The 11 Best Small Business Loans to Help You Grow

 

Starting and running a business is tough, especially when you do not have the cash you need to make moves. This article is going to guide you through the types of small business loans you can apply for as well as 11 of the top loans and lenders you can consider.

11 of the Best Small Business Loans and Lenders

It is always important to compare small business cash loans to make the best choice. There are plenty of small business loans and lenders out available, but here are 11 of the best options for you to consider in your small business loan shopping:

#1 OnDeck

Good For: Those who need cash fast and often, and those who have trouble being approved for small business loans elsewhere.

OnDeck is a pretty popular option that is known for both term loans and lines of credit. The term loans are available in amounts from $5,000 to $500,000. You can pay them off in three to 36 months, depending on the amount you borrow. Interest rates for term loans start as low as 11.89 percent, though your rate will depend on credit scores or credit history.

You can also apply for a line of credit from $6,000 to $100,000 that you can repay in 12 months. Interest rates for lines of credit start as low as 10.09 percent.

OnDeck is also an approved lender for PPP loans through the SBA. PPP loans are federal loans that are intended to help cover the cost of payroll and certain other things. These tend to be low-interest loans, and you can borrow up to two and a half months worth of payroll.

That time frame gives you the chance to get on your feet or make the decisions necessary to cut your payroll costs.

Loan Amounts: $5,000 up to $500,000
Interest Rates: 1% for some, others 10.09% and up
Repayment Terms: 3 – 36 months

OnDeck requires that you be in business for at least one year. This is because they factor in your business’s performance as well as your credit for approval. That can be helpful as a profitable business has the chance to get approved even if the owner’s credit score is low or the business does not have a good credit history.

On the other hand, it can be risky. Part of the reason they take your performance into account is that they are using your business for collateral. If you are late or fail to make payments, you might lose your business.

Repeat customers get incentives, such as lower interest rates
Factors in the business’s performance instead of just credit

Requirements are often too stringent for new businesses
Those with good credit scores or history will probably find better rates elsewhere
Origination fees up to 4 percent
Your business is collateral

Bottom line: OnDeck can be incredibly helpful for those who cannot get approved through other lenders. However, if you choose to apply through them, be sure you have a backup plan in place so you do not lose your business. Think it through before making moves.

#2 Kabbage

Good For: Small business loans for those with not so great credit and those looking for convenience.

One of the best things about Kabbage is that there is no credit check. Instead, you link your bank account and basically they approve or reject you according to the money you have coming in- and you need at least $50,000. This is great for those whose credit just cannot score them a loan elsewhere but makes a decent income. However, it also means higher interest than many other lenders.

Loan Amounts: Up to $250,000
Interest Rates: 1.5% up to 10%

Kabbage does not have many loan products. In fact, it usually only offers lines of credit. At times, they will open up other loan products, but not always. While lines of credit can be convenient, the interest rates often fluctuate and there are usually maintenance fees.

Fortunately, they offer several ways to access your line of credit. You can choose a physical card, which they will send through the mail, but you have to wait until the card arrives to use it. Or you can also use a bank account or a PayPal account. You are expected to repay what you borrow in either six months or 12 months, depending on how much you borrow.

Easy application
No credit check
Generally quick approvals
Several ways to receive cash

Only lines of credit
High interest
Have to be in business at least a year and earn $50,000 annually

Bottom line: Kabbage is great for those who need money pretty quick without a credit check, but be prepared to repay the loan within a year tops.

#3 Wells Fargo

Good For: Those with good credit who want a well-known lender.

Wells Fargo has been in business since 1852, making them a well-established and well-known lender. They offer several types of small business loans including term loans, lines of credit, and more. The lines of credit start as low as $5,000 and go up to $100,000. The rates are as low as 1.75 percent.

Loan Amounts: $5,000 to $100,000
Interest Rates: As low as 1.75% up to 22.99%

The unsecured small business loans start as low as $10,000 and can go up to $100,000 with interest as low as 8 percent and go as high 22.99 percent. There is usually a $150 opening fee, but it is sometimes waived. Repayment terms can go from one to five years. They even offer SBA backed loans.

Unsecured loans, lines of credit, SBA loans, and more
Repayment terms up to five years
Loans up to $100,000
Well-established lender

Annual and opening fees for some
Must have good credit
Need annual sales of between $2 million and $5 million

Bottom Line: If you have good credit and your business does between $2 million and $5 million in annual sales, Wells Fargo can be a really good option for you as they can loan high amounts with low interest. Those with bad or fair credit should look for other small business loans.

#4 SBA Small Business Loans

Good For: Those who cannot get an approval through other lenders.

The SBA, or Small Business Administration, was founded to support the small businesses in our country. There are many small business owners who simply cannot get funding through traditional avenues due to credit or other lender requirements. This is where the SBA comes in. It is not a lender itself but rather guarantees business loans making lenders more apt to approve you.

Loan Amounts: $500 to $5.5 million
Interest Rates: As low as 2%

In order to qualify for SBA small business loans, you must meet some requirements, such as your business must be operated in the U.S., it must be a for-profit business (non-profits have other funding avenues), time and/or money must already be invested in the company by the owner, and the owner must not be able to qualify for alternative loans.

Backed by the SBA
Several loan types
Competitive rates and repayment terms

Approval typically takes longer than with other lenders
Some loans require personal collateral

Bottom line: The SBA works with business owners to get loans with competitive rates and repayment terms- all the way up to 25 years depending on the loan. It is a great option for businesses that simply need a hand but cannot get it elsewhere.

#5 Lending Club

Good For: Businesses that are somewhat established but not completely.

Lending Club is a peer to peer lending service that provides term loans of up to $300,000. The requirements are pretty fair in comparison with other lenders. You must have been in business for at least a year and make at least $50,000 in annual sales to qualify. You must also own at least 20 percent and have decent credit.

Loan Amounts: $5,000 to $300,000
Interest Rates: 5.99% to 29.9%

Lending Club is a peer to peer lending service that provides term loans of up to $300,000. The requirements are pretty fair in comparison with other lenders. You must have been in business for at least a year and make at least $50,000 in annual sales to qualify. You must also own at least 20 percent and have decent credit.

