Editor's choice: SmartBiz business loans
- Large network of SBA lenders
- Low potential APR
- Loans from $30,000-$5,000,000
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You might have heard of crowdfunding as a free alternative to business loans. And for some new or underperforming businesses, it can be a cheaper option with the bonus of raising brand awareness. But business loans might be a better choice if your company needs funding fast, doesn’t have the marketing resources to get the most out of crowdfunding or doesn’t want to give up equity.
|How it works||Apply to borrow a one-time amount of funds from a lender and pay it back plus interest and fees over a set period of time, usually five to 20 years.||Set up a campaign on a crowdfunding platform to raise money from the public or investors, often in exchange for rewards or equity.|
|Typical eligibility||Good credit, at least one year in business, at least $100,000 in annual revenue||Few to no restrictions|
|Cost||4% to 99% APR|
|Financing amounts||$5,000 to $5 million|
|How long it takes||One day to a few months||A few weeks to a few months|
|Where you can get it||Online crowdfunding platforms|
Business loans are a type of credit where your business borrows money and pays it back in installments over a set period of time, plus interest and fees. Business loans can be useful for any one-time expense like expansion, a small project or buying new equipment. Businesses that have been around for a while, are cashflow positive and have owners with good credit typically can get the lowest rates.
Applying for a business loan involves submitting an application and documents like your business’s bank statements and tax returns. If you get approved, your lender sends you loan documents to sign and return before receiving your funds. The whole process can take as little as one day if you apply with an online lender and as long as three months if you apply with a bank. Smaller loan amounts typically get processed faster than larger loans.
Not sure if a business loan is right for you? Here’s when a business loan could be a good idea — and when it might not be. While you can still get a business loan if you have bad credit or your company has only been around for six months, you likely won’t get the most competitive rates.
Crowdfunding is a way for your business to raise a one-time sum of money that it doesn’t need to repay. There are a few different types of crowdfunding, though rewards-based and equity crowdfunding are the most common. Both typically take around a month to raise the funds you need and are great for exciting projects.
With rewards-based crowdfunding, your business sets up an online campaign to raise money from fans, family and friends and offers prizes in return for donations. With equity crowdfunding, your company raises money from investors in exchange for a share of ownership in your business.
Rewards-based crowdfunding is usually better for small, creative projects with wide appeal that you can get across with a short video. Equity crowdfunding is typically better for businesses that want to expand or launch a project that they predict will be profitable. It can also be a good source of seed capital for startups, and it’s one of the more popular financing options for the cannabis industry.
Crowdfunding is ideal for businesses that have an exciting or profitable project on the horizon. But there are some situations where you may want to think twice.
Peer-to-peer (P2P) lenders fall somewhere between a type of business loan provider and a crowdfunding platform. These lenders work like a crowdfunding platform to connect you with investors who want to profit from your business’s interest payments.
But the actual process of applying, getting approved and repaying your loan works more like a business loan. You rarely need to submit a pitch deck or marketing video. And your credit score, time in business and revenue usually matter.
Peer-to-peer business loans typically aren’t as fast as loans from direct online lenders, however, since you often have to wait for investors to fund your loan. With LendingClub, one of the top P2P lenders in the country, the whole process can take several days from the time you’re approved.
Struggling to qualify for a business loan? Don’t have the time to invest in a crowdfunding campaign? Here are some other ways to get financing for your business.
Business loans can be a good financing option for businesses that have been around the block a few times, need money for run-of-the-mill expenses or need cash fast. But if you’re a startup, can’t qualify for a business loan or are working on a buzz-worthy project, crowdfunding could be the way to go.
Don’t think either can give your business what it needs? Find even more financing options and compare lenders by reading our guide to business loans.
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