can renew the line of credit for another term.

The interest rate for a line of credit is usually in the mid-range as they tend to be much less risky for lenders. This may be a good way to establish credit for your business, especially if you have a new business or are trying to repair your credit.


A merchant cash advance may be a new term for you. But now that you know a little more about it, you may be considering it. If you are seriously considering this as an option, be sure that you understand how it is going to impact your day to day cash flow coming in from your credit card sales. You may consider it as an option because it does not take from any money you have saved. However, as we already stated multiple times, it does impact that money coming into your business from your credit card sales. If you have that money projected and in your budget, you must consider how that impacts you moving forward.


Accounts Receivable Financing to Bridge The Short Distance

If you have your own business and it is doing well, congratulations is in order. Many of us dream of being our own bosses, but few of us are able to achieve that goal. Also, a small business can be a tricky thing to keep running. There are many unique needs associated with small businesses. Many small businesses have a difficult time generating enough income to remain operational for longer than five years. As a result, you may need to find ways to keep your business solvent during tougher times. It happens to all businesses. You should have a plan in mind, just in case you find yourself in a position where you need cash quickly. There are many options available to you, one of them is accounts receivable financing.

What Is Accounts Receivable Financing?

Accounts receivable financing is a unique type of financing that doesn’t fall under traditional lending. It’s something you should understand when you are considering obtaining money for your business. This is potentially a way to gain access to money quickly. You may have heard of this type of financing referred to as invoice financing. They are the same thing, just called by different names. You may not have heard of accounts receivable or invoice financing, so I am going to explain the basics of it to you.

It is a special type of financing where a lender purchases any invoices that are outstanding. The lender, who is usually called a factor, gives you a percentage of the money that is due to you. They usually pay you anywhere from 80 to 90 percent of the amount of money you are expecting. I will explain it with a real-world example.

An Example

Let's say you manufacture clothes and you sent clothes to a buyer and you are expecting a payment of $10,000 from them. You are expecting that payment in a short period of time. A lender will give you 80 percent of that money, which equals $8,000 today.

However, you pay them the full amount of $10,000 that is owed to you. You are supposed to give the money to the lender when you receive it from the buyer. The lender does expect the payment from you within a certain period of time.

You can sell multiple accounts receivable items at one time to a lender. When you enter into one of these types of agreements, you should make sure that you review the fees and percentages to which you are agreeing. Even though you may feel like you need money fast, you should make sure you are comfortable with the agreement.

Different Ways To Approach Accounts Receivable

When it comes to business finance, accounts receivable financing can be one of the more complicated processes. I presented it to you in the most basic way above but you should be aware, it can become complicated. You should also know that just because you have money coming into you at some future date does not mean a lender is going to be willing to lend you money. The lender is still interested in your credit score when they lend money to you.

There are many different iterations of accounts receivable financing of which you should be aware. This is a sale of your assets. Anything that you have in accounts receivable is an asset and goes into your balance sheet as a liquid asset. When you sell these for cash, you are selling an asset. That is the most common type of accounts receivable financing. The good thing is that typically, once you sell the asset, the lender is responsible for collecting the debt. There is an exception to this, which I will discuss a little later in this article.

When you decide to finance this as a loan, your accounts receivable then becomes collateral. Your company maintains ownership of the accounts receivable because you did not actually sell them. You are responsible to collect on the debt.

How accounts receivable financing works.

Pros and Cons To Accounts Receivable Financing

As with anything, accounts receivable financing has positives and negatives. You must weigh all the options available to you when making a decision about how to fund your business.

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Benefits To Accounts Receivable Financing

I am going to start with the benefits when you decide to use accounts receivable financing as a lending source for your business. One of the great features of this type of lending is that you do not need any form of collateral. It is considered an unsecured finance option. But you do not have to provide an asset to guarantee you will pay the money back to the lender. In many cases, a business loan does require collateral, or a long-standing business history, which many small businesses do not have before they need quick access to cash.

Another positive to accounts receivable financing is that you retain ownership of your business. You are selling an asset, but you are not selling any part of your business. You do not lose the ability to make decisions and you are not giving up future sales. The only thing you are giving up is the full amount of the money that is already due to you based on services rendered.

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Disbenefits To Accounts Receivable Financing

This type of financing does result in higher costs for you. It gives you access to the cash you need quickly, but it does come at a cost. You must be sure you are prepared to pay the price. When you figure out the percentages, you typically will pay more money when you use accounts receivable financing over some other type of business loan. While you are necessarily paying out money, you are not bringing in as much money as you expected, so you do not have as much cash on hand. The lender is expected repayment within a certain period of time. If the money is not received within that timeframe, it may result in you having to pay more money in the long run.

You have to negotiate the terms of the contract that work for you. One of the pieces of the sale that you can negotiate is the length of time which you have to repay. It can be a short process or a long one. You have to negotiate a deal that works best for your business.

What Is A Full Recourse Clause?

When you opt for accounts receivable financing, there are two types of factoring that occur. Full recourse factoring tends to be the most common type of account receivable financing. This basically means that the lender may require a clause in the contract that states if the invoices are not paid by the customer within a set period of time, that your business has to buy back the invoices. That means your business has to pay on the invoices. Ultimately, that means you pay out more money in the long term.

Let me explain this in a different way. I will use a real example to highlight how this works:

In the example I used above, the invoice is for $10,000. So, you have created and sold $10,000 worth of product. The lender gave you $8,000, so you have already lost $2,000 in some way. The customer does not pay on the invoice and now you have to buy it back from the lender. However, you have to pay back $10,000 because that is what you have agreed that the lender receives. After that, it is your responsibility to go after the customer to get the payment that is owed to you.

Before you agree to this type of agreement, you should make sure you fully understand the amount of money for which you could be responsible. You should also make sure that if it turns out that you have to buy back the invoices, you will be in a position where you are able to do so.

What Is Non Recourse Factoring?

Another type of accounts receivable financing comes with non-recourse factoring. This means the lender, or factor, assumes all of the risks for your customers not paying on the invoices. Just because your agreement has non-recourse factoring, it does not mean that you are completely protected from a situation where the invoice is not paid. You should make sure that you completely understand any agreement that you enter with a factor. If you are not sure, then you should ask the question so that you know your responsibilities.

Some lenders only offer a non-recourse clause in the case of you filing for bankruptcy. However, you should know that just because your business ends up filing bankruptcy (if it does), you may not be protected from a customer that does not pay on the invoice. The lender may limit that type of protection only to those businesses that have good or better credit. If you have bad credit, you may not be given that protection.

The bottom line is you must be aware of the details of your agreement. This can be a confusing undertaking, so if you are not sure, you must ask questions to be sure that you understand.

Does It Make Sense For My Business?

An important question for you to answer when you are trying to determine how to finance a business is does accounts receivable financing makes sense for me and my business? You really have to take a look at the pros and cons to determine that. You also need to understand how much money you may have to pay in the long term and if it makes the most sense for your business. Even if you do not expect that the customer will not pay the invoice, you must consider and account for that. If you have to buy back the invoices, will you be able to absorb those costs? If the answer is no, you may want to question whether or not this is the best option for your business.

When you find yourself in a position where you need money fast, it is easy to focus on the immediate need and lose focus on what this type of financing means for you in the long term. Take a moment and a deep breath while you take a step back and look at the big picture. You may decide that this is the best option for your business. You may determine that the risk involved is worth it for you to get the money right now. Also, you may have more money in a month or two that if everything falls apart with the invoices, you will be able to buy them back.

Do I Have Other Options?

There are other types of business loans available to you as a business owner other than accounts receivable financing. It is smart for you to understand all of the options available to you when you make a choice between your financing options. One of the most available options for you is a loan that is backed by the Small Business Administration (SBA). They are a federal agency and they do not provide the business loan to you. They are backing the loan in the event that you default on it, they will pay as much as 90 percent of it. This makes your loan less risky. The SBA does work with traditional lenders in an effort to regulate the rules around the loans that they are backing. The SBA remains in control.

You should understand this type of loan is intended for long term planning and not meant to be a quick way to get cash. It is a lengthy process that requires a large amount of documentation. You may need to agree to background checks and provide financial reports and tax documents. In some cases, you may need to provide collateral. These types of loans can have fixed or variable interest rates. And the repayment period can be as long as 25 years.

Does It Matter What Type Of Business I Have?

There are different types of businesses that you may be an owner of which might make a difference as to which loans you may be able to obtain. It has recently been determined that almost a third of all small businesses have not had a requirement to borrow money. So, that means that about two-thirds of all small businesses have needed to borrow money. That is a scary proposition for anyone that owns a business.

Many businesses use a business credit card to help them acquire items that they may not have cash on hand to purchase. About 30 percent of those businesses borrowed money from a bank or credit union. 12 percent of those businesses received some type of credit from vendors. The reality is that no, it does not matter what type of business you have, there will come a point at which you will need to borrow money or have credit extended to you. You must be aware that a situation may happen and be prepared for it.


While at the core, this article is about accounts receivable financing, it is also about being prepared. One of the ways you can protect yourself as a business owner is to be prepared for what situation may occur and come your way. While it is impossible to predict how well your company will do in these difficult times, you can arm yourself with information about how to handle specific situations. I am not suggesting that you borrow money you do not need, or automatically assume you are going to fail. The economy is a difficult thing to predict. And if your business is based on selling a product or service, you may find yourself in lean times where customers are not purchasing your item. You should know what options are available to you if you should find yourself in that position.

You should also know that Loanry is here to help you at any time with all money matters, including finding lenders. We connect you with credible companies withing seconds.


Personal Versus Business Loans: The Differences Revealed

There is a lot to know when you are considering a loan. It is important to fully understand your needs when it comes to a loan, so you can be sure to get the right loan for your needs. There are personal loans and business loans and many variations of each one.

Personal vs Business Loans: What You Need to Know

Business loans and personal loans have many similarities, so you should educate yourself on the details. Continue reading to find out the difference of personal versus business loans.

What Is A Personal Loan?

There is a lot to understand about personal loans when you are trying to make the decision of personal versus business loans. You should fully understand all the details about personal loans. I like to start with the simplest definition of personal loans. It is when a lender allows you to borrow a specific amount of money. You then agree to pay back the money with regular monthly payments.

The lender can be a bank, a credit union, online loan companies, even family or friends. The lender charges you a fee to allow you to borrow money from them. That fee we call interest. The lender decides your interest rate and determines it by your credit score. You have higher interest rates when you have a low credit score.

There are various personal loans by many different lenders. You do not have to select the first loan you see. But you need to make sure that whatever loan you choose, it is a good fit for you. You should do personal loan shopping before you make the final decision when it comes to your personal loan choices. It is also important that you can afford the loan payments. If you cannot afford the payment, is can negatively impact your credit score.

What Is a Business Loan?

When it comes to personal versus business loans, there are no limits to how you can use a personal loan. There are limits, however, on how you can use a business loan. A small business loan is when you request to borrow money from a lender as a business owner. The lender can be the same types of lenders as a personal loan, a traditional bank, a credit union, or an online lender. If your business has multiple owners, then all of the owners are requesting to borrow money for your business.

You are agreeing to repay the loan by making regular payments of a set amount. Just like a personal loan, lender charges interest as a fee for allowing you to borrow money. These terms vary from lender to lender and based on your credit and qualifications. When you sign the loan agreement, you are agreeing to the terms of the loan.

The lender sets the terms, which includes the interest rate and the length of the loan repayment period. The lender determines how often you repay the loan, such once a month, or every two weeks. These terms drive how much you pay with each payment. As long as you have a fixed interest rate, the amount you repay remains the same and does not fluctuate.

Are There Specific Uses For a Business Loan?

Yes, one of the largest differences between personal versus business loans is that business loans must be used for business purposes. Some business loans have specific intentions and must be used for that. For example, if you get an equipment loan, you must buy equipment with it. If you get a real estate loan, you must use it to purchase real estate. There are business lines of credit that can be used for smaller business items. Then, there are SBA loans that are intended for larger business needs. No matter which type of business loan you get, it must be used for the business.

You should have put thought into the purpose and not just apply for a business loan on a whim. Few lenders want to invest in a business that does not seem to have a lucrative idea, so make sure your plans are thought out. The lender wants you to show them that you are and can continue to make a profit. You must understand how to finance a business with any type of loan you acquire.

Can You Use A Personal Loan For Business Purposes?

One of the major differences of personal versus business loans is that you can use a personal loan for absolutely anything you want. With a few exceptions, there are no limits to what you can do with a personal loan, especially if it is an unsecured loan. Secured loans are slightly different. When you apply for an unsecured loan with a lender, you ask for a certain amount. The lender typically asks what your plan is for the money, but they never really verify it. Once you are approved, the lender deposits the money into your bank account. From there, you can do with it whatever you want.

If you choose to use a personal loan for business needs, that is up to you. One thing to consider is, if you are taking out a personal loan for your business, you are responsible. If you, Jane, are taking out the loan that makes you responsible for paying back the loan, no matter what happens to the business. Even if the business fails, you still have to make those loan payments every month. If you do not, it negatively impacts your credit. So if you do not pay back the loan, the creditors will come after you to pay them.

If you are part of S Corporation or an LLC, you may not be financially responsible for the loan, if the business does not do well and closes. Even if you have not paid the loan, it may not impact your credit. You also may not be subjected to collection calls in the middle of dinner.

Positives to Using A Personal Loan Instead of A Business Loan

There are many reasons why you might consider personal versus business loans.

Applying for a personal loan is much easier than applying for a business loan. The application process is faster and you get a response, and the money, much sooner. You can apply for a personal loan online. When applying for a personal loan the bank wants to know your personal credit history and credit worthiness. When applying for a business loan, the bank wants to know everything about the business, including tax returns, profit sheets, and the business plan.

You may be able to get a better interest rate when you apply for a personal loan. You probably have a better and longer credit history than your business, which helps when securing loans. Many lenders are less willing to invest in a business, especially a new one that does not have a proven record of success. Lenders want to make money, too. If your business does not look like you (and ultimately they) can profit from it then they may not allow you to borrow the money. If you go to an online lender, you can have your money within 24 hours.

Some business loans can take several months before you find out whether the lender approved you. Personal loans usually take a couple of days. Some personal loans give you a response the same day and if you got it, the money is in your bank account the next day.

Negatives Of A Personal Loan Over A Business Loan

There are some downsides to personal versus business loans. The biggest negative is one that I have mentioned before. That is, if you take out a personal loan for your business, you are responsible for repayment. It does not matter if your business fails or succeeds, you are personally responsible for the loan. It does not matter how the business was set up. When you take a personal loan, you are accepting personal responsibility.

When you take out a personal loan, it impacts your credit and debt to income ratio. You are taking on the personal loan as your own personal debt. So it adds to the amount of debt you are currently using. It means that it increases your debt to income ratio. If your only income is the business and it is not incredibly profitable right now, it may seem that your debt to income ratio is really high. This could prevent you from getting other items, like a house or a car.

Personal loans tend to be for smaller amounts, so it may not be a large enough loan for you to do what you need. Not only are personal loans typically for several thousands of dollars, you are limited in how much you can borrow based on your salary. As mentioned above, if your only salary is the business and it is not profitable, that may hurt you when you are trying to get a personal loan.

Can You Use Both Types of Loans to Start Up a Business?

When you want to create a start-up business and you are thinking about personal versus business loans, you should always consider the amount of money you need. You certainly can use either a personal or business loan to fund a start-up, but you have to determine which one is the right one for your needs. If you have a start-up business, most likely you do not have anything and you need to purchase it all.

You need to think about your inventory. What are you selling? How are you going to get those items? Do you need to hire people and how are you going to pay them? You might need equipment or a space to rent. All of these items cost money and you may need to take out a loan to have the cash flow to begin acquiring these items. You may decide that you are going to start your business in your home and you are the only employee.

I encourage you to do everything you can to begin making a profit before you obtain a loan from a lender. See how far you can get on your own before you begin to borrow money.

Personal Loans versus Traditional Business Loans

One of the largest differences between personal versus business loans is that business loans tend to be for larger amounts of money over longer periods of time.

An SBA loan is one of those business loans that tend to be for higher amounts of money. They are similar to a mortgage in that they are a large commitment. SBA loans are backed by the Small Business Administration. This is a government agency that guarantees 85 percent of the loan. The federal government does not provide the loan, that comes from an approved vendor. These vendors are typically banks. The government is just backing the loan so that if for some reason you do not pay it, they will cover about 85 percent of it.

These loans can only be used for business purposes, such as purchasing equipment, refinancing debt, buying real estate or other businesses, or to be working capital. These loans can be for as much as $5 million dollars and you can take up to 25 years to repay the loan with regular monthly payments. They do have fixed and variable rate options which can help with the interest rates. These loans may have a lengthy loan application process that requires background checks. You may have to provide collateral for this type of loan.