The biggest downside is that there have been accusations of hidden fees and double payments. This is being disputed and it still has a decent rating on the BBB’s website. Still, it is something to keep in mind. Also, loans of more than $100,000 usually require a lien on your business for collateral, which can always be a bit risky.

Great interest rates for many
Requirements are not too stringent
Wide range of amounts to borrow
Repayment terms up to 5 years

Only offers term loans
Origination fees of 1.99 – 8.99%

Bottom line: Lending Club seems like a great option for many, but- as always- go into it with your eyes wide open so you are not blindsided later.

#6 BlueVine

Good For: Businesses with inconsistent cash flow and startups.

BlueVine is an online lending service that aims to help businesses that have issues with cash flow. It is one of the lending services that offer small business loans with what is known as invoice financing. If you have unpaid invoices, you can sell them to BlueVine- you get a lump sum and BlueVine collects the payments from your customer.

Loan Amounts: $5,000 to $5 million
Interest Rates: As low as 4.8%

This type of lending through BlueVine requires that your business have $10,000 or more in monthly revenue, have been in business for at least three months, and that you have a credit score of at least 530.

BlueVine also offers term loans and lines of credit. The requirements for these are a little more stringent but not as stringent as other loans and lenders. BlueVine opens doors for many that are not normally able to qualify for small business loans through alternative avenues.

Offer invoice factoring, lines of credit, and term loans
No origination fees or maintenance fees
Low credit scores

All loans not available in all states
Some high interest rates
Short repayment terms

Bottom line: BlueVine is definitely worth considering for new businesses that need cash. However, watch out for high interest rates if you have a low credit score. Also, make sure you can repay loans quickly- sometimes in as little as six months.

#7 Fundbox

Good For: Those with little or no time in business.

Fundbox is an interesting lender. It does not have many requirements at all. Small businesses and even freelancers are welcome to apply. There is no minimum amount of time you have to be in business and you can have a credit score as low as 500. Also, there are a few different loan types Fundbox offers that go all the way up to $100,000 and have repayment terms up to two years.

Loan Amounts: $1,000 up to $100,000
Interest Rates: As low as 4.66%

There are really only two specific requirements. Fundbox goes by bank activity and income. Therefore, all you need to do is meet the requirement that you are using a compatible bank that they can look into for at least three months. For other credit, you must have been using certain types of accounting or invoicing programs for at least two months. The bank and the programs are what Fundbox uses to evaluate your business, depending on the type of loan you get from them.

Accept scores as low as 500
Invoice financing and other loans
Low requirements

Potentially high interest
Must use accounting software and a compatible bank

Bottom line: Fundbox is one of the most relaxed lenders you can find at this time as far as requirements go. As with most credit, though, lower credit scores will lead to higher interest rates.

#8 Crest Capital

Good For: Businesses wanting to purchase instead of rent equipment.

Crest Capital offers small business loans that focus on financing equipment for those who hope to purchase instead of rent. It offers several ways to purchase this equipment, with loans going up to $1 million. Repayment terms extend all the way to 84 months depending on the loan.

On the downside, Crest Capital requires more than many of the other options we have mentioned here. For one thing, they want a credit score of at least 700. They also want you to have been in business for at least two years among other things.

Loan Amounts: Up to $1 million
Interest Rates: As low as 5%

Up to $1 million
Potential approval in as little as 4 hours
Several loan options and lease terms- up to 84 months

A minimum credit score of 700 required
Have to be in business at least 2 years
Pretty stringent qualifications

Bottom line: If you want to purchase your equipment, have really good credit, and your business is pretty established, Crest Capital might be your best option. If you do not meet these requirements, apply elsewhere.

#9 Accion

Good For: Startups and small business without much history

Accion is a nonprofit company that started as an organization that supplied microloans and financial education to low-income communities. Over time, they began offering more products and bigger loans but are still dedicated to helping businesses in need.

Accion does a case by case approval basis, so they have very little set qualifications listed. They usually only ask for credit scores of 575 and has no specific requirements in terms of how long you need to have been in business.

Loan Amounts: $300 to $250,000, sometimes up to $1 million
Interest Rates: 7% up to 34%

Relaxed requirements
Nonprofit that educates borrowers

Possibly high interest
May charge extra fees

Bottom line: Accion is a good choice for any startup or small business, but especially those that do not meet the stringent requirements of other lenders.

#10 Rapid Finance

Good For: Businesses that need quick cash.

Rapid Finance offers cash advances as opposed to outright loans and repayment terms up to 60 months. The requirements to qualify are pretty attainable. You only need a credit score of 500 and you need to have been in business for at least 12 months. They do not have a specific amount of revenue they require to apply as it goes by the amount you need to borrow.

$5,000 to $1 million in some cases
Interest Rates: 9% to 31%

Rapid Finance lives up to the name by generally offering an answer within 24 hours and quick disbursement of the money. You will likely end up paying high monthly payments and have to use your business as collateral.

Quick approval and loan disbursement
Great rating
As little as 12 months in business but no set revenue requirements
Credit scores of 500 accepted

Requires a lien on your business as collateral Monthly payments can be high

Bottom line: Rapid Finance offers cash advances to those who need quick cash and meet few requirements. However, these advances can be costly and risky. If you are unsure of whether you can repay the cash advance or not, look for alternative loans that come with less risk and lower payments.

#11 SBG Funding

Good For: Startups and other small businesses.

SBG Funding is great for newer businesses that cannot attain other financing due to their age. They have loans all the way up to $5,000,000 and offer repayment terms of up to five years. They even accept credit scores as low as 500 and only require that your business be at least six months old.

Unfortunately, they do require you to make at least $150,000 in annual revenue, which may be an issue for some startups. Fees and any additional requirements are typically not disclosed until you are in the application process. Additionally, you may end up paying weekly instead of monthly payments.

Loan Amounts: $5,000 to $5,000,000
Interest Rates: 5% to 35%

Credit scores as low as 500
Only requires 6 months in business

May require weekly payments
Need $150,000 in annual revenue

Bottom line: SBG Funding does give many newer businesses a chance at financing, but not all. While some requirements are very relaxed, others are not.

Conclusion

For many people- especially freelancers, entrepreneurs, and startup companies- getting the financing necessary to grow a business can seem like an insurmountable task. Fortunately, that does not have to be the case. There are small business loans out there for almost everyone and every business. With planning, research, and some time, you should be able to find a loan to suit your needs and your situation.

Your Guide to Understanding Traditional Term Business Loans

Sometimes the only way to help your small business grow is to invest in it. You may have outgrown your space and need to find a new facility. You may need to purchase additional equipment to move the business forward. Or you just might need a cash infusion to fund all the items on your “to do” list. You take a look at the bottom line and you see that the cash flow just isn’t there to keep up with your wishes and your dreams. But there are financing options for small business owners out there. They include the traditional term business loan that might be just the financial assistance you need.

What is a Traditional Term Business Loan?

A traditional term business loan is probably what you think of when you think of businesses borrowing money. A lender provides a set amount of money and the borrower pays it back over time with interest and other fees. The term of the loan could be anything from one to 25 years. Interest rates on term business loans can be either fixed or variable. The approval process for a traditional term business loan can be rigorous and may require some collateral. This type of loan will have a maturity date but there is generally not any penalty for paying it off early.

The advantages of a traditional term business loan include flexible terms, a monthly repayment schedule and the ability to fund long-term projects. Financial advisors believe that term loans are best for established small businesses with a proven track record and a good credit history. Term loans are best for funding things like construction, major capital improvements, to provide working capital or to purchase another existing business.

Traditional term business loans work just like consumer loans for houses or cars. You borrow a fixed amount of money and pay it off according to a schedule. The terms and the interest rate of these loans are tied to your credit score.

The term of any loan is the amount of time between when you borrowed the money and when you will pay it back. The terms of the loan spell out if you will pay it off in the short, intermediate or long-term.

Three types of traditional term business loans and what they are used for

What is a Short-Term Business Loan?

Short-term business loans are often a financial solution for small businesses without a credit history. Often these loans have to be paid off within a year but the terms could be as long as 18 months. Because of their shorter duration, short-term business loans aren’t as risky for the lender which makes it easier for businesses to qualify. The approval process can also be quicker, too. But lenders often charge higher interest rates and large loan origination fees for short-term loans. And since the payments are spread out over a short amount of time they can often be fairly large for the borrower.

Sometimes business owners use short-term loans to get over a financial roadblock. The business owner might need to get past a cash flow interruption. Maybe new inventory has to be purchased or the business is in the midst of a seasonal slump. The borrower enters into a short-term loan with the confidence that the business will generate enough money to cover the payments for the brief life of the loan.

Taking out a short-term business loan and repaying it on time is also a way for a small business to prove that it is credit-worthy.

“You borrow when you don’t need money to give you operating capital,” says Carl Gould, an entrepreneur who owns 7 Stage Advisors consulting firm. “It will help you build business credit and good relationships with banks who will think of you as a good credit risk.”

What is an Intermediate-Term Business Loan?

Intermediate-term business loans are generally written with a repayment schedule of one to three years. The payments are usually due each month. Intermediate-term loans are the most common loans given to businesses. Business owners use intermediate-term loans to refinance debt, open a new location, hire new employees or purchase new equipment. Often that equipment will only last as long as the loan is in effect. The business assets are used as collateral for this type of loan.

What is a Long-Term Business Loan?

A long-term business loan is a loan that you pay back in three to 25 years. Five and ten-year terms are the most common.  Payments may be due monthly or quarterly. The company’s assets are used as collateral on the loan. The interest on a long-term loan is generally less than a short-term loan. And since the payments are stretched out over a period of time, long-term loans have lower monthly payments than other loans. The longer loan is less likely to have restrictions on how the money can be spent. Long-term loans are a good source of funding for projects that may stretch out over time. But they come with restrictions on how they can be spent. Often they can’t be used for paying off other debts, issuing dividends or paying director salaries.

What Does It Mean If the Loan has a Balloon Payment?

Sometimes traditional term business loans have a set payment amount that is in effect through the term of the loan. But then at the very end, the payment gets much larger, or “balloons”. It is more common in commercial loans than in personal ones. During the life of the loan, only a portion of the principal is repaid or the payments only cover the interest. Then at the end of the loan the remainder, or the balloon payment, is due. The balloon payment at the end is commonly twice the amount of the rest of the payments. Both short-term and intermediate-term loans can end with balloon payments. These types of loans are best for businesses that are expecting a windfall of cash down the line to cover the balloon expense.

What is an SBA Loan?

The SBA, or U.S. Small Business Association, works with lenders to provide funding for small businesses. The SBA itself doesn’t actually provide small business cash loans, it just works to pair lenders with entrepreneurs. The SBA guarantees these kinds of loans and reduces the risk for the lender.

The application process for an SBA loan is fairly rigorous. But the return is that these loans are offered with very competitive rates and fees. The down payment on the loan might be low and the lender might not require any collateral. Sometimes the SBA also provides small businesses with additional support and resources for growing the business.

SBA loans range from very small to very large amounts of money. Some business owners use these loans to provide working capital to get them through seasonal requirements or to help them refinance business debt. Other small business owners use SBA loans to purchase fixed assets like furniture, equipment or real estate.

The borrower doesn’t necessarily have to have a fantastic credit score to qualify for an SBA loan. These lenders will be interested in how the company makes money, where it operates and the character of the borrower. In order to qualify for an SBA loan, the business must meet the administration’s definition of small. It must be a for-profit company operating in the United States. And the business owner must be contributing equity or time into the venture. The borrower must also have a good credit history.

