How to find the Best Small Business Loans

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Choosing the Best Small Business Loan Products

As a small business owner, you have to ask yourself which business funding products are best for your business. What works for the needs of one company might not work for yours. Similarly, the loan or business financing you need for business renovations might not be the same one you’d get if you were experiencing a short-term cash flow problem.

While traditional routes such as bank loans are often difficult for the average small business owner to get approved for, you still have many options. The following are the most common types of loans for small businesses.

Business Term Loan

A traditional term business loan is similar to that of a traditional bank loan in that it is a fixed amount of money provided up front, with a fixed cost, fixed term, and fixed payment.

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  • Loan Amount Limits: $10,000 to $1,000,000
  • Credit Requirements: All credit types (even bad credit) are considered
  • Processing Time: as little as 2 days
  • Length of time of Repayment: 1-5 years

Business Line of Credit

A Business Line of Credit has the flexibility of a business credit card that a traditional loan does not. This product has a revolving line of credit that allows you to draw money from the line as needed to its limit and only pay interest on your outstanding balance.

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  • Loan Amount Limits: $10,000 to $1,000,000
  • Credit Requirements: All credit types considered
  • Processing Time: as little as 2 days
  • Length of time of Repayment: Revolving

Short Term Business Loan

A Short Term Loan is, obviously, of a shorter term, usually 6 to 18 months. This product is for those businesses that may have qualification issues such as financials, credit, time in business, or other factors that impede their ability to get more traditional financing.

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  • Loan Amount Limits: $10,000 to $1,000,000
  • Credit Requirements: All credit types considered
  • Processing Time: as little as 1 day
  • Length of time of Repayment: 6 to 18 months

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.

Equipment Financing

Equipment financing is when you use the equipment you are purchasing as collateral to acquire the financing. Due to this fact, terms can go longer than traditional financing, up to 5 years.

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  • Loan Amount Limits: $10,000 to $1,000,000
  • Credit Requirements: All credit types considered
  • Processing Time: as little as 2 days
  • Length of time of Repayment: 1 – 5 years

Invoice Financing

Invoice financing, also known as invoice factoring, is a form of financing that allows the business to leverage outstanding invoices and receive advances off those invoices in a day, way before the terms of 30, 60 or 90 days the invoices normally take to get paid. This is a great way to get cash flow fast off of work that has been completed but not paid for yet.

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  • Loan Amount Limits: $10,000 to $1,000,000
  • Credit Requirements: All credit types considered
  • Processing Time: as little as 2 days
  • Length of time of Repayment: Revolving

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.

Merchant Cash Advance

A Merchant Cash Advance is a way to raise money for your business by leveraging your monthly cash flow. This works for those business owners who are 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 the fact 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. 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 time of transaction or fixed daily Monday – Friday ACH payments.

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  • Loan Amount Limits: $10,000 to $1,000,000
  • Credit Requirements: All credit types considered
  • Processing Time: as little as 1 day
  • Length of time of Repayment: Flexible

SBA Loans

A SBA loan, short for Small Business Administration loan, is a loan guaranteed by the Small Business Administration. SBA is not the lender. It merely provides programs, guidelines and loan guarantees to lenders so lenders will be able to mitigate the high risk of business lending.

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  • Loan Amount Limits: $10,000 to $1,000,000
  • Credit Requirements: All credit types considered
  • Processing Time: as little as 2 days
  • Length of time of Repayment: Revolving

Identify Why You Need a Business Loan

Why do you need a small business loan?

The first step in any search is clearly defining why your small business needs the money. The “why” will direct you many times to the right loan product.

Working Capital Working capital is by far the most popular reason because there are so many ways it can be used. When cash flow gets tight due to fluctuations in sales, that extra capital can provide the buffer that’s needed to carry the business through rough times.
Business Opportunities You may need money for inventory, a new venture that requires upfront capital, recruiting key employees, initiating a new business relationship, or research and development.
Marketing/Advertising Business owners need money to promote their business. A variety of advertising strategies include internet marketing, direct mail, radio advertising, flyers, and paper ads, to name of few.
Equipment Most businesses have some type of equipment. Perhaps you’re a business that has a need for 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 Improvement This category could include a move to a larger location or office that requires capital.

How much do you need?