There are some other types of traditional business loans, such as an equipment loan which is used specifically for the purpose of acquiring new equipment for the business. The equipment you are buying becomes collateral for the loan. If you do not repay the loan, the lender will take that equipment. However, this may help you get a better interest rate. Commercial real estate loans are similar to equipment loans except these are specifically for purchasing new real estate for the business. These types of loans often have reasonable interest rates.

SBA 7(a) loan fixed interest rates in 2022
SBA loan size $25,000 or less $25,001 to $50,000 More than $50,000
7(a) loan paid off in under 7 years* 9.00% 8.00% 7.00%
7(a) loan paid off in over 7 years* 9.50% 8.50% 7.50%
*Rates calculated with the current prime rate of 4.75%

Does My Credit Matter?

When considering personal versus business loans, one thing that matters either way if your credit. Your credit is always important, but in the case of personal loans versus business loans, it could be your personal credit, or the business credit, or both that matters. It all depends on the type of loan you are requesting and how your business is set up.

For a personal loan, only your credit matters. For a business like an S corp, only the credit of the business matters. If you are simply self-employed or have an LLC, your credit, along with the business credit may matter. What is important to know is that you want to keep your credit in the best possible shape that you can. Your credit not only impacts your ability to get a loan, but it also has much deeper implications.

When considering personal versus business loans, you must remember that a personal loan directly impacts your own credit and if the business does not do well, you are still responsible for repayment. If you do not repay, it directly impacts your credit and your ability to do other things, like get a house. This is important to keep in mind when you are thinking about personal versus business loans.

Things that makes up your credit score


In all the information I provide about personal versus business loans in this article, I only touch slightly on deciding which one is best for you at this time. Most importantly, you need to make sure that you can afford to repay the loan. Businesses are hard because unless you are some mega-company that makes millions of dollars per year, you just do not know how well the business will do. You may have years where you make large profits and then lean years where you make little to no profit.

It can be hard to predict. You need to create a business plan that allows you to make smart decisions when you make a large profit but can also carry you through the lean years. It does take money to make money. However, you need to be sure you can repay your debts.


How to Get A Business Loan With Bad Credit?

Whether you open a business or want to expand an existing one, you at some time will likely need a business loan. Regardless of your situation, you may need a business loan with bad credit because not every business person has a credit score of 800.

Before you jump into applying for loans, let’s look at your other options. Despite where you’re reading this, as a business owner and finance writer, I will tell you that a loan should be your last resort, not your first choice. A lot of people jump at the chance to take out a loan because it seems easy. It seems like a choice that will provide them all the money, all at once.

They do not consider the interest added to the principal of the loan and how much it will add to the cost. Nor do they think about the fees. They do not consider what will happen if their business hits a rough spot and their revenue slows down. They just think, “Hey, here’s a quick way I can get the money I need.” So, before we jump into applying for bad credit business loans, let’s look at how to finance a business.

How to Finance a Business

You really have a wide range of choices in funding opportunities. You could suss out angel investors, venture capital, go public, fund your business with a cryptocurrency token, gather private investors, crowdfund or use a combination of these. Then, when you have exhausted all of those opportunities, you turn to taking out the smallest loan you need. That may mean applying for a micro loan or a standard small business loan. The best place to start for the latter in the US is the Small Business Administration. So, let’s explore each of these succinctly and you can read more about the choice that resounds most with you on your own.

Before you begin, examine your actual financial needs. You should be applying for the lowest amount of capital needed for two main reasons.

First, most organizations, especially lending institutions, loan or invest based upon your ability to pay it all back. Now, you might think, “Hey, an investor doesn’t get paid back. They don’t make a loan, so there is no interest.” Insert angry buzzer sound here. Your investors expect a hefty return on investment. They anticipate that when they invest in your firm or startup they will earn money from it. Either way you go, you should ask for the smallest amount. If it comes from an investor, you can buy them out more easily and go back to being the sole owner of the company.

Second, both lending institutions and investors recognize padding when they see it. Padding refers to when you add extra funding need needlessly. For example, when you create a line item budget and include a laptop computer with a terabyte drive, but the amount of cost you include is twice what the laptop costs. You padded the cost.

Loan officers and angel investors aren’t dumb bunnies, as my Daddy used to say. They recognize padding when they see it. They know what things cost because they look at budgets and budget requests just like yours every single day of their lives. It is the majority of how they spend their time. Your accuracy in your budget and budget discussion shows them your overall accuracy. It also reveals your honesty and transparency. Few people want to loan or invest with a dishonest liar who they have no idea how they are spending the money. Determine the smallest amount of funding you need and chase that amount with ferocity.

Despite all the preparation, prepare yourself to receive less funding than you requested. Less than half, 46 percent, of businesses receive their full funding request. If you already bootstrap your business, prepare to tighten up things further. Waste not, want not – another favorite of my father.

Angel Investors

Many startups hope and pray they’ll land an angel investor. It’s tough. Mainly, three reasons make it hard to land an angel.

  1. They like to remain anonymous.
  2. They typically do not know you.
  3. You need to already have a minimum viable product (MVP) prepared to present.

A very few wealthy individuals or families have formed investment offices to screen potential investment deals. You will need to angel investors that understand your industry and business model. You can check Angel List if you just began your firm, but if you already established, check with board members and business advisors first. Your best bet is an individual or family with whom you already have an established relationship.

Venture Capital

Established firms or startups can seek financing from venture capital (VC) firms. A VC bears close resemblance to an angel investor, except that the angel may be an individual more often than a VC would be. Typically, you will find a VC firm comprised of a group of investors with significant business experience. This firm may provide much more than funding, including:

  • strategic assistance,
  • potential client and partner introductions,
  • assistance drawing high-quality employees,
  • other business growth advisement.

