The 7 Best Places to Shop for a Business Loan

Magnifying glass with searching for money bag put on the wood

People decide to start new business ventures for a wide variety of reasons. If you’re one of the millions of businesses that operate in the U.S., whatever your reason may be for starting a business, you may find it necessary to apply for a business loan. But before you begin to shop for a business loan, there are several things that you need to be aware of beforehand, such as the type of loan you need, how much you need to borrow, how long it may take you to repay the loan and a host of other things. In fact, the more you know about the kind of business loan you need the better.

You will need to be armed with enough information to provide to the lender. That way they will be able to make a more informed lending decision about your loan or some other financial business option request.

Best Lenders for Your Business Loan

If you’re interested in applying for a business loan now or in the immediate future, below is some information that will help you as you begin to shop for a business loan. It will also help you identify the best seven places to shop for a business loan.

Below is a list of seven places to shop for a business loan.

BlueVine

Bluevine online lender logoBlueVine is a lender that is the best for borrowers that have a FICO Credit Score of as little as 530. They offer a variety of different business loans that include invoice financing, business lines of credit, and term loans. BlueVine assists businesses that have been in operation for a minimum of six months and have a minimum annual revenue of $100,000. Their loan amount ranges between $5,000-$5 million. The term of the loan is between six months to a year for business lines of credit and between 26 to 52 weeks for term loans.

Concerning the credit scores, a credit score of 530 is the minimum requirement for invoice factoring. A credit score of 600 is the minimum requirement for either a line of credit or a term loan.

BlueVine does not have loan origination fees and has an A+ rating with the Better Business Bureau.

StreetShares

Streetshares logoStreetShares is the best lender for borrowers who have been in business for at least six months. They provide term loans, invoice financing and lines of credit to business owners. Their loans start as low as $200,000. They require that a business has been operational for a minimum of one year but has provided loans to those who have been in business for a minimum of six months. There is no minimum annual revenue requirement or FICO credit score.

Their loan amounts generally range from the lowest of $2,000 up to approximately $250,000. They also provide loans for $200 for new customers. The term of the loan is between three to 36 months. Their origination fee is either 3.95% or 4.95%. StreetShares has an A + rating with the Better Business Bureau.

TD Bank

TD bank logoTD Bank is the best lender for providing online loans as well as lines of credit for less than $100,000.  They have roughly 13 branches throughout the US and offer SBA back loans. They also offer business lines of credit to small business owners as well as equipment loans, commercial mortgage loans, and expansion and renovation loans with TD Bank.

Their SBA loans that are offered include the following:

  • Express loans
  • 7(a)
  • 504

Funding Circle

Funding logo online lender logoFunding Circle is considered one of the best lenders for loans that have a maximum term of five years. They offer fixed rate term loans for companies that have been in business for two years. They do not have an annual minimum revenue requirement but the minimum requirement for the FICO score is 620.

As far as their loan amounts, they provide loans between the range of $25,000 – $500,000 and the terms are between six months up to five years.

They charge a one-time loan origination fee on each loan that they fund. Their loan origination fee is between 3.49% to 6.99% based on your creditworthiness. The fees and terms of the loan are both determined during their underwriting process.

Funding Circle has an A+ rating with the Better Business Bureau.

Rapid Finance

Rapid finance logoRapid Finance is known as being the best lender for providing loans in the range of $500 up to $100 Million. The term of their loans is between three to 60 months. They have a wide variety of different loans that include invoice factoring, bridge loans, merchant cash advances, business lines of credit, as well as asset-based loans. To qualify for their loans, they require businesses to be established and operational for a minimum of three to 6 months.

Their annual revenue requirement, minimum FICO score, and their loan origination fee has not been disclosed. However, Rapid Finance does have an A+ rating with the Better Business Bureau.

OnDeck

Ondeck online lender logoOnDeck is considered the best lender that does not require collateral. They have been in business since 2007 and have served $100,000. They provide business lines of credit with fixed interest rate and term loans for up to $500,000. The minimum loan amount is $5,000 and they require that you’ve been in business for at least one year to qualify for their loan.