SBA 7(a) loans can be used for many different types of business expenses including:

  • Startup costs – Getting a new venture off the ground can be very expensive. SBA loans can be used for everything from hiring new employees to advertising the business.
  • Buying an existing business -If you have demonstrated that you have experience in the industry and a solid business plan, an SBA lender can provide the funding to buy an existing business.
  • Working capital – Business owners use SBA loans to do things like pay employees or buy more inventory to keep the venture moving forward.
  • Purchase equipment – These loans can cover the cost of a big, infrequent purchase like machinery, furniture and work vehicles.
  • Acquiring land or real estate – SBA loans can also be used on the physical space your business occupies. That could be a mortgage on the building, moving to a new facility or adding another location.
  • Repairing existing capital – The small business might need to upgrade technology and buy new computers or repair vehicles in the company-owned fleet.
  • Refinancing debt – This is taking out a loan to refinance and restructure other types of debt.

The new head of the SBA, Jovita Carranza, is vowing to increase access to SBA loans during her tenure.

Is an Equipment Loan Different from a Traditional Term Business Loan?

Traditional term business loans and equipment loans are often the same thing. They are used specifically for buying new equipment for your business as well as making other investments in it. Because these loans are often tied to physical purchases, the interest rate can be lower because the purchase itself is natural collateral. The fixed payment schedule that comes with these loans helps with budgeting and cash flow in a small business.

Is a Business Loan a Good Idea for My Business?

Financial advisors would generally not recommend taking out a loan just for the sake of taking out a loan. But your endeavor may be at the point where small business loan shopping is a good idea. You might need a new space for your business if you are working out of something that is too small or the location doesn’t work anymore. You might need a cash infusion to purchase new equipment to keep up with the workload or technology. Your business might be seasonal and need money to make it through the slower times. Or you might want to take out a small business loan to establish credit for the future.

Borrowing money just to meet monthly expenses is not a good idea. But borrowing money to fuel future growth and expansion might be good for your business. It’s important to examine the reasons behind needing the loan. Are you falling behind on meeting your regular expenses? Is your business not producing enough income? Has your original business plan changed? Are you setting your goals and expectations too high? If the answer to any of those questions is yes, a loan might not solve these problems.

A business loan is only a good idea if the business will generate enough income to repay it.

Qualifying for Traditional Term Business Loans

Lenders take into consideration what is known as “The Five Cs” when it comes to considering an application for a business loan.

  • The first C is Character. How has the loan applicant handled other credit obligations both personally and professionally?
  • The second C is Credit Capacity. The lender will do a complete financial analysis to determine if the borrower has the capacity to repay the loan.
  • The third C is Collateral. A lender wants the borrower to have something that backs up the value of the loan.
  • The fourth C is Capital. The lender will want to know if the borrower owns something else that they can sell for cash to repay the loan.
  • And the fifth C is Comfort or Confidence in the Business Plan. A lender will take an in-depth look at the proposed income and expenses of a company before investing in it.

How Do I Apply for a Traditional Term Business Loan?

It takes a little homework to apply for a business loan. You should gather all of your information ahead of time and examine your business closely to see if there is anything you can do to make it look better. Your potential lender is going to want a lot of information from you. Some of it is personal stuff like the information that is on your resume. The lender will want to know things like your level of education and your work experience.

They will also want a look at your personal financial information. They will check your credit score and the scores of anyone else who is a principal in your business. And they will want a financial statement from the business along with a cash flow projection. They will want to see the company’s debt-to-income ratio. Sometimes a lender will want to know more about your business plan or even better understand your industry. As a small business owner, you are the expert about your business. Be prepared to explain all about it from top to bottom.

Conclusion

A traditional term business loan can be the influx of cash a small business needs to fuel growth. These loans are typically used to fund large projects. Maybe it’s time to move the business to a new location. Maybe it’s time to consolidate and pay down debt. Or maybe you have to buy new equipment to keep up with the demands of the marketplace. Taking out a traditional term business loan is the most common way business owners fund big financial needs. These loans can be difficult for new business owners to qualify for. Lenders generally award them to established businesses with a solid financial track record. But if you qualify you will receive the money in one lump sum. And you will know the repayment schedule and on what date you will fully repay the loan.

Short-term loans are paid back quickly but come with higher interest rates. Intermediate-term loans are the most common loans for small business owners. They are repaid in a few years. Long-term loans can last as long as 25 years but often come with restrictions on how to spend the money. The SBA is one resource that connects small businesses with lenders.  Taking out loans and faithfully repaying them is a way to build a good credit score for your business. Taking out a loan that your business can’t afford can mean financial disaster.

How Do I Qualify For a Small Business Loan?

Small businesses face a lot of challenges. Most often if you have a small business, you might be the only employee. Even if you have a small staff, all the business decisions and stress are left for you. I have my own small business and I know all the stress you feel. Sometimes it is because of good circumstances, such as you have so much business that you cannot keep up with it. Sometimes, there is a downside, especially if you have a seasonal business.

It can be difficult to ride out the off season, especially in your early years. There are many times when a business needs to consider a small business loan. The thought of borrowing money that you have to pay back may seem frightening. It does not have to be, though. Borrowing money can give you the cash flow to put you in a better position. Continue reading to find out more about small business loan shopping and how to qualify for a small business loan.

What Is A Small Business Loan?

It may not surprise you that in many ways a small business loan is similar to a personal loan. I always like to break terms down into the simplest definition possible. I think it is important to make sure you understand all aspects of small business loans. You need all the information to make the best decisions for you and your business. You cannot do that if you do not understand the terms.

A small business loan is when you as a business owner requests to borrow money from a lender. The type of lender of small business loans can vary from a traditional bank, credit union, online lender, or a lender that is not a financial institution. If your business has multiple owners, then you are all requesting to borrow money for your business. You are agreeing to repay the loan by making regular payments of a set amount. The lender charges interest as a fee for allowing you to borrow money. These terms vary from lender to lender and based on your qualifications.

You agree to these terms when you sign the loan agreement. The lender sets the interest rate and the length of the loan repayment period. The lender also sets how often you repay the loan, such as bi-weekly or monthly. 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.

Five Easy Steps To Qualify For A Small Business Loan?

