As an entrepreneur, you might face the challenge of raising capital to grow your business. Many business loans provide working capital and other funds that can be used in multiple ways. If you need extra cash flow or capital to expand your business venture, we’ve evaluated the best business loans based on loan terms, fees, rates, customer satisfaction, and overall quality.
If you require cash due to a cash flow shortfall or have a less than perfect credit score, American Express Business Blueprint™ could be a promising option.
Fundera does not lend money directly but offers a digital marketplace where you can connect with lenders to provide a financing solution for your business.
National Funding offers small businesses working capital and equipment financing loans that are suitable for a broad range of businesses, and you could receive approval and funding within 24 hours.
Business loans come in all shapes and sizes. They can be short-term loans repaid within a year or long-term loans repaid over several years.
The process for obtaining a business loan is similar to getting a personal loan. You go through an application process to provide detailed information about your company and its financial situation. You will have to usually give the following information:
Business credit score or personal credit score
Annual income
Number of employees
Company’s future growth and profitability
The lender will then consider this information along with any collateral you might be able to put up. If you are unable to secure enough capital from a single lender, you may find that working with multiple lenders at once can help you meet your needs faster.
What are the requirements to get a business Loan?
Certain requirements need to be met before you can apply for one. Here are some of the following:
Business plan: Some lenders may require a business plan. If needed, this will be an important document in your loan application, so make sure it is well-written and easy to understand.
Financial statements: You may need to provide an income statement, balance sheet, and cash flow statement. You will need to provide these statements if you are applying for a long-term loan or have been operating as a company for less than 12 months.
Time in business: Most lenders want to see that you’re a stable business before they give you a loan. If you’ve been operating for less than six months, this may lower your chances of getting approved. However, if you can show that your business has made significant progress toward reaching its goals, then this could increase your chances of being approved by some lenders.
Tax returns: Tax returns help lenders gain insight into how much profit you have earned from your business activities during a particular period. If you are applying for a short-term loan and have operated as a company for less than 12 months, it may not be required, but if you have been operating as a company for more than 12 months, these documents will more likely be needed. Each lender is different.
Credit score: Your credit score is based on your finances, such as whether you pay your bills on time, the amount of debt you have, and how much credit you have available. The higher your credit score, the better your chances of getting approved for a business loan.
Proof of business registration status: You’ll need proof that your business is registered with the state or country where it operates. This can include an Employer Identification Number (EIN) from the IRS. If applicable, include a copy of any other registration documents issued by your local government offices, such as permits or licenses.
Different types of business loans
Several types of business loans are available, each with its advantages and disadvantages.
Term loans: A term loan is paid back in equal installments over a set period. An example would be a loan with regular monthly payments, such as an installment loan or a mortgage. The loan term can range from one month to several years, depending on what you need and how much you want to borrow.
SBA loans: The SBA offers assistance to small businesses that might struggle to secure financing from commercial lenders. Since the SBA operates as an agency within the federal government, its loans are guaranteed by the U.S. Treasury Department and come with lower interest rates than conventional loans offered by banks and other financial institutions.
Business lines of credit: A line of credit allows you to borrow up to a certain limit at any time as needed. For example, if you need $50,000 to purchase new equipment, the line of credit would allow you to take out $50,000 immediately and pay it back over time as needed. If you only needed $10,000 initially, then all that money would be available immediately. You can think of a line credit like a credit card but with a lower interest rate. Business lines are often used as an alternative to traditional loans because they offer lower rates and more flexibility than conventional financing options.
Equipment loans: These are used to purchase equipment and machinery, such as computers, manufacturing, and office equipment. The loan is paid back over a period with interest added to the principal amount borrowed. These loans will be secured by the equipment as collateral.
Invoice factoring: Invoice financing is typically used by businesses that sell products or services on credit terms. A third-party lender will purchase the outstanding invoices from your business at a discount and provide you capital upfront.
Working capital loans: Working capital is often used to finance everyday business expenses, such as salaries, and rent while managing cash flows.
Benefits of a business loan
A business loan can give your company the operating capital it needs to grow and thrive. Here are some of the benefits of business loans:
Tax benefits: You can earn tax benefits from your state and federal governments. The amount of tax deduction depends on how much money is spent on interest, equipment, labor costs, and other expenses related to running your business.
Grow your business: You can use the loan for any expense related to growing and running your business. You can use it for buying inventory or equipment, paying staff salaries, marketing expenses, or even covering operating expenses.
Improved business credit: A successful track record with one lender will help build your creditworthiness with others. You’ll be able to qualify for larger loans with better terms if you establish a history of paying back money owed on time.
How can you use your business loan?
What are the most common uses for business loans? Here are just a few:
Expand your operations.
Purchase equipment or furniture
Pay off debt
Fund research and development
Buy inventory or supplies
Refinance current debts
How to choose the best business loan
Here are some factors to consider to help you find the best business loan:
Identify the purpose: The first step in choosing a business loan is identifying how you plan to use the money. There are many options, but most small businesses need capital for working capital, equipment purchases, or real estate financing. You can use your loan for almost anything as long as it’s approved by the lender.
Application process: Most lenders offer an online application process that takes only a few minutes to complete and submit for approval. However, some lenders require an in-person application at one of their local branches or locations nationwide.
Compare interest rates: When you compare loans, some loans may have lower interest rates than others, but they may also have higher fees or other associated costs. You will need to understand what the total cost of each loan is going to be before deciding which one is best for your situation.
Lender reputation: You want to ensure that you are working with a reputable and trustworthy lender.
Flexible repayment schedules: Consider a lender who offers flexible repayment schedules. Keep to note that a longer term will be less stressful on your cash flow since payments are stretched, but the overall interest you pay will be higher. This is the opposite for shorter terms.