OnDeck requires that business owners have a FICO credit score of at least 600. They have not disclosed the term of the loans or their loan origination fees. They have an A+ rating with the Better Business Bureau.

Accion

Accion lender logoAccion is a great lender for start-up companies. The loan between 15,000 up to $1 million however, they lend more of the lower end. It’s typical to see loans for a minimum of $300 up to $250,000 however. Their interest rates are 7% and there’s no mention of a minimum annual income threshold on how long the company needs to be in business prior to being considered for funding.

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What You Need to Know Before You Shop for a Business Loan

Before you shop for a business loan, you need to know what the loan is for because the lender is certainly going to ask. In fact, when completing your loan application, it is likely that you will need to plug this information into the application along with the loan amount. Below are some reasons why most business owners need additional financing and the type of loan lenders provide.

  • Seed Financing
  • Equipment Financing
  • Inventory or Purchase Order Financing
  • Financing for General Working Capital
  • Business Lines of Credit
  • Funding Needed To Establish Credit
  • Commercial Real Estate Loans

Types of Business Loans

As you begin to shop for a business loan, there are different types of business loans that you may not be aware of. However, it’s certainly important to learn more about them so you’ll know exactly what to look out for as you shop for a business loan.

Traditional-Term Business Loans

Traditional-term business loans consist of loans whereby a lender provides a borrower with a certain amount of money.  The terms are set for repayment over a designated period of time along with applicable interest and fees.

The term of the loan is typically between the range of one to 25 years. It is offered as a short-term business loan, an intermediate-term business loan or a long-term business loan.

The interest rates could be either a fixed or a variable rate. The approval process for traditional-term business loans is typically pretty rigorous. The approval often requires collateral to qualify.

Traditional-term business loans normally have flexible terms and include a monthly repayment schedule. These loans have been known to fund long-term projects and are also offered to established small business owners who have a proven track record and good credit. These loans typically include funding for major capital improvements, construction projects working capital or business acquisition.

The term of these loans, as well as the interest rates, are based on your creditworthiness.

The duration of typical business loan terms usually falls into three different categories: short-term, intermediate-term, and long-term loans. Each of which is spelled out in more detail below.

Short-Term Business Loans

There are several types of short term business loans. But they are typically designed to help business owners get over a hurdle or a financial roadblock. It’s typically for those who are having cash flow issues and need to make large purchases – typically for inventory. They are often solution-oriented and target small business owners who do not have a credit history.

When you shop for a business loan, you’ll notice that the short-term business loans typically have higher interest rates and higher loan origination fees. And because they often assist business owners get over a financial roadblock, they are sometimes large loans. These loans must normally be paid off within a year but sometimes the payment terms extend to 18 months.

Intermediate-Term Business Loans

An intermediate-term business loan typically has a repayment schedule of between one to three years. These loans are considered the most common for business owners to expand to a new location, refinance debt, purchase new equipment or hire additional staff members. Intermediate-term business loans normally require collateral payment

Long-Term Business Loans

Long-term business loans have a much longer repayment period, which is usually between three to 25 years. However, a repayment period that is between five to 10 years is typical. The interest is normally lower than short term loans considering the repayment period is scheduled over a longer period of time.

Long-term business loans are a great source of financing for projects that take a long time to complete. Often times the project is tied to the loan and could be used for collateral in some cases.

These long – term loans have restrictions and cannot be used for dividend payout distributions, to pay salaries or to pay off other debts.

Business Loans With Balloon Payments

Some business loans have a larger payment amount required toward the end of the loan repayment schedule. These are more common with commercial loans. As the life of the loan progresses, only part of the principal is repaid while the remaining portion covers the interest, then towards the end of the loan the remaining balance, referred to as the balloon payment becomes due all at once.

