Financing can help your business at various stages, whether you’re looking to get off the ground, expand your operations or meet a temporary cash shortfall. From financing for the purchase of equipment or vehicles to cash advances on outstanding invoices, there are a number of loan options available to help meet your business needs.
Before you start looking for a business loan, it’s important to understand the different offerings available to you. You may not qualify for all of these, as eligibility criteria can vary from one loan type to the next. This guide takes you through the most commonly available options so you can pick one to fit your needs.
Kabbage Small Business Loans
Kabbage provides small business owners a revolving line of credit up to $100,000 to grow their businesses.
- Recommended Credit Score: 550 or higher
- Maximum Funding Amount: $100,000
- Minimum Funding Amount: $2,000
- Quick approval process
- Must have been in business for at least one year
- Must have annual revenue of $50,000 or more or $4,200 per month for the past three months
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- If the provider quotes a different rate to the one above please let us know
How does a business loan work?
How a business loan works depends on the kind of loan you get. Some of your traditional business loan options include SBA loans that are government-backed, fixed-term business loans and equipment financing. These loans typically come with repayment periods up to seven years, but some may be longer. You’ll make monthly repayments until the loan is paid off. Some lenders offer options of additional repayments at no extra fee.
If you opt for a line of credit, you get access to ongoing funds at a predetermined limit. You only pay interest on the amount you draw.
Invoice financing is another type of funding you can consider. With invoice financing, a provider lends you money on outstanding invoices. The lender gives you a significant portion of the invoice amount, and you repay the loan when your receive payment from the client. Click on one of the guides below for even more financing options.
What type of financing are you interested in?
How to compare your business loan options
- Loan amount. Use the amount you wish to borrow to narrow down your options. Minimum and maximum loan amounts vary by lender, with some minimums as low as $2,000 and maximums over $1,000,000.
- Loan term. Traditional fixed-term business loans typically have loan terms ranging from one to seven years. On the other hand, short-term financing options like invoice financing are meant to be repaid within just a few months. It’s important to know what you can afford so that you can choose the loan term that best suits your business’ cash flow.
- Interest rate. Interest can vary widely depending on the type of business loan you choose. Loans backed by the Small Business Administration — or SBA loans — tend to offer competitive interest rates. Ongoing financing options like merchant cash advances tend to come with higher interest rates. This feature requires your attention because even a small difference in interest rate percentage can have a big effect on the total cost of the business loan.
- Type of lender. Banks tend to have stricter qualification requirements than other lenders when it comes to approving business loans. That’s why many small business owners turn to non-bank loans for funding. Depending on how established your business is, either might work for you.
- Collateral required. Although unsecured loans come with the benefit of not putting up an asset as collateral, there are advantages to secured loans as well. Secured loans may come with lower interest rates and longer repayment periods depending on the asset you provide as security. Learn more about business equity loans if you own a home or other high-value property and need a business loan.
- Loan purpose. If need funding to start a very specific type of business, like a taxi company for example, there may be tailored loan options available to you. Some lenders also offer additional services for business owners taking out tax debt loans or loans for other highly specific purposes.
Are you eligible for a business loan?
- Business age. To qualify for a business loan, your business will typically have to meet a minimum age requirement, which is usually at least six months. To apply for a business line of credit or equipment loan, this tends to increase to one year. To qualify for a traditional-term loan or an SBA loan, your business may need to be at least two years old.
- Revenue. Lenders look at the revenue your business generates to make sure you can repay the loan. Many business lenders require a minimum annual revenue of $50,000 to $75,000. Some lenders may consider monthly revenues if your business hasn’t been established for over a year yet. When the monthly revenues are considered, the requirements are usually higher at around $10,000 per month or more.
Can I get funding for my startup?
Many business lenders require that your business has been established for at least six months and that it’s meeting certain revenue minimums. There are some lenders who may consider your business plan and personal credit profile in lieu of business experience to evaluate your loan application and asses risks.
Check out our guide on startup loans to learn more about how you can get a business loan in the early stages.
Borrowing options for businesses whose cash flow rely heavily on invoices
If your business sometimes has gaps in revenue because out outstanding accounts receivables, there’s a loan option that might suit your needs: invoice financing. Invoice financing lets you borrow against your outstanding invoices and repay the lender once the client pays you.
Invoice financing is meant to be an ongoing service with loans paid back in up to three months. This type of loan may be ideal for service-based businesses that send out a lot of invoices but don’t always receive payment right away.
Invoice factoring is another option to consider. Invoice factoring is when you sell your invoice to third-party. That third-party company pays you a percentage of the invoice and then collects money from your client directly. This is more of a one-off arrangement.
Pros and cons of business loans
- Multiple options. Capital funding for businesses can be easy to find, provided you find out which kind of loan suits you best. Once you know what kind of funding you want, you can get considerable variety when selecting the right lender.
- Various loan amounts available. As long you as you can demonstrate an ability to repay and meet other eligibility criteria, you could borrow any amount from $2,000 to $5 million.
- Use funds for different purposes. There are so many types of business financing options available to fund virtually any business need.
- Interest rate and fees. The interest rate you get depends on multiple factors. It can vary from 6% to 35%. You may have to pay additional fees and charges as well.
- May require collateral. If your business is recently established or doesn’t generate enough revenue, some lenders may only approve you for a secured loan which requires you to put up an asset (such as your home or car) as collateral. You risk losing that asset if you default on the loan.
Frequently asked questions about business loans
How quickly can I get a business loan?
This depends on the kind of loan you want. The turnaround time for a personal loan for businesses can be as little as four days. With a merchant cash advance or invoice financing, you can get your hands on the approved funds within one day. In some cases, the process can take two weeks to a month or more.
What is an SBA loan?
The US Small Business Administration (SBA) offers different loan programs in the form of SBA loans. You can use funds from an SBA loan for a variety of purposes such as purchasing equipment or inventory, adding working capital, buying real estate, acquiring other businesses, or even refinancing existing debts.
What criteria do I have to meet to get a business loan?
Eligibility criteria can vary from one lender to another. However, it’s normal for a lender to look for a regular flow of income in terms of sales over a prolonged period of time.
Do small business loans require collateral?
Some do and some don’t. If your business financials are strong, you may qualify for unsecured business loans that don’t require collateral. Be sure to compare how a secured business loan may benefit you, as they may offer some benefits as well.
How hard is it to get a business loan as a startup?
There are lenders who offer business loans to startups. You may have to meet alternate eligibility criteria to qualify since you don’t have business history to prove you can repay the loan.
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