Similar to the tough time landing angel investors, you’ll also find it challenging to obtain venture capital financing. You need an introduction to the VC. Most cold calls go unreturned and feeler emails get ignored. You need a colleague who knows the VC well to provide an actual face-to-face introduction.

At this introduction, you’ll have an opportunity to hit them with your elevator pitch. That refers to a 60-second or less description of your company or product. Until you can describe what you offer in one minute or less and make it sound great, cataclysmic, amazing, you aren’t ready. You also have to be able to prove what you said you deliver in that elevator pitch.

That pitch starts you on the process to getting a meeting. Simply setting up the first meeting can take weeks after your introduction. You get one shot. Go listen to Eminem “Lose Yourself” a few times before you launch into your presentation. Ah, your presentation… make it 15 minutes or less. Include tons of relevant, meaningful graphics. Bring an actual MVP with you with emphasis on the “V” for viable. You need to show the investors that you could take their money and genuinely enter production phase today.

If you do not yet have a MVP, you aren’t ready for this. Take your financials and your projections with you. Be prepared to get hit with every conceivable question. If you watch a few episodes of “Law & Order” in which the district attorney totally grills the perpetrator, you’ll have a relatively accurate idea of what this will be like. Don’t be shocked if they ask about your personal finances, too. At this level, as with angel investors, you are typically asking for a mountain of money. Between the time of your introduction and your meeting, you will be vetted. Expect full background checks.

Here’s why beyond the fact that you are asking for a ton of money. You are also adding a business partner(s). Most angels and VCs expect to either come on as a silent partner or to place a board member. They are buying into your business. Their upfront capital for your startup or expansion comes at a price. You will share ownership of your business with them. Their investment increases the your business’ creditworthiness. Landing a VC can be tough, but worthy.

Initial Public Offering (IPO)

In today’s business climate, you have a choice between methods of initially going public with your business. If you choose the traditional route, your company will offer a public sale of stock via an initial public offering (IPO). From this you will amass a group of shareholders to whom you pay dividends when revenue is good. These shareholders obtain voting rights in major company decisions. You must undergo a formal process with the US Securities Exchange Commission (SEC) which includes a not so small mountain of paperwork. The SEC also sets rules for how you can run your IPO and the regulatory environment remains complicated. IPOs only work for those with an already established business.


Initial Token/Coin Offering (ITO/ICO)

Your other option in today’s business climate is an initial coin offering (ICO) or initial token offering (ITO). This option creates and sells a cryptocurrency coin/token on a blockchain. Unlike stock, the coin or token offered on a distributed public ledger, theoretically gains value and allows the purchaser to resell it on an open market.

Startups or existing businesses can use this as a method for fundraising. Depending on the type of token issued, you may have to adhere to SEC rules similar to those for an IPO. Tokens provide a great way to raise seed capital, especially for those not yet to point of proof of concept. You do need a well-researched whitepaper describing the proposed minimum viable product with a complete competition analysis. With an ICO/ITO you retain control and management since you give up no voting rights to shareholders.

Private Investors

A friendlier way to obtain funding is to take on private investors. This includes friends, family and customers that might have interest in your business. Again, you will add business partners and they can want varying degrees of control. As with VCs, the private investors add their creditworthiness to your business. You also benefit from their collateral and industry experience.


Crowdfunding has become a go to for startups. Register with any of the major crowdfunding companies to gather funds from a multitude of micro investors. You can start a campaign on Indiegogo, Kickstarter or GoFundMe. Each website uses different rules. Some require you to raise the full amount to access funds while others allow access to partial funds.

Bad Credit Business Loans

After you have exhausted all of the above possibilities, turn to the option of a obtaining a business loan with bad credit. You may by this point need to take out a much smaller loan than previously. This is awesometastic.

This will save you money in the long run. The less money you require, the less money you have to pay back. That matters even more if you have bad credit. Here’s why.

When you have bad credit, you will not qualify for prime interest rates. Prime rates, the lowest interest rates available, go to those with exceedingly great credit scores. You would need a 680 to 720 to qualify for a prime rate loan. Those are the loans that provide interest rates of ten percent or less.

Bad credit to you might mean a credit score of 300 or so. To a bank or lending institution, it means anything under 680 or so. To a bank, you’re either a sure thing or nothing. Your credit score lets them know how likely you are to pay off your loan.

Remember that when you start a business, you will not have the business’ clout or finances to back your loan. You have your own personal finances. So, if you have bad credit or no credit, you need to obtain as much of your funding from a source besides loans as possible.

Spend a little time building your credit score up. You can start this process by visiting The site will help you take charge of your credit and get things under control.

You need to get copies of each of your credit reports. You will have three – one from each of the credit reporting agencies. Study your reports to determine whether each is correct.

Complete a report form for any mistakes you find. Each credit reporting agency has its own. The agency will investigate your report and make an inquiry to the organization that issued the credit information.

If it really is a mistake, the agency removes the negative information from your report. If it is not, you will have an opportunity to discuss it with the creditor and make a payment plan. Either way, you will produce the result of improved credit.

You can begin this process when you first start your business financing activities. That way, while people are checking your credit score, potential investors will see it continue to move up. When your score improves while you are applying for funding, potential investors and financial lending institutions look upon this favorably. By the time you have exhausted all other possibilities for funding, you will have an improved score and be ready to apply for loans.

You now need to determine which loan type you want. You may still need a significant amount of start up or expansion capital. In that case, you need a standard small business loan. After all the other funding pieces, you may only need a small amount. That means you could use a micro loan.