Identify the amount you need for your business, making sure you put enough thought into projecting its future needs.

Calculate your financial situation. Know your business cash flow!

Apply a simple business loan affordability test. In simple terms, you need to properly evaluate your business’s financial situation. A basic monthly profit and loss can really give you the tools necessary to determine what you can afford in a monthly loan payment. Identify and calculate the business’s monthly revenue by reviewing business bank statements for monthly deposits. Evaluate your monthly expenses, and at the end of the day, determine your net profit.

What is your budget? What can you afford?

Look at your trends over months, not just last month. Are sales increasing or declining? What is your monthly net profit? Your margin of profit can show how much you can afford in payments on a monthly basis of a small business. Write down what you believe you can handle for a monthly payment based on your expenses and debt versus income, and use that payment as a starting point as you start your search for any type of small business funding.

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How to Qualify For a Small Business Loan

There are a few factors involved in your approval.

1. Credit

How does your personal credit as a business owner affect qualifying for a small business loan?

Personal credit scores of the business owner play a significant role in determining what, if any, loans you can be approved for. As a business owner, the better your personal credit is, the more choices you have in business funding.

How to Understand, Review and Analyze your Credit Report
A smart thing to do is pull your own credit report using all three credit bureaus: 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.)

How is the FICO score derived?
Infographic: FICO scores use many different pieces of credit data to determine the score, but it’s broken down into five main categories (source https://www.myfico.com/credit-education/whats-in-your-credit-score):

What credit score will you need to qualify for a business loan?
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 terms for loan products.

Let’s face it, business lending is a risky business. Business lenders need to see a track record so that they can take a calculated risk in providing you a small business loan. Many businesses don’t make it past the first year in business, so obviously business lenders are going to be cautious if you have less than 2 years in business. Options do exist for companies with 6 months or more in business, and terms and costs will reflect that greater risk.

3. Financial Statements

What financial documents will business lenders need for a small business application?

Business Bank Statements

Almost all small loans will require bank statements to review. Typically 3 months are required, but sometimes 6 to 12 months may be needed if the business is seasonal or has made a large loan amount request. Bank statements show business lenders the cash flow activity of the business 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 business loan options. The good news is that Profit & Loss and Balance Sheet statements typically are not required 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 business loan offers you receive will be impacted by the lack of documentation and therefore be reflected in the costs and terms you will be offered.

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How to Break Down Business Loan Offers/Terms

What are the terms and costs of Small Business Loans?

There are a lot of lenders that offer financing options out there, so it’s important to compare those offers accurately so you are making the right and informed decision based on facts. Let’s break down and check off all the boxes to consider and compare. Call it the “Business Loan Offer Breakdown.”

Interest Rate of Factor Cost

There are two most common business loan rates out there when shopping for a loan. Some business loans charge an interest rate like consumer lending, but others charge what called a 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 you are paying the same total cost whether you pay off early or not, unless they offer an early pay discount or penalty. But interest 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.

Term of Business Loan

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

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

Payments and Method of Repayment

Payments 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 greater consideration than that of payment frequency.

Origination Fees

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

Administrative/Application fees

This fee is used by some business lenders for the cost to underwrite and investigate your application such as credit report, background checks, and statement analysis.

Check your agreements before you sign for early pay discounts and or penalties. These features can be a benefit or detriment so it is important to know when comparing the best business loan offers.

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 Business Loan

Be sure to ask yourself the following questions:

Do I have all my facts and research?
Create a chart and plug in your offers using the breakdown discussed above.
What is the value of the business loan?
Discover what’s most important to you because you are going to have to balance costs and payments in making your decision.
Do the costs make sense?
Are you comfortable with the payment, whether it be daily, weekly, bi-weekly, or monthly?
Am I comfortable with the length of time it will take to pay it back?
Are you comfortable with the length of your loan terms?
Does the business lender have good customer service in repayment?
Are they reputable and willing to work with you if problems arise?
 Can I repay this business loan?
Do you have the security in your finances to repay the loan in a timely manner?

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* All loans made by either WebBank, an FDIC-insured Utah industrial bank, or Bank of the Internet Federal Bank, an FDIC-insured federally chartered thrift located in California. In connection with the loans, the Banks' underwriting conditions and terms apply.