Small businesses in the US borrow over $600 Billion each year. Business funding is one of the most important factors to help build up a business and keep it growing. Find the best funding options for your business and learn how to avoid expensive mistakes with everything you need to know about small business loans in 2022. Read on to find out more…
Understanding business loans
The term “business loan” is used to define a loan or financial product that a lender will offer to businesses. Some providers will offer small business loans over a shorter period, while others may provide larger amounts for longer. Business loans encompass products like SBA loans, merchant cash advances, business lines of credit, start-up loans and equipment financing.
How to get a small business loan
Getting a business loan usually relies on the business’s creditworthiness. This may include your credit score, time in business and the company’s annual revenue. The first stage to getting a loan is to apply for a small business loan.
Here is a step by step process that you will need to follow when applying for any business loan:
- Fill out and submit an online application form
- Get your lending decision usually within 24 hours (you may be contacted for more information).
- Get the loan funded into your business account (once you have signed your business loan agreement).
Note: A good credit score significantly increases your chances of getting accepted for credit. You can click here to learn how to check your credit report and correct wrong information that may be pulling down your credit score.
Business loan requirements
To get accepted for a small business loan, you have to meet the lender’s eligibility requirements. These may vary from lender to lender. Below we have listed the most common small business loan requirements:
- Be a for-profit business – The business must be officially registered and operate according to the US law.
- Do business in America – The business must be both located and run its operations in the US.
- Business owner must have invested equity – The owner must have invested his own time and money into the business.
- Business has exhausted all their credit options – The company can’t get funds from another credit provider.
Business loans calculator
A small business loan calculator is a handy tool that trustworthy lenders display on their website. This helps potential customers visualize how their loans operate. Business loan repayment calculators can help you decide how much you can afford to borrow and choose the loan duration that best fits your financial situation.
Small business Loan rates
Business loan rates will always be displayed on the loan repayment calculator of every website. These details are often present in the header and footer as well. Business loans from banks offer significantly lower rates than small business lenders but often have stricter lending criteria. As a general rule, all lenders provide the best business loan interest rates to customers with the highest credit scores. This is because a high credit score shows the customer is creditworthy and lowers the risk that they will delay or default on repayments.
Below is a comparison table so you can compare the rates of some leading business lenders in the US. An interesting correlation you will notice is that the lenders who require a higher minimum credit score have cheaper rates on their loans.
Compare your small business loan options:
|Loan Company||Apr||Minimum credit score||Minimum time in business||Minimum Annual revenue|
|SmartBiz – SBA loan||6.73 – 10.29%||650||2 years||$50,000|
|BlueVine – Online term loan||18.00 – 78.00%||600||6 months||$100,000|
|Funding Circle – Online term loan||12.18 – 36.00%||660||2 years||$0|
|Kabbage – Line of credit||24.00 – 99.00%||560||1 year||$50,000|
|OnDeck – Line of credit||13.99 – 63.00%||600||3 years||$250,000|
Note: You can get you credit score free from one of the leading Credit Reference Agencies. This will help you determine the small business options that you may be entitled to.
Bad credit business loans
Bad credit is defined as a score ranging from 300 to 629 (FICO), which is the main reason why banks decline applicants. Banks will only accept businesses with perfect credit history. However, many lenders are happy to fund small businesses with bad credit.
Before applying for funding, small businesses with bad credit should consider the following:
- A poor credit score may result in higher rates, thus making the loan more expensive.
- If you have unpaid customer invoices, you can generate cash flow through invoice factoring. This can also increase your chances of approval. Lenders take the value of your invoices into account before issuing a lending decision.
- If you aren’t desperate for credit, then it’s better to try improving your credit score first. With a higher credit score, there will be more credit options available to you at better rates.
No credit check business loans
People often consider no credit check loans because they have a poor credit history. They want to save time and avoid the hassle of getting rejected by lenders. Additionally, every credit application you make leaves a mark on your credit profile which can affect your chances of getting accepted for credit in the future. This is especially true if you plan on applying for a mortgage or auto loan.
If you are applying for a small business loan with no credit check, you must take into account that these loans will be much more costly and come with additional requirements.
Looking for a trustworthy no credit check lender? American Express doesn’t perform a business credit check on their applicants. However, you need to be a pre-approved business card member to apply. Alternatively, you can apply for PayPal working capital – your business and personal credit histories aren’t checked by the lender when you apply.
Finding a business line of credit with no credit check is possible. Keep in mind, though, that your goal is to get affordable funding with the best ROI so your business can boom.