Standard Small Business Loan

As I mentioned, you can still get a business loan with bad credit. It will not provide the prime interest rate you probably hoped for, but you can obtain a business loan. Remember that unlike all the other funding types discussed which bear closer resemblance to grants, you must pay back a business loan. You are just borrowing the money. The lender will charge fees plus interest. You literally promise, via a legal contract called a promissory note, to repay the money, typically in monthly installments for a specified length of time. Depending on the loan, you may or may not make a lump sum payment at the end of the repayment period.

You can opt for an unsecured or secured business loan or a line of credit. You will probably find it simplest to obtain a secured business loan since this uses collateral to guarantee you will pay back the loan amount. An unsecured loan is much tougher to get since you have provided no promised collateral that you will repay it. The third option is a line of credit. You typically get a line of credit based upon equity in your home or business.

Shop Business Loans

You probably do not think of shopping when you think of business loans. You can shop for them though. Visit to use the awesome loan mall there.

You will simply need to complete a really short form with basic identifying information which will enable Loanry to match you with potential lenders. Remember, Loanry is just there to make the process easier, but Loanry does not make loans. Lenders do. Additionally, if you use a loan mall, you avoid reducing your credit score since a soft check is conducted, and not a hard one.

Loanry then may connect you to potential lenders that typically loan to individuals with your credit score and situation. It does not mean that you will qualify or obtain a loan from them. It just reduces your research time by finding potential lenders for you. You still need to fill out the loan application from each lender that’s on the list.

Do not apply for all of them at once. Go through the list one at a time. Wait for a reply. If you get turned down, you move on to the next lender. If you get a yes from a lender, you are done.

Every loan application costs money. You must pay an application fee to be considered for a loan. These can run as high as $50.

In Conlusion

You can obtain the business loan you need. It may not be easy or quick, but you can get the money. Start with the methods that do not require you to pay back the loan. Move on to business loans for bad credit only when you must. You can get your business off the ground or expanded. It takes time, effort and hard work.


Small Business Loan Statistical Overview: By the Numbers

According to the U.S. Small Business Administration (SBA), a small business is a business with fewer than 500 employees. Well, sort of. Most of the time. Maybe, under certain circumstances.

Small Business Loan Statistics & Definitions

As it turns out, what counts as a “Small Business” often depends on the type of business being discussed and not always what’s in your accounts receivable (AR) or payable (AP). Sometimes the number of employees involved goes well beyond 500; in other cases it’s as low as 250. In some industries, the number of employees isn’t the issue so much as the dollar value of the business in terms of annual income OR annual employment costs (again – sort of, mostly, in general).

The SBA document breaking this all down is 49 pages long. I kid you not. Then again, considering that the SBA, however useful, is still a function of the U.S. Government, I suppose we should be thankful it’s not 4,900 pages.

An Example

If you do Construction Sand and Gravel Mining, Industrial Sand Mining, or Ceramic and Refractory Mining, and have fewer than 500 employees, you’re a small business. If you do Kaolin and Ball Clay Mining or Potash, Soda, and Borate Mining, you can have up to 750 employees and still be a small business. For Phosphate Rock Mining you’re allowed up to 1,000 people without losing your “small business” designation.

Crude Petroleum Extraction or Natural Gas Extraction can go up to 1,250 warm bodies and still be considered a “small business,” while in Bituminous Coal Underground Mining or Gold Ore mining you can retain your “small business” status with anything fewer than 1,500 employees.

You get the idea.

Dollar-based Industries

If your business is Men’s Clothing, you can make or hire up to $11 million annually and still be “small.” For Women’s Clothing, however, that range goes up to $27.5 million. Children and Infants’ Clothing, $32.5 million, which you should not confuse with a Family Clothing Store, which is still small up to $38.5 million. “Other Clothing Stores” cap out at $20.5 million, unless they’re a Shoe Store, which is still a small business until it consistently passes $27.5 million.

The point is, it’s different depending on what you do. This matters when we get to specific business loan statistics. The needs of large “small businesses” aren’t the same as those of smaller versions, just like the needs of one industry aren’t always the same as those of others.

Wait, but Small Means Small

Still, if you’re like me, none of these are what you first think of when you’re talking about “small business.” And you’re not wrong.

About 80% of small businesses have ZERO employees. Of those who do, most have fewer than five. On the other hand, the overall average number of employees for ALL small businesses hovers at around 12. That’s possible because small businesses who do have employees may have up to 500 in most cases before their classification changes.

This matters because when we’re talking about “small business loans” or “small business loan statistics,” we mean all of them – those with no employees, those with two or three, and those with hundreds. Together, these small businesses have created nearly twice as many net new jobs as large businesses since 2000, even though small businesses tended to be hit harder by the pandemic than major corporations. 

Small businesses are a big deal.

Who’s Starting These Small Businesses?

Entrepreneurship is about three things: the “good idea,” the perseverance to make it work, and the willingness to take risks with absolutely no guarantee of reward. The first two aren’t easy by any stretch, but it’s that last one that bewilders those who aren’t entrepreneurs. They simply can’t imagine why you’d do what you do or give up what you give up, knowing full well that even if you do everything right, it might not work.

Of course, for entrepreneurs the answer is simple: because it might.

Here are some highlights from the extensive statistics compiled by the U.S. Small Business Administration regarding who makes up the thirty million plus small business owners in the U.S. at the moment. Note that most of these statistics are pre-pandemic or include only the early months of the pandemic. Data from 2020-2021 is still in flux.