There are five steps you should take to qualify for a small business loan. They are fairly easy steps, but it is incredibly important that you are sure to follow all the steps. Missing one of them, or having incomplete information, may cause a lender to deny your loan.

1. The Why

The first step is you need to think about why you want a loan. You have to determine if a loan for your business is a good idea. There are some instances when a loan is a good idea for your business. However, there are many instances when it is a terrible idea for your business to take out a loan. Later in this article, I talk about the benefits and negatives to a business loan.

2. How Much Money You Need

If you determine that a loan is right for your business, you need to understand how much money you need. It is important to make sure you obtain the right amount for a loan. If you ask for too little, you may not be able to pay all the bills. If you ask for too much, you may not be able to repay the loan timely.

 

3. Create a Business Plan

This is a key step to your business. And since it is so important, we dedicated an entire section to this topic. So keep scrolling.

4. Gather Your Financial Information

Lenders require documentation and it is important that you gather this information before you apply for the loan. You must provide both the personal and business tax return for the past three years. And you must provide balance sheets including cash flow, along with profit and loss statements. You should also have the financial statements for your business and all projected finances. Of course, the last thing you need to do goes without saying, and that is fill out an application.

What Documents Do Lenders Require For A Business Loan?

5. Know Your Credit Score

You should know your credit score. Pull your credit report and take a look at its contents. This is what a lender see when determining if you qualify for a loan. If you know what is on your credit report, you can correct any errors it contains. You also know your credit score and have a good idea of what type of loan for which you qualify. This also helps you shop business loans to find the perfect lender for you.

What Is Considered A Small Business?

Before you can determine if you qualify for a small business loan, you must understand what counts as a small business. I should tell you that the government defines small businesses in a document that is close to 50 pages. Do not worry, I am not going to reproduce all those pages here. I am going to give you the condensed version. It is typically the number of employees and the type of business that defines whether or not you have a small business.

A Sole Proprietor

Instead of focusing on the type of business you have, I want to focus on the organization of small businesses. One of the common categories of small businesses is a sole proprietorship. It is easy to create and has a fairly simple structure. The easiest definition is when you are doing work in which you receive a payment, but you are not an employee of another person, or business, then you are a sole proprietor. Consultants, freelance writers and entertainers are a great example of this type of business. You get to make all the business decisions for yourself. That also means that all the profits and losses are yours, too. There is not much paperwork for you to fill out, except an additional form or two when you file your income taxes.

Partnership

A partnership has two or more owners of the business. This is similar to a sole proprietorship, except more people are making decisions. That certainly can complicate the daily operation of your business. With a partnership, you can distribute the liability in varying ways. You can have a limited partnership where one of the partners has more liability for the negative aspects of the business. Those partners with limited liability also have limited control. You can create a limited liability partnership where all partners have limited liability. This protects all partners from taking on the debts of the company. When there are multiple people making decisions, it is smart to protect yourself.

More About Small Businesses

There are few more businesses that can qualify for a small business loan. One of those types of businesses is a limited liability company (LLC). This type of business organization protects the owners from the liability of the business, but allows the owners to enjoy the benefits of being taxed as a sole proprietor. This means if your business begins to tank and losses money, lender cannot touch your personal items. The organization is a separate entity for you personally.

Corporations are a business that is completely separate from the owners of the business. Each individuals of the business are not held liable for any of the actions the business takes, including loss and liability. This type of business requires a lot of paperwork, more than just a few extra income forms. There are some additional tax requirements associated with a corporation. The corporation pays taxes on profits and on the dividends that the shareholders receive. Each shareholder must report all profits from the business on their own tax returns. Corporations are able earn money by selling stock.

Another type of corporation is a S Corp. S Corps avoid paying taxes twice on their own profits and again on the shareholder dividends. This type of business does not pay taxes on the business profits. Shareholders pay taxes on the profits on their personal tax returns. Those in a S Corp benefit from limited liability similar to a LLC. S Corps have a limitation on the investors and stockholders they can have. They cannot have more than 100 shareholders with one stock.

Do I Need Collateral To Get A Small Business Loan?

You probably are not going to like this answer, but you might need collateral to get a small business loan. It really depends on your credit score, the loan’s purpose, and if you have a relationship with the lender. If those things are in shaky standing, you may need to provide collateral. Any collateral you use must be valuable to the lender. Just because something may be valuable to you does not mean a lender appreciates it. Please keep in mind, if you put something up as collateral and you do not pay the loan, the lender will take that item. It does not matter if it is your personal house, the lender will take it. This may allow you to get a lower interest rate, but it may not a chance you are willing to take.

Lenders do not want to take your item. They would much rather that you pay your loan on time. For the lender to get money from the collateral item, the lender must sell it. That takes time and effort and possibly a little money. It is easier for both you and the lender when you repay your loan.

Will I Have A High Interest Rate?

When it comes to interest rates for a small business loan, your credit score matter. Not only does your business credit score matter, but so does your personal one. Do not feel distress if you do not have the best credit. Times have changed and in the past less than perfect credit meant that you could not get any type of loan. Today, you can get loans with bad credit, but you may have to do some research first. You can even get small business cash loans when you do not have the best credit, but most likely you will have a higher interest rate.

Lenders have some freedom and flexibility when deciding what interest rate to give you when you apply for a loan. You should shop around and do some research on the possible lenders and what type of interest rate they can offer you. You should look at online lenders. Do not dismiss them. There are many reputable online lenders and you may be able to find a deal that works best for you.

Pay attention to all the details of the loans that are available to you. Look at the length of the loan, the amount you can borrow and how often you must make payments when it comes to loans. All of these items should factor into your decision. If a lender is not offering you the best interest rate, but their other terms are much better, you may want to go with that lender. After you have built some trust and credit with the lender, you may be able to renegotiate your loan for a better interest rate.

Do I Need A Business Plan?

Yes, if you have a small business, you need a business plan. Even if you have no need for a small business loan, a business plan is the most important thing you can do for your business. A business plan is the roadmap for your business. How can you achieve results, if you do not know what they are? In short, a business plan is an outline of the goals for your business. It is a detailed description of how you plan to achieve those goals. It does not have to be long but you should have a formal document. You must have a written plan. It is great if you have all of these ideas in your head, but getting them on paper makes them real.