These loans are usually restricted for businesses that plan to have a large influx of cash near the end of the repayment period to cover the balloon payment.

SBA Loans

An SBA loan also referred to as a United States Small Business Association loan is a government agency that works with lenders to ensure that small businesses receive the finances they need to operate. Although the SBA does not provide funding itself, it does work with lenders to be matched with qualified entrepreneurs. The SBA has also been known to guarantee a wide variety of loans that reduces the risk for funders.

There is an application process for SBA loans that is extremely rigorous. However, these loans are also offered with extremely competitive interest rates and fees. They also may have a lower down payment and most do not require collateral.

The SBA is designed to offer additional support and resources to U.S. small business owners. Business owners can expect SBA a loan ranging from extremely small to exceptionally large. The SBA has been known to provide working capital so that business owners can get through seasonal hardships or other cash flow issues. The SBA is also commonly used to purchase fixed assets or real estate.

Additionally, the SBA has flexible standards with respect to working with business owners with less than perfect credit.

Where to Shop for a Business Loan

Now that you’ve been armed with critical information, you probably feel a lot more confident about the knowledge that you’ve just acquired. So now that you’ve gotten this new-found knowledge, you can put it to use as you shop for a business loan.

How to Qualify for a Business Loan

Although each lending institution has its own set of funding requirements. When applying for traditional term business loans, lenders usually consider what they referred to as the five C’s. They consist of the following:

  • Character
  • Credit Capacity
  • Collateral
  • Capital
  • Confidence or Comfort

Each of these areas is explained in more detail below.

Character

A character has to do with how the borrower has handled previous financial obligations in the past on both a professional and personal level.

Credit Capacity

Credit capacity has to do with the lender performing more financial analysis to better determine whether the borrower has the wherewithal and the financial capacity to repay the loan.

Collateral

Collateral is when the lender requires the borrower to have something of value that will serve as a back up should the borrower defaults on the loan.

Capital

Lenders are interested in finding out whether or not the borrower also owns additional assets that they can consider should the loan need to be repaid relatively quickly if necessary.

Confidence or Comfort

Comfort or confidence is associated with a lender having a certain level of confidence in the borrower’s business plan, whereby a much more in-depth analysis is performed as it relates to the income and expenses of the company requesting a loan. It basically is a form of due diligence where the lender confirms the sources of income and business expenses.

How to Apply for a Business Loan

Before applying for a business loan, you should take the time to do your homework based on the information provided above. Make sure you gather all the necessary information in advance and have any supporting information relatively close. Perform your own analysis to see if there is anything that you can do to make your company appear more favorable in the eyes of the lender. In other words, make sure your financials reflect your historical financial information that has been gathered along with any supporting documentation.

Also, point out any potential threats in advance so that you can let the lender know what solutions you have in place to resolve them should they arrive. You can also point out any financial trends that occur in your industry any additional collateral that you may have along with anything else that will make the lender see you as a company worth lending to.

Conclusion

To conclude, as a business owner, it’s important to build relationships with lenders prior to requesting a loan.  In fact, you may start off by borrowing money that you don’t really need. Money that you know you can pay back with your normal working capital. As time progresses, you can borrow more and repay them with ease. Then, should an emergency take place, you would have allowed the lender to observe your repayment patterns and your character in general. Also, you will continue to build trust and show lenders that you have a sound character, good business ethics, and have taken the time to establish your creditworthiness.

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Should You Get a Business Loan from a Bank or Online Lender?

Rear view of a thoughtful well dressed businessman scratching his head.

When you are in a business, you may find yourself in a position where you need money to keep your business running. Businesses need owners that have perseverance and be willing to take some calculated risks. As a business owner, you have to understand that you have to take some risks with a possibility that it might not work out. When you take the leap to start a business, you are not likely to give up on your dream easily, so you may need some help to get you through the tough times. When you are considering a business loan, you have to make a choice between a bank or an online lender. Each one offers you something slightly different. It is important that you understand the details of those differences so you can make the best choice for your business. Continue reading to find out more about business loans.

