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Choosing the Best Small Business Financing Options

Small business owners searching for information related to small business loans must ask themselves first which business loan options are best for their business investment. Is it a term loan? A line of credit? Financing for quick access to cash?

The search for small business funding is not the same as looking for personal loans. The purpose of what you are using the money for your business can dictate what business loan products you will choose. Similarly, the loans or small business funding you need for business renovations might not be the same one you’d get if you were experiencing a short-term cash flow problem and needed a working capital loan for managing cash flow.

Where do companies get the necessary information to make solid financing decisions when it comes to business loans? What loan options are available? While traditional routes such as bank loans are often difficult for the average small business owner to get approved for loans, you still have many other financing loan options in the marketplace.

AdvancePoint Capital has a variety of small business funding options for business owners, including SBA loans, in our alternative lender’s network, to help growing businesses and fulfill business needs. We have competitive rates and terms, have a variety of business funding options and can help you choose the right small business loan for your business to access. Let AdvancePoint Capital help you choose the right loan for your business!

Small business owners searching for information related to small business loans must ask themselves first which business loan options are best for their business investment. Is it a term loan? A line of credit? Financing for quick access to cash?

The search for small business funding is not the same as looking for personal loans. The purpose of what you are using the money for your business can dictate what business loan products you will choose. Similarly, the loans or small business funding you need for business renovations might not be the same one you’d get if you were experiencing a short-term cash flow problem and needed a working capital loan for managing cash flow.

Where do companies get the necessary information to make solid financing decisions when it comes to business loans? What loan options are available? While traditional routes such as bank loans are often difficult for the average small business owner to get approved for loans, you still have many other financing loan options in the marketplace.

AdvancePoint Capital has a variety of small business funding options for business owners, including SBA loans, in our alternative lender’s network, to help growing businesses and fulfill business needs. We have competitive rates and terms, have a variety of business funding options and can help you choose the right small business loan for your business to access. Let AdvancePoint Capital help you choose the right loan for your business!

 

The following are the most common types of small business financing options for small business owners:

Small Business Loans

A traditional term loan is similar to that of a conventional bank loan in that it is a fixed amount of funds provided upfront, with a fixed cost, term, and payment. New online lenders have come on the scene that offers loans with various terms such as unsecured business loans and other financial products. Term loans are incredibly diverse and can be used for a wide range of business needs.

Product Overview

Loan Amount Limits: $10,000 to $1,000,000
Interest Rate: Varies depending on lender and loan interval
Eligibility Requirements: All credit types considered for credit approval
Credit Score: Fair to excellent credit score required
Annual Revenue
Required: $250,000 plus
Loan Application Timeline: As little as two days
Repayment Guidelines: 1-25 years; offers both short and long-term financing, secured and unsecured.

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Business Line of Credit

A business line of credit is an open revolving credit facility. This type of business funding allows companies to draw funds when needed on-demand or to make purchases. A business line of credit charges principal & interest. Business lines of credit have a limit that cannot be exceeded without a lender’s approval and is not open-ended forever and requires renewal by lenders either semi-annually or annually to be extended. The primary reason businesses choose a line of credit instead of term loans is the draw feature, affordable rates, and flexible repayment intervals. Not to mention it’s easy to qualify. Although not a loan, a line of credit is popular with companies that need working capital and a fast way to get funds.

 

Product Overview

Loan Amount Limits: $10,000 to $500,000
Interest Rate: Starting at 5.50% or treasury index plus 1% to 2.5% depending on the lender
Repayment Guidelines: Open revolving credit lines, business lines usually have no prepayment penalty.
Fees: Origination fees ranging from 0% to 3%
Payment: Monthly, Bi-Weekly, or Weekly
Credit Score: Fair to excellent credit score required
Annual Revenue Required: $250,000 plus
Documentation: Reduced documentation to include one-page application and three months bank statements
Loan Application Timeline: 1 to 2 days from application to funding

 

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Short-Term Small Business Loan

An excellent financial option when a traditional business term loan falls through is short-term loans. These term loans provide a fixed amount of cash upfront (lump sum), with a set payback amount calculated using a factor rate over a short fixed term of typically 6 to 18 months. Rates are not principal & interest but are based on a “factor cost” and cost more than traditional loans. Real estate collateral is not required to get approved for short-term loan financing.

These term loans are incredibly popular with small businesses, given that they require very little paperwork and have much more forgiving creditworthiness requirements than traditional loans. These popular features are possible because short-term financing charges more for costs and payments are more frequent for a short-term loan.