Once you have them written, you can share them with potential lenders and investors. You can print them and hang the where you can see them. They can be a reminder of your goals, especially during a time when you forget them. Your business plan can be a living document, which means it can change. As your business grows, you may expand or change your goals and your business plan changes. You may achieve results faster than expected which changes your timeline. You may hit snags along that you for which you did not plan. This may also change your plan.

You should make sure that your business plan includes an executive summary, an overview of your company, and your marketing plan. And you should include a detailed description of the financial plan of your company. You should provide a listing of the milestones for your company. Be sure to include information about your company and the services or products it provides. You might also want to include a short bio of anyone in management of the company and information of their role within the company.

Positives To A Small Business Loan

There are many reasons why you might want to consider a small business loan. Typically one of the most common reasons why your business may need a loan is because you need to expand. This expansion could mean that you need a large space because you have outgrown your current space. Perhaps you have more work than you have people and you need to do some hiring. You could have many orders you need to fill and you have to purchase more supplies. It is also possible that you need some new equipment or computers to make your business more lucrative.

These are all great reasons why you might need a loan. If borrowing money is going to put you in a better position to generate more revenue, then it may be a great idea. Even if you have the cash to pay for these items, you still might want to consider a loan. This helps you save your cash reserves and not dig into them. This can also help you build positive credit. All of these are positive reasons why you should consider a loan. Anything that can help you and your business grow and helps you find positive momentum should be great for your business.

Negatives To A Small Business Loan

There may be just as many reasons why you should not consider a small business loan. One of the major considerations when thinking about a small business loan is can you afford to repay the loan. Are you currently falling behind on your bills, or close to falling behind on your bills? If so, you may not want to consider a loan. Taking on a small business loan may not be the best idea for your business. You should also take a good look at why you want the loan and how it fits into your business plan. Have the circumstances around your business changed requiring you to take a hard look at your existing business plan? If your business requires a loan for reasons other than fast growth, you may want to think about the direction in which you want your business to go.


Do Small Business Loans Have Fees?

Yes, most small business loan lenders charge fees. The fee schedule and reasons for the fees may change from lender to lender. You should read the entire loan agreement, even the fine print, before you agree to and sign anything. A lender is required by law to disclose to you all the fees they charge. Most lenders charge late payment fees. I am sure you do not plan to make late payments. Sometimes, things happen that may cause you to make a payment late. You should be aware of those charges in the event that something happens. Some lenders may not charge a direct fee, but instead charge you additional interest.

You should ask the lender when they consider the loan is in default. When you default on a loan, it means that you have not paid the loan. Some lenders consider one missed payment to put your loan in default. Other lenders do not consider you to be in default until you go several months without paying your loan. You should find out upfront what you lender considers default. You should also find out what the lender does when they consider you in default. Some lenders charge an early termination fee. This occurs when you pay the loan in full early. Some lenders do not like when you pay the loan early because it may take money away from them. You should confirm this before you sign any documents.

How Does My Credit Impact A Small Business Loan?

You credit score makes a difference on any loan, including a small business loan. It is important that you have a clear understanding of you credit score before you apply for a loan. This can help you determine which lender is the best one for you. You should pull your credit report to see what it contains. If you have a low credit score, many lenders will give you a high interest amount. Lenders tend to see you as a high risk when you have less than stellar credit. Your credit history shows the lender a picture of you as it relates to credit worthiness. The lender can see if you have a late or missing payment history.

A typical credit score is anywhere from 350 to 850. Most people have a credit score between 600 to 750. Good credit falls between 670 to 800. Anything below 570 is the danger zone of bad credit. When you have bad credit, it is much harder to get a good interest rate. You may find it is difficult to be approved for a loan, if you have bad credit. It is still possible to get a loan, but you have to work harder and do more research.

Is There Anything Else I Should Know About Small Business Loans?

There may be a few more things you should know about a small business loan before you take the plunge. There are few terms of which you should be aware before you sign the loan documents. The full amount of the loan you borrow is called the principal. The lender adds interest on to the principal of the loan to calculate the full amount of the loan you must repay. The length of time between when the lender gives you the money and when the loan principal and interest must repaid by the borrower to the lender is called the loan term.

The APR is the annual interest rate that is given to you as a percentage. You will commonly hear interest referred to as an APR. A small business loan also has a factor fee. This is a different way of stating interest that is charged on a percentage of the amount you borrow. You may also hear of it referred to as a factor rate. This is most common with short term business loans.

Conclusion

I have given you a lot of information about a small business loan. There are many things for you to consider when thinking about a small business loan. The most important of which is why do you need the loan and how do you plan to use it. This can help you determine if you really should take out a loan. You want to make sure that any type of loan you obtain for a lender is going to benefit your business.

Just like a personal loan, you do not want to take on a loan that you cannot afford to repay. You can put your business in a sticky situation if you cannot afford to repay the loan. You do not want to overextend your business and take on more debt than you can afford to repay. There are many good reasons why you might want to consider a loan for your business. You just need to make sure that you are making the right decisions for your business and its needs.

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The Ultimate Guide to Small Business Loans in California

If you have a small business in California, you may be in a position where you are considering small business loans. No matter in what state you are operating, a business loan can help your company expand to the next level. Small businesses have challenges that are unique to them. Almost half of businesses get additional funding from traditional large sized banks, while others use nontraditional lenders. This guide explains all everything you need to know about small business loans in California, including how to start small business loan shopping.

What Is A Small Business Loan?

In many ways small business loans are like personal loans. If you are considering a small business loan, it is important that you have a full understanding of small business loans. To be able to make the most informed decisions, you need to understand all aspects of small business loans. To do that, I like to break terms down into the simplest definition possible.