  • Just over a THIRD (36.3%) are women.
  • Almost a THIRD are (29.3%) minority-owned. About 12.2% are Hispanic-owned and another 9.5% are African American.
  • A little under a ONE in TEN (9.3%) are veterans.
  • Nearly 15% are started and owned by immigrants.
  • Only about 4% are under the age of 30. Another 14% are 30 – 39.
  • Things really start cooking at 40, it seems. Roughly 25%, or ONE QUARTER small business owners are between 40 – 49, and 35%, over a THIRD, are 50 – 59.
  • Not that their elders are slacking. The remaining 22%, still more than ONE in FIVE are over the age of 60.
  • Almost exactly a THIRD have a High School Diploma or GED as their highest academic achievements, at least in terms of traditional education.
  • Nearly HALF have an Associate’s or Bachelor’s Degree, leaving about One in FIVE with a Masters or Doctorate.

How Are Small Businesses Structured?

Sole Proprietorship

This is by far the most common structure for a beginning business. Nearly three-quarters (73%) of all businesses (of any size) in the U.S. are sole proprietorships. That percentage is even higher (86%) for businesses with no employees. A much smaller percentage (14%) of businesses with employees are organized as sole proprietorships. 

The sole proprietorship is one of the easiest types of business to establish in terms of paperwork and tax obligations. Essentially, if you start doing any sort of work for which you receive payment or hope to receive payment, but you’re not technically an employee of someone else, then you’re a sole proprietor. Local entertainers, business consultants, or freelance writers are common examples of sole proprietorship. 

It might not always be obvious from the name. Sole Proprietors sometimes do business as themselves (“Bob Frankenfurter, Magician”) or file for a DBA – “doing business as” (“Magic-In-A-Jiffy Entertainment”). Either way, you are the business and the business is you. That makes the paperwork a little easier, although you’ll need to file an additional page or two with your personal income taxes to include any business expenses or income.

All business-related decision-making is entirely yours as well. Whether you work twenty hours a week or sixty, whether you re-invest every dollar or give yourself some flexibility through a business funding loan, it’s all up to you. One hundred percent.

Finally, of course, any profits or benefits are 100% yours – as are losses and liabilities. You’re taking all the risk, so you get all the rewards as well as any failures. That includes any consequences from employee behavior as well. While most businesses with no employees are sole proprietorships, many sole proprietorships have several employees. If one of them screws up and damage is done, a lawsuit is filed, or money is lost, the owner is responsible just as if he or she did it themselves.

Nearly three-quarters (73%) of all businesses (of any size) in the U.S. are sole proprietorships.


You think marriage requires communication and compatibility? Try going into business together. Only about 8% of businesses in the U.S. are partnerships. 

As the name suggests, a partnership is the combined ownership of two or more people. It is otherwise similar to a sole proprietorship, other than in how liability is distributed. Like sole proprietorships, partnerships are a “pass-through” business structure, meaning both profits and obligations (like taxes) “pass through” the company to the individuals in charge. Profits are taxed just like any other income. 

In a Limited Partnership (LP), one partner carries unlimited liability for any negatives which may occur while the other partner’s (or partners’) liability is legally limited. As you might suspect, this changes the power structure as well. Partners with limited liability also have limited direct control, the details of which are spelled out in their collective partnership agreement.

The alternative is a Limited Liability Partnership (LLP), in which all partners have limited liability and – unless otherwise specified in their agreement – share equal control over the business. LLPs protect partners from debts or other liabilities of either the business itself OR the other partner(s). The advantages of such protection are obvious.

Only about 2% of NSBA members indicated their business was a either an Limited Partnership or Limited Liability Partnership. That doesn’t make it a bad idea – just less common than other forms.

Limited Liability Company (LLC)

The Limited Liability Company structure allows business owners to retain the liability protection of a corporation while being taxed as a sole proprietor or partnership. Even if the business goes south, faces legal assaults, or otherwise ends up on the dark side of business loan statistics, the powers-that-be cannot come take your car, your house, or your personal financial resources to satisfy the debts of your business or any claims against it. It’s a whole separate entity, at least legally.

LLCs dissolve easily upon the death or other removal of any of the owners or partners, or after a set amount of time – usually thirty years. They are very popular for mid-sized and growing businesses. However, for the nice compromise they offer between operating as a sole proprietorship vs. a large corporation.

Just over a third (35%) of National Small Business Association (NSBA) members report their business as an LLC. 

Now, some of you just did some quick math in your heads and started shouting at the screen (at least internally) that we’ve now categorized something like 116% of all small businesses – and we haven’t even covered C-Corps or S-Corps yet!

Take a breath… It’s not as bad as it sounds. LLCs are a tax structure for sole proprietorships or partnerships, not a whole separate thing – at least in terms of how the government likes to categorize things when it’s compiling statistics. We may live in some pretty strange times, but we’re still only going to have 100% of businesses categorized by the time we’re finished!

Corporate Structure LLC


Corporations (sometimes called “C-Corps”) are, legally speaking, entirely separate from their owners. They profit as legal entities, pay taxes as legal entities, may sue or be sued as legal entities, and since 2010, they have many of the same Bill of Rights protections as individuals do – at least according to the U.S. Supreme Court.

The major advantage of a corporation is that “separateness.” While the business may suffer, the individual cannot be held personally responsible for the company’s losses, actions, or other liabilities. On the flip side, there’s all the paperwork associated with incorporation. Just hearing or reading the term “corporation” conjures images of large rooms full of desks with people filing folders and filling out forms and delivering reports or requests up and down the hierarchy. What we see all the time in corporate environments from movies or TV shows may be a bit clichéd, but it’s not entirely unfounded.

Corporations pay taxes on their profits (assuming they make them) and again when shareholders receive dividends. This is sometimes referred to as “double taxation.” Individual shareholders are required to report profit from stocks on their personal tax returns, which brings up another feature of corporations – they can sell stock to generate capital.

Approximately one-quarter (25%) of small businesses in the U.S. with at least one employee are C-Corps. 