 

Product Overview

Loan Amount Limits: Up to $500,000
Loan Term: 6 to 18 months in duration (typically 12 months or less)
Installments: Weekly, Bi-Weekly, and in some cases daily Monday-Friday
Credit Score: All credit types considered for credit approval including bad credit.
Documentation: Reduced documentation to include one-page application and three months bank statements
Loan Application Timeline: Same day to 24 hours

 

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Equipment Financing

Equipment financing is when you use the equipment you are purchasing as collateral to acquire the funding. Due to this fact, repayment intervals can go longer than traditional financing, up to 5 years. Standard companies that use equipment financing are manufacturers and construction contractors. This product can come in the form of an advance or leasing.

 

Product Overview

Loan Amounts: $10,000 to $1,000,000
Credit Score Requirements: All credit types considered including bad credit
Application Timeline: Same day to 24 hours
Repayment Terms: 1 to 7 years

 

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Invoice Financing

Invoice factoring advances the outstanding balance of unpaid customer invoices to a business to increase the speed of cash flow to the company. This solution provides cash quickly from unpaid invoices, and there is no need to wait for outstanding invoices to be collected and received by the client (people) with invoice financing in place. Invoice factoring has affordable costs ranging from 1% to 2.5% fee off of the face value of the unpaid invoices advanced. Invoice factoring is exclusively for businesses that issue invoices to their customers (people) with terms up to a net of 60.

 

Product Overview

Interest Rates: None
Repayment Guidelines: Not like traditional loans; invoice advances are paid back in line with invoice terms
Fees: 1% to 3% fee based on the invoice; monthly service fees may apply depending on the volume of invoices factored. It’s a flat fee and you don’t pay interest.
Borrower Credit Score: The credit score of the business owner does not matter
Application Process: A couple of days for approval and set up

 

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The fast, convenient, and straightforward process for getting the Small Business Loan you need for your business – now!

Get your quote today by filling out our simple form and let AdvancePoint Capital help you choose the right loan for your business.

Merchant Cash Advance

A merchant cash advance is a way to raise funds for your business by leveraging your monthly cash flow. This works for those small business owners looking to avoid providing financials, have a credit impairment, or show low balances in their business bank account.

What is unique about this product is that the repayment is made by a set fixed percentage of future sales, therefore having a flexible repayment period with no term limit. This is not a loan but an advance of a lump sum of money. The business owner sells a portion of the business’s future sales at a discount to a funder in exchange for cash today. Repayments are made either by credit card percentage splits at the transaction or fixed daily Monday – Friday ACH payments. This product is top-rated for businesses that accept sales predominantly from credit cards. Merchant cash advances are not loans but advances of future sales of the company.

 

Product Overview

Funding Amounts: $10,000 to $1,000,000
Credit Score: All credit types considered including bad credit
Application Process: As little as one day
Repayment Guidelines: Flexible
Require Collateral?: Personal assets NOT required. Personal finances are not applicable and personal collateral is not needed.

 

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Small Business Administration (SBA) Loans

The U. S. Small Business Administration (SBA) is a government agency that provides information, resources, programs, guidelines, and loan guarantees to approved SBA lenders to issue a small business loan application for SBA loans to small companies. The SBA has a stringent lender approval process to assure small businesses a quality experience. Its mission is to help American enterprises to start, build, and grow their business successfully. It is not a lender. The SBA provides a guarantee that gives the approved SBA lender the ability to take on the risk of lending and make decisions under specific terms that they would not ordinarily follow on their own. Real estate collateral or down payment is not required for all government SBA loans.

 

Small Business Administration (SBA) Loan Programs & Information for Small Businesses

 

SBA approved lenders are authorized to provide the following SBA Loan opportunities listed below:
  • Standard 7(a) Business loans
  • 504 C loan
  • Express loans
  • EIDL Business loans
  • Paycheck Protection Program (PPP loan) Business loans (CLOSED)
  • Export Express Business loans
  • Export Working Capital loans
  • International Trade Business loans
  • Veterans Advantage Business loans
  • CAP Credit Line

7 (a) Loan Program -The SBA’s primary SBA loan program for providing financial assistance to small businesses. The main use is for working capital.

504 C Loan –The SBA CDC/504 provides long-term, fixed-rate financing of up to $5 million for significant fixed assets that promote business growth and job creation. This SBA loan is available through Certified Development Companies (CDCs), SBA’s community-based partners regulating nonprofits and encouraging economic development within their communities. CDCs are certified and regulated by the Small Business Administration to provide SBA loans to small businesses.

