If your business needs financial help, you should check the beginner’s guide to business loans first. After all, it takes money to make money.
Aspiring small business owners often borrow payments for their store location, equipment, etc. Meanwhile, a business loan may enable a budding enterprise to grow and blossom into something better.
Read our guide today for all you need to know about business loan rates, requirements, and options.
Table of Contents
What is a Business Loan?
Like we’ve mentioned, these are borrowed funds intended to help business owners. These loans can provide the starting requirements for your business or fund its improvements.
You may ask your local bank for small business financing, but you may check online for better business loan rates.
They’ll have several types of lending options designed to suit your needs.
Types of Business Loan Providers
If you have great credit and sufficient collateral, banks provide the best places to get business loans.
Typically, these trusted financial institutions provide better business loan rates and other terms than their newer counterparts.
Although, you may need to wait briefly before you receive the funds. Worse, small business owners often fail to meet the stringent application requirements.
You may head to a microlender if your business does not meet minimum bank standards.
Thankfully, you may check online for various alternatives. A majority even provides funds quicker than larger financial establishments.
However, microlenders provide lower loan amounts that might be insufficient for your business. There are even online lenders that provide small business loans similar to banks.
They could give comparative business loan rates, and they can send funds much faster.
Still, be wary of the astronomical APR that may come with your online business loan. Annual percentage rates may cost around a whopping 108%.
Types of Business Loans
You may choose from a variety of business loans depending on what your enterprise needs.
You could choose the standard lump sum, but there are alternatives that function like credit cards. There are even options intended for specific aspects of your small business.
Understand what your business needs, so you can match them with the available business loan rates and terms.
Term Loans
This is your classic type of loan providing a hefty lump sum for real estate and other large expenses.
After taking them out, you must submit monthly payments along with corresponding business loan rates. You will have to repay interest on top of your loan, but it could augment your future earnings.
Otherwise, you may suffer losses from your stagnant bottom line and your expanding loan payments.
Line of Credit
If you need to borrow funds in real-time, you could apply for a business line of credit.
It allows you to rack up balances that you’ll have to repay along with the business loan rates. Also, you may use it for various purposes such as working capital.
Even better, business lines of credit have limits, so you’re unlikely to exceed your budget.
Peer-to-peer Lending
You may also search for individuals who may lend money for your business. This is called peer-to-peer lending, and these are facilitated by online platforms.
Just answer the required info on these websites, and they will provide a list of investors that match your needs.
While they could provide better business loan rates, you should still be wary of the terms and conditions.
Equipment Financing
Maybe you just need better tools that will improve your business’s productivity and efficiency. Thankfully, equipment financing may help provide these crucial upgrades.
You may find it easier to apply for these since those tools serve as collateral.
Remember to check information such as an estimate of the tool costs and the attached business loan rates.
Invoice Factoring
Did you know you could receive funds in exchange for your unpaid invoices? An invoice factoring company can buy those from you, so you can get funds quickly.
Once those invoices are repaid, you are required to pay the company back.
As with all lending options, take note of the corresponding fees like business loan rates prior to your application.
Merchant Cash Advances
You may prefer merchant cash advances If your business relies on credit card sales. It provides extra funds now for a portion of your profits later.
What’s more, these could be more convenient to acquire because there’s no credit rating requirement.
You may set up fixed payments or automatically transfer a part of your earnings to the lender.
Cash Flow Lending
Do you like the idea of merchant cash advances, but your company is simply too large? Cash flow lending may be the lending program you need.
This involves borrowing funds quickly according to your projected sales.
For instance, you may take out funds for your payroll. In the future, your lender will receive interest based on your employee productivity and business loan rates.
How to Get a Business Loan
Once you’ve chosen one of the financing options, you should gather the application requirements.
These include factors related to your personal finances and your business. Your business loan rates and other conditions will be based on these factors.
As lenders feel more secure with your loan, they’re more inclined to provide favorable business loans.
Business Loan Requirements
Lenders analyze various information before approving loan applications. Of course, they expect to get their money back, so they want borrowers who will do just that.