S Corps

An S Corp is not an entirely distinct form of a business organization so much as a tax structure. The name comes, in fact, from Chapter 1, Subchapter S of the Internal Revenue Code, which addresses corporate taxation.

Plus, it’s catchy. “S Corp” kinda rolls off the tongue, doesn’t it?

The central feature of an S Corp is that it allows your business to avoid that “double taxation” issue mentioned above for C Corps. The corporation does not pay corporate taxes; all profits (or losses) are passed along directly to shareholders, who include them on their personal tax returns. At the same time, ownership maintains limited liability as they would with an LLC or Corporation.

In exchange for these benefits, S Corps have limits in terms of the number of investors the law allows and the types of stockholders they can have. S Corps may have no more than 100 shareholders and only one type of stock, and shareholders must be U.S. citizens or legal residents. (With corporations, investors can be virtually anyone, including other corporations or partnerships.)

S Corps are still a very popular with small businesses. Just over half (50.5%) of all small businesses in the U.S. with at least one employee are S-Corps.

Where Is The Money Coming From?

The most recent NSBA survey found that about a third of small businesses who responded reported no need to borrow money or expend extra capital during the previous year (2017). Another third reported using revenue from the business to expand or do whatever else they needed to do, and similar numbers indicated the use of a business credit card in the mix. (Respondents could indicate more than one source of financing during the year.)

Roughly a third indicated a bank or credit union loan of some sort. 13% borrowed from friends or family, 12% received some sort of extended credit from vendors, and 3% managed to secure “Angel Investors.” There were miscellaneous variations if you’d like to read the rest of it – it’s quite interesting for a table of numbers.

By the Numbers:

That’s business success. When it comes to business failures, the numbers are much more consistent. 82 percent of businesses that fail do so because of cash flow problems. That’s a big deal, my friend. That offsets a whole lot of other business loan statistics.

Why Do Entrepreneurs Take Out Business Loans?

We’ve talked before about different sorts of business loans and what requirements various business financing lenders are most likely to have. Both are worth revisiting if you’re considering a small business loan. For now, we’ll recap a few general things, then talk about where you go from here.

Most small businesses take out loans for one of four general reasons:

This one makes plenty of sense. If your business is brand new, you probably haven’t made much money with it yet. Duh.
If you use traditional lenders, you’ll most likely need to either establish a long, solid personal credit history or be able to offer up sufficient collateral, as well as provide a fully documented business plan. Online business lenders have specific requirements as well, but tend to be somewhat more flexible and eager to earn your business – although interest rates may reflect the increased risk they’re willing to take on you.

What a great problem to have. You need more space and more equipment. You need more people. Growth is great, but remember that it has to be the right growth at the right time in the right way. Work with the lender of your choice to discuss manageable debt – low enough that you’re confident about timely repayment, but high enough to finance the meaningful growth you need.

Another good problem, although this one can reflect the seasonal nature of your business as much as actual sustained growth. Maybe your business includes a retail or rental element, or maybe your service requires a ready supply of parts or equipment. Either way, flexible financing can help you meet customer needs quickly and effectively, which in turn means you keep needing more.

This can mean a range of things. From bill consolidation at the business level to ensuring the underlying structure of the business and your business plan are solid. It might also include, however, your long-term goal to have established credit down the road should you ever require substantial financing for growth, updates, or any other major need.

If you’ve started your own business, you’re clearly not afraid of hard work. You’re apparently not adverse to risk, either. It’s possible, therefore, that in previous years you’ve taken risks which haven’t worked out, despite your best efforts. Or, maybe you haven’t always been the person you are now, and your credit history reflects that. Sometimes we can do EVERYTHING right and life still hits us with unexpected expenses and challenges which impact our credit rating and our cash flow. That can make it tricky when it’s time to figure out how to finance a business.

Small Business Loans

Small business loans now, which you consistently and intentionally repay according to whatever agreement you’ve worked out with your lender, can be useful for current practical needs while helping you build or rebuild your credit – individually or as a business – towards the future.

I’ve spoken with numerous entrepreneurs whose local banks or credit unions were entirely sympathetic, but simply unwilling to work with them on a small business loan without co-signers, collateral, or other impracticality in place to protect the institution’s interest. That’s fair. They’re businesses, too, and businesses have to minimize risk in hopes of making a profit.

It’s because of circumstances like yours, however, that organizations like Loanry exist. It’s the 21st century, and we have more options than ever before when it comes to the music we choose to listen to, the way we access movies, TV shows, or other forms of episodic programming, the cell phones we buy, the electronic devices we use, the social media platforms we prefer… we can even pick and choose from potential mates through and endless array of dating apps and services.

If you wouldn’t take the very first match that comes up on, why would you not look at all of your options to learn which small business loans might be right for you? That would be unnecessarily careless and a tad irresponsible, don’t you think?

All Types of Business Loans

I’m not suggesting you simply Google all business loans and then take your chances with the top search result or highest-paid banner ad which appears. That would be even worse than not looking online at all, in my humble opinion. But, as it turns out, we can help in that department. (I know – what a coincidence!) See, we’ll ask you for some basic information about yourself and what you’re looking for, then connect you with verified lenders we think best match your needs.

Then, you talk to them. They talk to you. See if you hit it off. See if the vibe feels right. Maybe some magic happens and you decide to borrow and they decide to lend and a long-term relationship develops. Or maybe it doesn’t – no worries, there are plenty more out there. That’s the great thing about the freedom such a variety of lenders give you. Instead of you going around, hat in hand, trying to persuade guys in suits or tense blondes in pencil skirts that you really do have a great business idea, you become the customer. Lenders compete for your business by trying to offer you the best terms they can manage. All we do is help you connect with the right people to get started.