A small business loan is when you as a business owner requests to borrow money from a lender. Lenders for small business loans vary from a traditional bank, credit union, online lender, or a friend or family member. If your business has multiple owners, you all are requesting to borrow money for your business. You are agreeing to repay the loan by making regular payments of a set amount. The lender charges interest as a fee for allowing you to borrow money. These terms vary from lender to lender and based on your qualifications.

The loan agreement outlines all of the terms of your loan and you are agreeing to it when you sign the contract. The lender sets the interest rate as well as the length of the loan repayment period. The lender also sets how often you repay the loan, which could be bi-weekly or monthly. 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.

Small Business Loans in California

There is a slight benefit to obtaining small business loans in the state of California. They tend to be easier to obtain and the terms are more clear. When operating a business in California, you can rest assured that your lender is giving you all the information you need. There is a new law in California, SB 1235, that requires all lending to small businesses be complete transparent. The state of California likes to encourage the growth of small businesses. Over 90 percent of the businesses in California are considered small businesses. Most of those businesses borrow money in amounts less than $100,000.

There are about 10 companies that specialize in providing loans options in California. Each of these loan options have parameters which your business needs to fit to be eligible for the loan. Those parameters may vary between number of employees or location within the state of California.

What Is Considered A Small Business?

Before you can determine if you want to consider small business loans, you need to understand if your business is truly a small business. The government closely regulates the definition of small businesses and the document is around 50 pages long. The easiest way to determine if you have a small business is look at the number of employees in your business. The type of business and number of employees defines you business as a small business or not.

I want to focus on the organization of small businesses. A common category of small businesses is a sole proprietorship. It has a simple structure which is easy to create. An easy definition of a sole proprietorship is when you are doing work in which you receive a payment, but you are not an employee of another person, or business. Consultants, freelance writers and entertainers are a great example of this type of business. You are responsible for making all the business decisions. That also means that all the profits and losses are yours, too. There is not much paperwork for you to fill out, except an additional form or two when you file your income taxes.

A partnership is a business with two or more owners. This is similar to a sole proprietorship, except more people have the ability to make decisions. That certainly can complicate the daily operation of your business. With a partnership, you can distribute the liability in varying ways. You can have a limited partnership where one of the partners has more liability for the negative aspects of the business. Those partners with limited liability also have limited control. You can create a limited liability partnership where all partners have limited liability. This protects all partners from taking on the debts of the company. When there are multiple people making decisions, it is smart to protect yourself.

What Is The Difference Between A Short Term And Long Term Loan?

There is an obvious difference between short term and long term small business loans. That is the amount of time you have to repay the loan. Short term loans must be repaid anywhere between several months to several years. It is sort of like buying a car. You are financing a decent amount of money for a short period of time, usually three to five years. If you can afford to make the payments, it may be worth it to you to get a short term loan. You pay the money back fairly quickly. You also build up positive credit.

Short term loans are typically small amounts. However, keep in mind, that is a relative term. If your business earns $500,000 a year, then 100,000 may seem like a small amount to you. If your business only makes $20,000 then $3,000 may seem like a small amount to you. It is all about the perspective of your business. Lenders may want you to repay short term loans weekly, or biweekly instead of monthly. You can negotiate those terms with your lender.

Long term loans typically mean you are borrowing much larger amounts of money for a longer period of time. It really depends on the nature of your business. You may need money to build a new building or purchase expensive equipment. You may need longer than five years to pay the money back to the lender. This type of loan more closely resembles a mortgage. These loans cover a broad range of needs for your business. If you are interested in a long term loan, you should shop business loans now to make sure you are getting the best deal. You are invested in paying back this loan back for a long time, you want to make sure it is the best loan for you.

What Is A SBA?

small business administration (SBA) loan is a loan that is backed partially by the Small Business Administration (SBA) branch of the government. These types of small business loans are less risky for the lender because it is partially guaranteed by the government. The loan is still issued by a lender. If you cannot repay the loan, the SBA covers the part of the loan that they backed. It is almost like insurance for the lender.

The terms of this type of business loan varies based on the individual loan. There are no additional limitations on this type of loan because of its backing by the SBA. These loans range in amount from $500 to as much as over $1 million. They also can offer an interest rate as low as just below 7 percent. The repayment terms for a SBA range from 5 years to 25 years. The typical length of this kind of loan typically is around 10 years.

There are four different types of small business administration loans. There are micro loans, which are typically available to childcare organizations and small businesses. These loans are usually up to $50,000. Disaster loans fall into this category and they are reserved for damage sustained from natural disasters, such as, but not limited to hurricanes and flooding. There are real estate and equipment loans covering those items that are needed for the business to operate. Also, there is an all purpose small business loan that is the most common loan and that is the 7(a) loan. There are many business loan companies available to provide these various loans.

What Is Revolving Credit?

Revolving credit is a term typically related to credit cards. That is most likely where you have heard the term. It can be associate with small business loans, as well. The basic concept remains the same. You are not taking out a loan, per se. When you take out a loan, it is for a certain amount. The lender deposits that money into your bank account. You are responsible for paying it all back plus interest regardless if you use the money or it continues to sit in your bank account. The lender tells you how much you have to pay per month and for how many months. The lender is using the full amount of the loan plus the interest divided by the number of months you have to repay to get that number.

When it comes to revolving credit, it works slightly differently. A lender approves you for a certain amount over a specific period of time. However, you do not have to use that entire amount. It is not deposited into your bank account. It sits in the bank’s account. You take what you need when you need it. You only have to pay back what you borrow. The amount you pay each month is based on how much of the money you are using. The lender tells you how that amount is determined before you sign the agreement. Often, the interest rate is higher when it comes to a line of credit, but it gives your business much more flexibility.

What Documents Do I Need To Get A Small Business Loan?

As with any type of loan, you need to provide documentation when applying for small business loans. You have to supply more documents for a business loan than you do for a personal loan. The lender really wants to know all about your business before approving you for a loan. They also want to ensure that your business is profitable. They do not want to give you money if you are not investing it back into your business in a way that makes good business sense. I am sure it will not surprise you to know that the lender will not just trust you, they want to see the proof. You should have as much of this documentation available as possible before you apply for a loan. It can help expedite the process.