Bank or Online Lender for Your Business Loan?

You can get a loan from a traditional bank or online lender. More recently, online lenders have been on the rise as they are gaining more respect in the lending world. The company’s credit is one of the determining factors for the lender to approve a loan. There are other factors, as well, such as how long a company has been in business, the financial status of the company and if they have any collateral. There are many reasons why you might need a business loan, regardless if you use a bank or online lender. You can use a loan to purchase equipment, stock equipment, or working capital. Some loans are riskier than others, which may mean you have a higher interest rate.

What Is A Business Loan?

A business loan is similar to a personal loan, except that it is intended for business purposes. The basic gist of a business loan is as a business, you borrow money from a lender. You make a promise to repay the money you borrow with regular, usually monthly, payments. The lender adds interest to the amount of money you borrow as a fee for allowing you to borrow the money. The amount of interest a lender charges you is directly related to your credit score. Business loans come from different lenders and can often be in larger amounts than personal loans. As with personal loans, business loans can be secured or unsecured. A secured loan means that you need collateral to back up the loan. Typical business loan terms can vary greatly from less than a year to up to 3o years depending on the loan type and lender.

Difference Between Banks Vs Online Lenders?

One of the major differences between a traditional bank and an online lender is the actual building. Traditional banks have brick and mortar buildings where you have to go to transact business. Some traditional lenders offer an online banking feature, but they still have physical locations. Online lenders, on the other hand, do not have an actual building that you can enter to handle your business. You handle all of your business online via your computer. Online lenders offer options such as specific types of short term business loans. Typically, you will not find those types of business loans with a traditional banker. They offer the most traditional loans.

Pros and Cons of Going to The Bank

In your decision between a traditional bank or online lender, you have to look at both sides. If you have an established relationship with a bank, they may be a little more willing to work with you than a lender that has no relationship.

Bank Advantages

A traditional bank gives you a more personal interaction where you feel like you are important to the bank and not just a number. When dealing with a bank, you have an actual person with whom you can interact. When you have questions or concerns, you have someone to whom you can turn.

A traditional lender may be able to offer you a lower interest rate to offset the slight inconvenience you have from actually going into the building. A traditional bank may have some more options to offer. They may be able to give you a loan different from you intended but works better for you. Traditional banks often have more products, so you can do a wide variety of business all in the same place. You can work on establishing a relationship if you do not already have one. With a traditional bank, you may have access to a network of ATMs as well as branches no matter where you are.

Bank Disadvantages

As with anything, there are downsides to taking on a business loan. It does not matter if you choose a bank or online lender, some of the downsides remain the same. You are taking on more debt, which means you need to pay it back. A loan is not a gift and you must pay it back timely. Even if your business fails, you still owe the money and have to pay it back. Taking on more debt increases your debt to income ratio. This could show up as your personal debt (depending on how your business is set up). That means it could impact your credit score and your debt to income ratio. Even if you are able to pay back the loan, It still has a temporary negative impact. You may not be able to borrow enough money.

Depending on how much money you can borrow, you have to make sure it is enough to cover your needs. If you can only borrow a portion of what you actually need, that might hurt you more than helping you in the long run.

In addition to taking on more debt, there are some of the downsides to using a traditional bank for your loan option. While some banks may have different products to offer you, not all of them do. Some banks are not able to offer competitive rates or fees and are limited in the products they can offer to you. Some banks require you to have an account with them before they will approve a loan, so that means you have to open a bank account with them. Many of the big banks do not offer a high-interest return on their savings accounts.

Pros and Cons of Online Lenders

As you can see so far, on the surface there is not a stark difference between a bank or online lender. Bank or online lender, both of them have positive and negative sides. Online lenders are more willing to provide you a loan than a traditional bank if you are new in the business world. So, if you have a startup business and some ideas and you are willing to take the risk, maybe you should consider an online lender before the traditional bank.