Business start-up loans
A start-up loan is a financial cushion that can reduce some stress when building up an enterprise. With a new business loan, you can hire staff, rent an office, purchase equipment and simply pay your bills. This loan empowers you to invest in your own business and keep it growing. Whether you will get approved for a first-time business loan depends a lot on your personal credit history.
A great way to enhance your credit score is if you apply for a business credit card. A business credit card provides access to financing without using your capital. At the same time, it’s an excellent opportunity to build up your business’s credit score. Many lenders in the US offer business start-up loans including; American Express, Chase and Bank of America.
Discover the best small business loan option for you!
To help you choose the best business funding for your specific enterprise, we have provided a brief description of different types of business loans:
- SBA Loan – This is a government-backed loan with unbeatable rates and terms – If you have a good credit score, go ahead and apply.
- Business acquisition loan – The ideal loan that provides capital to purchase a business.
- Equipment financing – This is a loan that is designed to finance the equipment. Looking to buy computer equipment or a commercial vehicle, this will be the financing that you’re after.
- Start-up loan – This is funding based on your personal credit score to help you build up your business.
- Merchant cash advance (business advance loans) – This is an upfront sum of cash in exchange for a percentage of your future sales until you have paid back the amount borrowed.
- Business credit card – This provides business owners with easy access to a revolving line of credit, to make purchases for the business and to withdraw cash. Like a personal credit card, there is a set credit limit.
You may want to consider finding an investor for your business. Not only do investors provide financial backing, they come with expertise that can make your business successful long after they leave. Click here to find out more.
Small business loans for women
There are a variety of lenders who offer startup loans for women and alternative borrowing options. This goes to show that even in 2022, business funding between male and female entrepreneurs isn’t evenly distributed. Despite the inequality that still exists, there are more funding options available to female entrepreneurs than ever before. Some leading lenders that focus on supporting female entrepreneurs include; SBA loans, Funding circle, Bluevine and Kabbage.
Business loans for veterans
Over 1/10 business owners in the US are veterans. As a veteran business owner, you are likely to need additional financing from time to time. This may be to hire new employees, expand the office or to buy new equipment. Instead of using up your profits, a small business loan for veterans can help you pay for your expenses while keeping the business afloat.
Below is a list of some business options a veteran may be considering:
- Revolving line of credit: This is a flexible way of borrowing that allows businesses to borrow money up to a pre-approved limit. This enables small business owners to keep their operations going smoothly. As long as you can make your minimum repayments, revolving credit can be a useful cash flow management tool for your business.
- Business line of credit: This operates similar to a credit card, you can withdraw any amount as long as you don’t exceed the amount set in the agreement. You can read more about business lines of credit vs business credit cards here.
- Working capital loan: Working capital is the cash that is available for the day to day running expenses of the business. With a working capital loan, you can pay for your daily expenses without using up your cash flow.
- Microloan: Set up by the SBA, these loans are available up to $50,000 and generally offered to smaller businesses with a lower credit score.
Again, there are many funding options available to veterans from leading banks, lenders and financial institutions in the US.
How can I get a business loan from my bank?
Most banks in the US work with Small Business Administration lenders to offer a wide range of small business financing. Once you are an existing customer, you can log in and apply. Getting approved for a small business bank loan can take anywhere from a few minutes to several weeks.
The Bank of America provides business loans with the most competitive rates and terms in the US. To qualify, you’ll need 2 years of business history and $100,000 in gross annual sales from the previous year. Credit lines start at $25,000; the maximum depends on the borrowers’ profile.
Frequently asked questions about small business loans:
When you apply for a loan, you can often speed up the approval process by having the following three things handy:
- The last three bank statements
- Details of when you started your business
- Know your approx credit score
The difference between secured and unsecured loans is whether collateral has been provided. Collateral backs all secured loans. Secured loans are often used when you require funding for big business projects. The repayment terms and interest rates are also usually more favourable for the borrower. The big drawback is that if you are unable to repay your loan, the collateral would belong to the lender. So only take out a secured loan if you are confident that you can make the repayments. On the other hand, unsecured loans are harder to get approved for, and the maximum amount you can borrow is $50,000, so this type of funding is best for small expenses.
- Speed – The automated process by which online business loans are available works well for small business owners’ busy schedules.
- Variety of options – Through online lending platforms, businesses can usually access a wide range of capital and varied repayment terms.
- Flexibility – Some lending platforms offer instant lines of credit online. Companies can draw from this line of credit multiple times up to the total line amount without having to reapply every time.