Small Business Loans for Direct Sales

Between 2015 and 2020, the direct sales industry grew an additional 1.5 percent and reached a market size of $66 billion. These figures are just two reasons why now might be an excellent time to start a direct selling business or grow your existing company – and some of the other reasons are rare in other fields of work.

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Unlike many industries, the direct selling industry has actually grown as a result of the COVID-19 pandemic. According to one survey by Hepfer and Associates, several direct selling companies reported growth of up to 40 percent immediately following the widespread stay-at-home orders that many local and state governments enacted. The main difference between direct selling and other selling methods may explain this trend, as direct selling’s elimination of traditional middlemen means lower purchase prices – which consumers need in tough economic times.

Given the positive outlook for the direct sales industry, now might be a great time to grow your company. If your direct selling operation has recently struggled, now too could be an excellent opportunity to work toward stabilization. In both cases, low-cost funding such as small business loans for direct sales can help.

Financing Options for Established Direct Sales Companies During the COVID-19 Pandemic

In March 2020, Congress and the White House passed the CARES Act to provide funding assistance to small businesses facing new challenges due to the COVID-19 pandemic. This bill launched a new Small Business Administration (SBA) 7(a) loan program called the Paycheck Protection Program (PPP). Through this program, small businesses could obtain loans for stabilization and growth. The program’s first application round closed on August 8, 2020, but the government could soon enact additional small business funding opportunities.

After the first PPP round closed, Congress began discussing new ways the government could help to fund small businesses. The SmartBiz Small Business Blog will detail updates that come from these conversations and share the latest news on loan opportunities and forgiveness. Additionally, through the SmartBiz Loans COVID-19 information center, Small Business Loans & Resources in Times of Coronavirus (COVID-19), you can see how your direct sales company can use any PPP loans it obtains.

Funding challenges and opportunities for direct sales companies

At the moment, funding a direct sales company may be significantly easier than funding most other types of businesses. Often, the only large expense required for launching a direct selling company is a sales kit, which is typically not costly. And if you already own a direct selling business, then you probably realize that your overhead costs are lower than for other types of companies.

This is all to say that a direct sales company can be a low-cost operation, and with lower costs come higher profit margins. However, new direct sales companies may face minor challenges in obtaining business funding. Lenders often hesitate to approve new business owners, no matter their industry, since they have minimal hard evidence to prove business success. As such, getting your direct selling company off the ground can sometimes be difficult.

On the other hand, since direct selling involves inventory management, you can show financial statements that detail your spending and earning on this inventory to give lenders a sense of how well your company can manage its finances. This is just one step to obtaining small business loans for direct sales – below, learn more about how you can get funding, and which types of funding are available.

Financial options for direct sales companies

Even in precarious economic times, you can obtain affordable loans for your direct sales company. The SBA offers several types of business-friendly loans to direct sales companies, though you can pursue non-government funding as well. No matter the route you go, no two funding options will have exactly the same loan approval periods and rates.

The SBA 7(a) loan program

If your direct sales company qualifies for low-cost SBA 7(a) loans, most lending experts will advise you to pursue this option. SBA 7(a) loans are extremely favorable for small business growth and stabilization due to their low rates, long terms, and low monthly payments. You can use their funds toward:

  • Working Capital – Working capital is a crucial business metric. You can calculate it by subtracting your current liabilities from your current assets or determining how much cash your company has on hand for immediate business use.
    If you determine that you have negative working capital, you can buy new equipment or expand your team to drive your revenue. You can use SBA 7(a) loans for both these purposes.
  • Debt Consolidation Loans – You can use SBA 7(a) debt consolidation loans to refinance your direct sales company’s merchant cash advances, short-term business loans, daily or weekly payment loans, or high-interest business loans.
  • Commercial Real Estate – If you’re looking to expand your direct sales company, use your SBA 7(a) loan to purchase owner-occupied commercial real estate. Alternatively, use your loan to refinance your current commercial real estate mortgages.

Advantages of SBA 7(a) loans for direct sales

Lending experts widely agree that SBA 7(a) loans are the “gold standard.” That’s because their 10-year terms (25 years for commercial real estate) and low rates mean they’re especially affordable, and you don’t have to rush to repay them. Other SBA 7(a) loan properties that work in your favor include:

  • No prepayment penalties
  • Affordable monthly payments
  • Availability in all 50 states
  • Wide use of funds

Requirements for direct sales companies to apply for SBA 7(a) loans

If your direct sales company meets all the following requirements, it may qualify for SBA 7(a) loans:

  • Your direct sales company must be based in the U.S.
  • Your company must be at least two years old
  • You and your company must be on-schedule with all government-related loan repayments
  • Your company must not have tax liens, outstanding charge-offs, or recent settlements
  • You must be a U.S. citizen or lawful permanent resident
  • You must be at least 21 years old
  • Your personal credit score must be above 650
  • You must not have bankruptcies or foreclosures in the past three years

In addition to these basic requirements, some SBA 7(a) loan providers may have additional demands. For example, some loan providers will need to see your business plan, but SmartBiz Loans has no such requirement.


How to apply for an SBA 7(a) loan for direct sales

Step 1: Confirm that you meet the above SBA 7(a) loan requirements. You can read all about these requirements via the SmartBiz Loans page about SBA Loan Requirements for Existing Business.

To discover how your business financials stack up for funding, use our easy-to-use online tool. SmartBiz Advisor™ helps you track the financial health of your business and learn how banks typically evaluate your business.* SmartBiz Advisor also recommends ways to help you improve your credit and strengthen the financial health of your business as needed. Read feedback from real SmartBiz Advisor users and sign up here.*

Step 2: Collect all your required paperwork. Expect to need large amounts of documentation and consider asking your accountant, bookkeeper, or another financial expert for assistance. