Best Business Loans for 2021: What Are My Loan Options?

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In the new year, we know how much you want your business to grow. However, you can’t reach your goals without reliable funding for your daily operations and significant projects such as expansion. At AdvancePoint Capital, you can find a vast network of alternative loan options from online lenders to help continue growing your business. Below, we look at a few of your best options for business loans in 2021.

Your Best Business Loan Options This Year

Business Line of Credit

Small Business lines of credit are open revolving lines of credit. Small Business lines allow businesses to draw funds when needed on-demand or make purchases– a line of credit charges principal and interest. Business lines of credit have a limit that cannot be exceeded without a lender’s approval and is not open-ended forever. To be extended, the lenders must renew it either semi-annually or annually.

Small business owners choose a line of credit instead of term loans because of the draw feature, affordable rates, and flexible terms.

Product Overview 

  • Credit Limits: $10,000 to $100,000
  • Interest Rates: Starting at 5.50% or treasury index plus 1% to 2.5%. Pay interest only on the principal balance and not the entire loan like term loans.
  • Repayment Terms: Open revolving lines of credit
  • Fees: Origination fees ranging from 0% to 3%
  • Payment: Monthly, bi-weekly, or weekly
  • Borrower Credit Score: Fair to excellent credit score required

Long-Term Small Business Loan

The definition of a long-term business loan is a small business term loan that lasts more than two years in duration to repay. With term loans, businesses are offered a fixed amount of capital upfront and charged principal and interest. Unlike business lines of credit, a business owner cannot draw money as they go with long-term loans.

Typically, traditional small business loans are used by business owners for large capital requirements like business expansion and growth.

Product Overview

  • Loan Amounts: $10,000 to $500,000
  • Interest Rates: Starting at 5.50% or treasury index plus 1% to 2.5%
  • Repayment Terms: 2 to 10 years
  • Fees: Origination fees range from 0% to 3% (depends on risk and lender)
  • Loan Payments: Monthly payments
  • Personal Credit Score: Good to excellent credit score required
  • Collateral: Personal Guarantee Required

Short-Term Business Loans

A short-term business loan is a loan that is typically repaid within 6 to 18 months. These small business loans feature a lump sum offered upfront with a fixed payback amount calculated using a factor over a short term of time. Rates are not principal and interest but a “factor rate” that costs more than traditional small business loans.

Most businesses choose short-term small business loans when they do not qualify for small business loans from traditional banks. Short-term small business loans charge more for costs, have a shorter repayment duration, and the payments are more frequent to compensate for the higher risks lenders take by offering this product. Working capital is the primary reason for acquiring funding resources for a short-term small business loan.

Product Overview

  • Loan Amounts: $10,000 to $500,000
  • Interest Rates: Factors range from 1.09% up to 1.45%, or simple interest starts at 1% per month
  • Repayment Terms: 6 to 18 months in duration (typically 12 months or less)
  • Fees: 0% to 5% origination fees
  • Payments: Weekly, bi-weekly, and in some cases daily Monday-Friday
  • Borrower Credit Score: All credit types considered
  • Timeline: Same day funding available

Business Cash Advance

A Business Cash Advance (BCA) is also known as the purchase of future sales agreement. It advances future sales at a discount to a business. The small business is responsible for paying back a fixed sum known as a specified amount, which is higher than the amount advanced to the company.

This difference between the advance and payback amounts is called the “factor rate or cost,” which is a fixed cost. These are not principal and interest costs. The advance is repaid by taking a fixed percentage of future overall deposits called the specified percentage. The payments are collected by an ACH fixed daily or weekly payment deducted from a business bank account based on the specified percentage of future sales.

At the end of every month, reconciliation can occur. If the fixed payments taken out of the bank account are more than the set future percentage of monthly sales, the small business can request a refund for overpayment so that the set specified percentage of sales collected matches the revenue volumes. Repayment continues until the amount is paid in full, and there is no time limit with advances as the fixed payback percentage is ever-changing due to fluctuating revenue.

Product Overview

  • Factor Rates: Ranges from 1.09% up to 1.45%
  • Repayment Terms: This is not a loan, so there are no time limits. Payments continue until paid in full based on a specified percentage collection method dependent on future revenues
  • Fees: Origination fees that range from 0% to 5%
  • Payment: Weekly or daily Monday-Friday fixed ACH
  • Minimum Credit Score: All types of credit considered
  • Timeline: Same day funding available

Merchant Cash Advances

A merchant cash advance (MCA) is also known as a purchase of future sales agreement and operates very similarly to BCAs. The most significant difference with merchant cash advances is the repayment process, which is connected to future credit card revenues instead of overall sales. Merchant cash advances take a set percentage of future card sales at the time of batch until the advance is paid back in full. Businesses find this valuable when their revenues fluctuate. They don’t want to be locked into a fixed payment that could negatively impact cash or profit margins if revenues decline or fluctuate.