Online Lender Advantages

There are some benefits when selecting an online lender. The most obvious benefit is that you can apply for a loan from the comfort of your own home or office. It is fast and efficient. Many business owners do not have a lot of extra time to spare filling out paperwork. Online applications are easy and can usually be completed in minutes. The response time from an online lender is also fast. They tend to have more flexible terms. Usually, an online lender only lends money, so they want to give you a loan. They are often more willing to work with you even when your credit and business history is a little shaky.

Online lenders tend to be a little more willing to take a risk on a business owner. That may not be something that you find in a traditional bank. They may be so far removed from what it is like to be a small business owner and they just are not willing to take the risk. You should shop around to see where you can find the best loan for you, but do not overlook online lenders. You may want to check them our first since you do not have to go anywhere but the internet to find out some basic information.

Online Lenders Disadvantages

One of the downsides of online lenders is that you do not receive the same type of customer service that you get from a traditional bank. The only type of customer service you receive via the phone, chat, or email. In general, the customer service is less personalized with an online lender. Transactions with an online bank take more time than a traditional bank when it comes to deposits. Depending on the online bank that you are using, there may be limited ways for you to make deposits. You may only be able to use their mobile app to make deposits and then have to wait days before the transaction posts to your account.

If the online bank that you choose does not have a large network of ATMs, you may find yourself having to use whatever ATM you can access quickly. As a result, you may face high fees at the ATM that you must use. If you do not like to use the internet, then online banking may not be the best option for you.

Key Points

At some point as a business owner, you may find yourself in need of a business loan. There are numerous options available to you, but your needs may dictate whether you choose a traditional lender or an online lender. If you are looking for a personal touch and many branches available to you with your loan experience, then a traditional lender is the best choice for you. If you are looking for the ability to handle as much of your business on your own through a website and never have to interact with a person, then an online lender is your best bet.

You may be able to find a wider range of options through an online lender, whereas a traditional bank may only be able to give you one possible option. If you want more options for your business, an online lender may be the best way for you to go. As a business owner, you have to determine what is most important to you right now. Do you need access to the money right away? Do you need the ability to speak to someone? Or are you looking for more than one option from which to choose? However, you answer those questions that can guide you towards which lender may be the right one for you.

Which Loan Is Best For My Business?

If you have a young business that has been in operation for just a few years and you only need a small amount of money for your business, an online lender is your best bet. Traditional banks do not like to lend money to businesses that do not have a solid history. They prefer businesses that are well established and have a proven track record for making money. They do not want to take the risk that comes with a young business. An online lender is best for your business if it is different and unique. A business that is different and does not fit a set business model tends to scare traditional banks because they pose a greater risk. If this is the type of business you have, you may have a difficult time finding a bank that is going to approve you for a loan.

If you are a seasonal business and you need to restock before the new season starts, but you do not have any cash. You need to buy stock to have a product to sell so that you can make money. It is a common problem for small businesses. An online lender is most likely the best option for you if you find yourself in that position.

If you have a well-established business and you are in need of a large amount of money because you need to move to a new space or buy a large and expensive piece of equipment, then a traditional lender is going to be your best bet. Most likely, you are going to find the best rates and the largest amount of money to borrow from a traditional bank.

Conclusion

Truthfully, while this article contains a lot of information about the differences between a traditional bank and an online lender, I hope this article has taught you that a traditional bank or online lender may not always be the right lender for you. It may not matter where the lender is, or if the lender has an actual building. What matters is where can you get the best loan to meet your needs. As your business grows, your needs change and the lender that is right for you may change, too.

Today, a traditional bank may be the right one, but in ten years, it might be an online lender. Do not make the choice between a traditional bank or an online lender without doing research. You need to find out all the information you can about the loans available to you before you make a final decision about which one is the right one for you. As a business owner, your needs are going to change over time. You do not want to box yourself into one type of lending option for the entire length of operation for your business. Understand that as your business needs change, so will the banking option that is right for you.