An SBA 504 loan can be used for a range of real estate assets that promote business growth and job creation. These loans include down payments for the purchase of real estate or construction-related needs, the improvement or modernization of property, land, streets, utilities, parking lots, and landscaping of existing facilities.

SBA 504 loans cannot be used for:

  • Working capital or inventory
  • Consolidating, repaying, or refinancing debt
  • Speculation or investment in rental real estate

Economic Injury Disaster (EIDL) –In response to the Coronavirus pandemic (COVID-19), small business owners, including agricultural businesses and nonprofit organizations in all U.S. states, Washington D.C., and territories, can apply for the EIDL. The EIDL is designed to provide economic relief to small businesses currently experiencing a temporary loss of revenue due to COVID-19.

Paycheck Protection Program (PPP) –The Small Business Administration has established the SBA Paycheck Protection Program (PPP) loans in response to COVID-19. An (SBA) PPP loan provides financing resources to those affected by the Coronavirus pandemic and needs financial help. Under the right conditions, this SBA loan offers forgiveness. These PPP loans were designed for small business owners across the U.S. to retain employees and protect jobs during the Coronavirus (COVID-19) pandemic. No new (PPP) loan applications are being accepted as the Paycheck Protection Program has since closed and the loans are no longer available.

 

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Business Credit Cards

Business credit cards function as a revolving line of credit in which a card is issued that can be used for both purchases and payments. Most companies use credit cards in conjunction with other loan products that may be used for cash flow every day. Lenders of this product are primarily banks. A business credit card is not an unsecured line of credit and will require a personal certificate. All businesses commonly use a line of credit for working capital and in conjunction with other loans or financing.

 

Product Overview

Rates: Pay interest rates starting at 0% up to 28.99%
Repayment: Revolving; no term limits. Credit cards are not personal loans but are personal lines of credit.
Fees: 1% to 3% origination fees
Payments: Low flexible monthly payments
Credit Score: Must have a good credit score and deep credit history. Bad credit is not permitted

No Annual Revenue requirements to apply

 

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Identify Why You Need Small Business Loans

The first step in any search process for the right financial products is clearly defining why your small business needs the funds. The “why” will direct you many times to the right loans. Working capital is the most popular reason for business owners because there are so many ways it can be used. When cash gets tight due to fluctuations in sales, extra capital can provide the buffer needed to carry the business through rough times. Other reasons for the need for business financing include, but are not limited to:

Working Capital Loans-Unexpected Expenses

Sometimes cash flow can get tight, and a working capital loan is needed to maintain proper levels of money to operate the business and maintain control of cash flow.

Business Needs

A new venture that requires a down payment, upfront capital, recruiting key employees, initiating a new business relationship, or research and development for growing businesses and their business needs.

Purchase Inventory

A common need for eCommerce, manufacturers and other retailers dictates how a business operates.

Marketing/Advertising

Small business owners need funds to promote their business. A variety of advertising strategies include internet marketing, direct mail, radio advertising, flyers, and paper ads, to name a few.

Equipment

Most businesses have some type of equipment that is essential to the way the business operates. Perhaps you’re a business that requires machinery, furniture, medical equipment, construction equipment, computers, or tools. These are common requests from restaurants, auto repair shops, construction industries, medical practices, and manufacturers.

Infrastructure Improvements/Business Expansion Loan

This category could include a move to a more prominent location or office that requires a business expansion loan due to the size of capital required.

Information Technology and Software

In today’s world, capital may be needed for business needs related to website development and site maintenance, customer relations management software, computers, machines, and other products essential for a business’s success.

Consolidate Debt

When debt payments can be overwhelming debt consolidation loans can be a great solution to improve cash flow.

Once you determine the need then the next question is; How much funding do you need?

How Do I Qualify For a Small Business Loan?

There are a few factors involved in your approval.

1. Creditworthiness: Credit Score

How does your personal credit and credit report affect qualifying for small business loans?

Personal credit score information of the business owner plays a significant role in determining what, if any, loans you can be approved for by lender loan applications. As a business owner, the better your personal credit is, the more business funding options you will have to choose from and the easier it will be to qualify. 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 scores: 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).

As a rule of thumb, a personal credit score of 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 to qualify.

2. Length of Time in Business

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. Business lenders need to see a track record to take a calculated risk in providing you a term loan. Many businesses don’t make it past the first year in business, so obviously, business 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 loans will require bank statements to review in order to qualify. Typically three months are needed, but sometimes 6 to 12 months may be necessary if the business is seasonal. Bank statements show business lenders how much revenue the business has, the cash flow activity of the company, and your ability, as the business owner, to manage the business’s finances.