If you’re trustworthy, they’ll grant you the best repayment terms such as low business loan rates.
If not, they’ll give you the worst ones, or they will simply reject your application.
Credit Score
One of the most important application requirements includes your credit rating. Just like with other credit options, your score must belong to a certain threshold.
If yours is at least 650 to 699, you have a chance of obtaining a business loan. Moreover, you’ll get good business loan rates and other terms if your score is 700 or higher.
Cash Flow & Income
If your enterprise earns a decent amount of revenue, you’re more likely to get approved for a business loan.
This assures lenders that you’ll be able to earn enough to repay their loans. For aspiring or struggling business owners, certain lending options may suit them best.
For instance, merchant cash advances could help businesses that yield meager earnings.
Current Debt Balances
Having minimal debts will boost your chances of getting a business loan. Lenders might even give you the best business loan rates if you have little to no debts.
This proves that you can handle debts properly, so they know their loan will be in good hands.
If you have too many debts, your bank might hesitate to grant you a loan.
Collateral
As we’ve discussed, certain loans require collateral such as equipment. This enables a lender to take it as compensation if a borrower fails to pay on time.
If you can provide collateral, banks are likely to grant the best business loan rates and terms.
Otherwise, you might need to find other financial institutions.
Industry
All businesses belong to specific industries that may succeed or fail depending on economic conditions.
Lenders know this, so they prefer giving loans to companies in burgeoning fields. They might even give low business loan rates if the economy is particularly robust.
In contrast, lenders are more discerning during the ensuing recession from the COVID-19 pandemic.
Age of Business
Despite external factors, some businesses tough it out and stand the test of time. Lenders prefer these companies because they’re likely to return borrowed funds.
Such businesses do whatever is necessary to keep earning no matter what happens. This means they’ll be able to repay their debts, including the business loan rates and other fees.
Business Loan Rates
Like other lending options, the types of business loan rates available rate depending on the factors we’ve discussed.
Usually, people prefer fixed interest rates since this allows them to have consistent monthly payments.
However, lenders reserve these for exceptionally creditworthy business owners. After all, they risk losses with fixed rates since they can’t be adjusted to economic conditions.
On the other hand, people may receive variable business loan rates due to bad credit. Typically, this favors lenders since they may raise interest rates in order to compensate for economic downturns.
As you can see, it might exacerbate your financial problems if you suddenly have to pay more every month.
Does the SBA Loan Check Credit?
You may have heard that the Small Business Administration (SBA) provides loan programs.
This is the federal government’s way of enabling small enterprises to start and expand. You may apply for an SBA loan from accredited financial institutions.
They offer competitive business loan rates and provide public assistance such as the recent Paycheck Protection Program.
What Credit Score is Needed for an SBA Loan?
Various websites recommend a credit score of around 600, but you might need a higher rating. The SBA does not merely take credit scores into account.
They require invested equity, and applicants must exhaust all possible alternatives prior to application.
Also, your company must possess a strong cash flow in order to earn eligibility.
How Hard is it to Get an SBA Loan?
SBA loan applications are particularly difficult due to their stringent requirements. An applicant’s business must be legally registered as a for-profit, and it must operate within the US.
Moreover, borrowers must submit piles of paperwork and wait months for approval.
Borrowers may also get rejected due to problems with their personal or business finances.
Business Loan FAQs
How to get a business loan with bad credit?
There are lending options that specifically cater to people with poor credit scores. However, be prepared to include your assets as collateral, or bear with high business loan rates and other terms.
Is a business loan considered income?
Your loan can be tax-deductible under certain conditions. Please check the Internal Revenue Service (IRS) website for more info.
Why did my SBA loan get denied?
Your SBA loan rejection is due to a number of strict requirements. You may log on to the Small Business Administration website for further assistance.
Does an SBA loan go on your credit?
Your SBA loan will be counted on your credit rating. As stipulated by the IRS, SBA loan providers must report information to the appropriate credit reporting agencies.