This product is another excellent resource for working capital needs. Remember, a merchant cash advance is not a loan, but an advance, by selling a portion of the businesses’ future sales at a discount to a funder in exchange for cash for the business owner. This product is popular with companies that can not get a bank loan and need working capital. This financing option is not a small business loan but an advance. There are revenue requirements to qualify.

Product Overview

  • Rates: Range from 1.09% up to 1.45%
  • Repayment Term: No time limits
  • Fees: Origination fees range from 0% to 3%
  • Payment: Set fixed percentage of future card revenues
  • Minimum Credit Score: All types of credit considered
  • Timeline: Same business day funding available

Equipment Financing

A small business that requires equipment to operate their business often turn to equipment financing to purchase machinery. Equipment financing secures the equipment itself as collateral. Equipment financing is a fast and easy loan to apply for and may be approved on the spot. Limited paperwork is necessary to be approved.

Equipment financing is popular for business owners in industries that rely heavily on equipment resources like manufacturing and construction.

Product Overview

  • Rate: Range from 1.09% up to 1.45%
  • Repayment Terms: 2 to 7 years
  • Fees: Origination fees range from 0% to 3%
  • Payment: Weekly or daily Monday-Friday fixed ACH
  • Minimum Credit Score: Fair to excellent credit score required; Solid credit history needed
  • Borrower Loan Application Requirements: One-page loan application, equipment invoice
  • Timeline: Same business day funding available in some cases

Small Business Administration (SBA) Loans

The Small Business Administration (SBA) is a Federal government agency headquartered in Washington DC. It provides resources, programs, guidelines, and small business loan guarantees to approved SBA Lenders to issue small business loans. The SBA’s mission is to help small businesses successfully start, build, and grow their businesses.

The SBA is not a lender. It provides a guarantee that gives the approved SBA lender the ability to take on the risk of lending and decisions under SBA term’s that they would not ordinarily do independently. SBA loans are highly sought after by businesses, and there are many approved lenders to choose from. The SBA loan application process can be lengthy, but an experienced SBA-approved lender can help your small business navigate the process with ease.

Product Overview

  • Loan Amounts: Up to 5 million
  • Interest Rates: Starting at 3.50%, treasury index plus 1% to 2.5%
  • Terms: 3 to 25 years
  • Fees: Origination fees 0% to 3%
  • Payments: Fixed monthly payments
  • Minimum Credit Score: Good to excellent personal credit score required; Good credit history needed
  • Collateral: Personal guarantee required

Small Business Administration Loan Programs

SBA Standard 7 (a) Loan Program – SBA loan 7(a) is the SBA’s primary program designed to provide financial assistance to small businesses with a good track record. This product is a term loan. Like the guarantee percentage and amount, the rate, terms, and conditions may vary by the type of loans to small businesses. Real estate may be used for collateral but is not required. The maximum loan size no more than is 5 million.

SBA 504 – The SBA 504 Loan is a business term loan and a powerful economic development program. It provides small businesses another avenue for business financing while promoting business economic development and job creation. Typically for large capital requirements, SBA 504 loan proceeds must be used for fixed assets such as construction, owner-occupied commercial real estate, mixed-use real estate, or land improvements (and certain soft costs). It can also be used to refinance existing debt on your small business. Real Estate may be required for collateral.

SBA Disaster Loan Programs – SBA Economic Injury Disaster Loans (EIDL)-This SBA loan usually assists small businesses after natural disasters like tornadoes, wildfires, or floods. However, when COVID -19 was declared a nationwide health emergency, congress provided small businesses access to relief options like this for emergency funding. This SBA loan was designed for small businesses to retain employees and other expenses to stabilize the company during the COVID-19 pandemic.

SBA Paycheck Protection Program (PPP) – The Small Business Administration (SBA) has established the SBA Paycheck Protection Program loan. This is one of SBA’s relief options that provides loans to small businesses affected by the COVID-19 crisis and in need of financial help. Under the right conditions, this SBA loan offers forgiveness. This SBA loan was designed for businesses to retain employees and protect jobs during the COVID-19 pandemic.

SBA Express – A loan program that is partially guaranteed by the SBA with expedited credit decisions. SBA Express loans offer credit decisions in 24 to 36 hours. Like all SBA loans, the SBA doesn’t do any direct lending for SBA Express loans. Instead, they work with a network of approved lenders who underwrite and issue the loans.

SBA Loans-Additional Information, Resources, and Updates for Small Businesses

SBA Loans Learning CenterFinancing Your Business

Assess your financing needs and discover SBA financing options

SBA Grants Programs and Eligibility – Learn about available SBA grants and cooperative agreements. Find out if you meet the SBA requirements to apply.