A lender may actually ask to see your resume and business license. You may have to provide your personal financial statements and the financial statements for the business and any principals that you have. They want to gather the credit history for you and all your partners, in addition to the credit history for your business. Lenders also want to see a guarantee of repayment from all the business owners. And they also want to see tax returns for you and the business for the past three years. They are especially interested in profit and loss statements. That means they want to see your balance sheets and all projections on cash flow. And they also want to see financial statements and any projected financial statements.

What Documents Do Lenders Require For A Business Loan?

How Do I Know It Is Time For A Small Business Loan?

There are many reasons why small business loans may be right for your business. One of the most common reasons why your business may need a loan is because you want to expand. An expansion could mean a larger space because your business has outgrown the current space. You may have more work than you have people and need some new hires. You could have many orders you need to fill and you have to purchase more supplies. It is also possible that you need some new equipment or computers to make your business more lucrative.

These are all great reasons why you might need a loan. If borrowing money is going to put you in a better position to generate more revenue, then it may be time for a small business loan. Even if you have the cash to pay for some of these items, you might want to consider a loan. This helps you save your cash reserves and not dig into them. This can also help you build positive credit. All of these are positive reasons why you should consider a loan. Anything that can help you and your business grow and helps you find positive momentum should be great for your business.

What Do I Need To Consider When Thinking About A Small Business Loan?

There are some things you should consider before plunging into small business loans. You may ultimately decide you want small business cash loans, but first you should consider these steps.

  1. The first step is you need to think about why you want the loan. Is it a good idea your business? There are some excellent reasons when a loan is a good idea for your business. There are just as many reasons why it is a terrible idea for your business. You must consider if your reasons fall into the good or bad idea. Be honest with yourself. You may be putting your business at risk if you do not make a smart decisions.
  2. If you determine that a loan is right for your business, you need to be clear on how much money you need. It is important to make sure you obtain the right amount for a loan. If you ask for too little, you may not be able to pay all the bills. If you ask for too much, you may not be able to repay the loan timely.
  3. You should know your credit score. I talk more about this in the next section.
  4. Make sure your business plan is solid. This is a key step to your business. I go into more detail about business plans later in the article.
  5. Gather the financial documentation I talked about a little earlier in the article. It is not too far above this section if you need to go back and read it again.

Does My Credit Matter?

Your credit always matters. It does not matter if you want small business loans, personal loans, or even car insurance, your credit makes a difference. There are many sites available to assist you with pulling your credit report and analyzing the information it contains. You should pull your credit report and take a look at its contents before you apply for a loan. This is what a lender sees when determining if you qualify for a loan. If you know what is on your credit report, you can correct any errors it contains. You can also prepare yourself for how a lender may react to your credit report. This also helps you shop for the best loan for your business.

If you have a low credit score, many lenders will give you a high interest amount. Lenders tend to see you as a high risk when you have less than stellar credit. Your credit history shows the lender a picture of you as it relates to credit worthiness. The lender can see if you have a late or missing payment history. A typical credit score is anywhere from 350 to 850. Most people have a credit score between 600 to 750. Good credit falls between 670 to 800. Anything below 570 is the danger zone of bad credit. When you have bad credit, it is much harder to get a good interest rate. You may find it is difficult to be approved for a loan, if you have bad credit. It is still possible to get a loan, but you have to work harder and do more research.

Do I Need A Business Plan?

Yes, if you have a small business, you need a business plan. Even if you have no need for small business loans, a business plan is the most important thing you can do for your business. It is the roadmap for your business. How can you achieve results, if you do not know what they are? In short, a business plan is an outline of the goals for your business. It is a detailed description of how you plan to achieve those goals. It does not have to be long but you should have a formal document. You must have a written plan. It is great if you have all of these ideas in your head, but getting them on paper makes them real.

Once you have them written, you can share them with potential lenders and investors. You can print them and hang the where you can see them. They can be a reminder of your goals, especially during a time when you forget them. Your business plan can be a living document, which means it can change. As your business grows, you may expand or change your goals and your business plan changes. You may achieve results faster than expected which changes your timeline. You may hit snags along that you for which you did not plan. This may also change your plan.

You should make sure that your business plan includes an executive summary, an overview of your company, and your marketing plan. And you should include a detailed description of the financial plan of your company. You should provide a listing of the milestones for your company. Be sure to include information about your company and the services or products it provides. You might also want to include a short bio of anyone in management of the company and information of their role within the company.

Where Should I Look For A Small Business Loan?

When you are considering small business loans for your company, you must understand your company’s needs. Once you determine that, it might help you decide which is the best loan for you. It can also help you find the right lender for you. You should always do some research. There is so much information available to you online, there is no reason why you would not.

Remember, there are many options for small business loans, even online lenders. There are always the traditional banks available to you but they may not be flexible when it comes to the loans they provide. You may have better luck with credit unions of online lenders. They tend to be a little more willing to work with you and your business.

In California, you have some unique options when it comes to small business loans. The Los Angeles County Community Development Commission/Housing Authority has a loan to small businesses that specialize in areas such as manufacturing, clean tech, medical, and transportation development. The Valley Economic Development Center offers three different types of loans to small business owners in California. There are many more loan opportunities available. You just have to do some research to find them.

Conclusion

I have given you a lot of information to consider as it relates to small business loans. The one thing I would caution you to seriously consider before moving forward with a small business loan in California or any state is make sure you can repay the loan. This really is an important piece of information. You must be able to repay the loan. If you cannot repay the loan, you are putting yourself in a bad position. You are putting your business in a bad position. You do not want to set your business up for failure by taking on a loan that you already know you cannot repay.

Give serious consideration to how much you can afford to pay in a loan each month and do not go over it. We all have big dreams about what our business can achieve, but do not base your ability to repay the loan on money you hope to earn in the future. Use the income you are generating now to repay the loan. If you have more income soon, that is great. You can repay the loan sooner, or invest the money back into your business. But, you already know that you can repay the loan based on your old income. Always make smart, well educated decisions when it comes to your money.