 

Profit & Loss and Balance Statements

These statements provide a more detailed view of the 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 typically are not necessary for alternative business lending products.

 

Business and Personal Tax Return

Some business lenders will need to see tax returns. If that is going to be a challenge, there are a lot of alternative business online lenders who will not require these documents, but 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.

How to Break Down Small Business Loan Programs/Offers/Terms

Interest Rate of Factor Cost of a small business loan

There are two most common types of small business loan rates out there when shopping for a loan. Some small business loans charge a rate as a consumer lending, but others charge a “factor rate” or “factor cost,” which is a flat cost and not principal and interest.

Interest rates are charged based on the daily principle, whereas factor rates are flat costs.

This means business owners pay the same total cost whether you pay off early or not unless they offer an early pay discount or penalty. But rate or factor cost does not tell the whole story. Most lenders charge additional fees, so you have to count those in overall cost when comparing.

Terms of Small Business Loans

The length of the repayment term for loan products varies greatly and can be from 6 months to 7 years, depending on the product and qualifications. Although one loan may seem cheaper than another, you must factor in the length of time of repayment.

You may want to consider a more affordable payment with longer-term versus short-term loans if you are willing to pay more in rate and/or cost for that benefit. If the options are loans, then check for the APR (Annual Percentage Rate), which factors not only rate and cost but also the length of repayment and payment frequency.

Installments and Method of Repayment of a small business loan

Disbursements can be monthly, biweekly, weekly, and even daily (weekdays), depending on the business funding product. It is very common for collection to be in the form of an auto deduction from your bank account via an ACH. Although payment frequency can be a factor if you have very low average daily balances in your business bank account, the interest rates, costs, and term should be a more significant consideration than that of payment frequency.

Origination Fees

This is a charge for services at the time of consummation of the loan. The fee is often a percentage of the amount borrowed or advanced, typically ranging from 0% to 5%.

The fast, convenient, and straightforward way to get the money you need for your business – now!

Get your quote today by filling out our simple form.

How to Choose the Best Small Business Loan

Business Owners Should Ask the Following Questions when it comes to Small Business Loans:

When businesses are looking for initial small business financing, a business will need a track record of sales revenue for a finance company to review its ability to repay. Loan terms and options will be dictated by its cash flow and revenue and the small business’s time in operation, and the business owner’s personal credit (creditworthiness). A good business plan in place is also a must. Qualifications will dictate the loan repayment guidelines.

Getting a small business loan can be challenging depending on the loan options and requires you to do your homework and work with competent small business loan originators that have a variety of business financing options to choose from. Difficulty varies from a working capital loan to a long-term business loan.

Finding an accessible route to the money your business needs now can be difficult. Online lenders offer a faster, more reliable way to get the cash you need with acceptable loan terms. Unfortunately, banks or traditional funding institutions have rigid eligibility requirements and business credit standards that many small business owners don’t qualify for. Online lenders like AdvancePoint Capital offer incredible resources to gain access to the funds you need today. Online solutions offer a wide range of loan options, short-term offerings, and a simple process to gain access to cash in less than 24 hours — even if you have poor business credit.

Ensure you understand the details of your loans and are comfortable with the terms.

You’ll want to make sure you work with a reputable lender who is willing to work with you if problems arise. Checking lender’s reviews with online independent sources like Google and BBB is helpful. You also will want to know the terms of service and privacy policy of the originator and check how they protect applicants’ information.

Frequently Asked Questions

Long-Term Business Loans-The loan terms for this type of term loan have repayment guidelines greater than 24 months up to 25 years from the small business administration. 2 to 3-year term loans are also available through companies like Funding Circle. Funding Circle is a new breed of online business lenders offering loan terms of mid-term financing. It’s recommended to review Funding Circle’s privacy practices.

Short-Term Business Loans-The loan payment terms for this type of term loan have repayment guidelines of less than 24 months.

Business Lines of Credit-The loan terms for this are a revolving line of credit and not a term loan. This credit line is usually up for renewal annually.

Alternative Financing-There are multiple non-bank products with various loan repayment guidelines and other financing options such as Merchant Cash Advance, Invoice Factoring, asset-based loans, and Purchase Order Financing.

When small businesses are looking for initial small business financing, a business will need a track record of sales revenue for a finance company to review its ability to repay. Loan terms and options will be dictated by its cash flow and revenue and the small business’s time in operation, and the business owner’s personal credit (creditworthiness). Qualifications will dictate the loan repayment guidelines.

The fast, convenient, and straightforward way to get the financing solution you need for your small business – now!

Get your quote today by filling out our simple form.