Invoice Financing

Invoice factoring (also known as accounts receivable financing) advances unpaid invoices owed to a small business to increase its cash flow speed. An invoice factoring solution provides cash quickly. There is no need to wait for unpaid invoices to be collected and received by the client with invoice factoring. Invoice factoring has affordable costs ranging from 1% to 2.5% fee off of the face value of the unpaid invoices advanced. Invoice financing is typical for trucking, manufacturing, and construction industries. Invoice factoring is not a loan.

Product Overview

  • Interest Rate: None
  • Repayment Terms: Not a traditional loan
  • Fees: 1% to 3% fee based on the invoice. Monthly service fees may apply depending on the volume of invoices factored
  • Minimum Credit Score: Credit score of the owner does not matter

How to Qualify for the Best Small Business Loans

1. Credit Worthiness: Personal Credit Score

How does your personal credit and credit report as an owner affect qualifying for small business financing?

Personal credit score information of the owner plays a significant role in determining what, if any, loans you can be approved for by lender loan applications. As an owner, the better your personal credit is, the more business funding options you will have to choose from. However, it’s essential to know that not all financing offers involve a personal credit check.

How to Understand, Review, and Analyze your Credit

A smart thing to do is pull your own credit information using all three credit bureaus to see your credit score: Equifax, Experian, and TransUnion. (Be wary of sites that offer you “a credit score,” as that may be another credit risk model other than FICO.)

FICO credit score risk model:

What is a good credit score to get approved during a business loan process?

As a rule of thumb, a 750 FICO score and up is excellent, 720 FICO and higher is good, 680 FICO and higher is fair, below 680 to 620 FICO is marginal, and below 620 is considered poor. For the most part, the longer the term and the lower cost small business loans will require the highest credit scores and standards.

2. Length of Time

How long you have been in business is a significant factor in determining qualifications and repayment guidelines for loan products. Let’s face it; business lending is a risky business. Lenders need to see a track record to take a calculated risk in providing you a term loan. Many small businesses don’t make it past the first year in business, so obviously, lenders will be cautious if you have less than two years in business when providing loans.

3. Financial Statements

What financial documents and information will business lenders need for small company loans?

Business Bank Statements

Almost all small business loans will require bank statements to review. Typically three months are needed, but sometimes 6 to 12 months may be necessary if the business is seasonal or has made a considerable loan amount request. The business bank accounts show lenders the cash flow activity of the company and your ability, as the owner, to manage the business’s finances.

Profit & Loss and Balance Statements

These statements provide a more detailed view of the small business and its health and may be required for the longer-term and lower-cost term loan options. The good news is that profit & loss and balance sheet statements are typically unnecessary for alternative business lending products. Although, annual business revenue requirements apply to almost all small business financing options.

Business and Personal Tax Return

Some lenders will need to see tax returns. Minimum annual revenue can play a role in what products are available. If that is going to be a challenge, many alternative business online lenders will not require these documents. However, keep in mind, most likely, the term loan offers you receive will be impacted by the lack of documentation and therefore be reflected in the costs and repayment guidelines you will be provided.

The Most Common Uses of Business Financing by Business Owners

  • Working capital loans
  • Equipment purchase and repair
  • Inventory
  • Business development and growth
  • Cash flow loan/revenue shortages
  • Emergency business expenses
  • Advertising/marketing/customer acquisition resources
  • Refinancing debt
  • General business expenses (operating expenses)

Frequently Asked Questions

Is it hard for a small business to obtain a line of credit or small business loan?

These days, if you are a small business open for more than six months and are on pace for more than $100,000 in annual revenue, business loan options are available. A line of credit will be more difficult and has higher standards.

Is it hard to find small business startup loans?

It is challenging to find small business loans to start a business. SBA options are the best small business loans in this category.

Can small business owners apply for a small business loan using online lenders? Is it trustworthy?

If you are looking for as many loan options as possible, an online lender may provide you more opportunities than other small business lenders.

Can small business owners qualify for business funding if they have bad credit?

Sometimes the best small business loans are simply the ones you can get approved for! If an operator of a small business has bad credit, a traditional bank loan from a bank or credit union is out of the question. The good news is there are financing options if you have bad credit from other sources.

Is there an actual small business credit score?

There is no such thing as a business credit score. Business credit scores don’t exist, but small business originators do look at business credit overall.

Are business credit cards the same as business lines of credit?

A business credit card is not the same as a business line of credit.

Is invoice factoring like a line of credit?

Invoice factoring is not like lines of credit because invoices must be used to advance money to business owners and are not considered small business term loans either.

Are personal loans a better option for a small business than traditional loans for business?

Sometimes the best small business loans are not from the business but from personal loan products that may not look at business financials, minimum annual revenue, monthly revenue of the company, or other business-specific requirements.

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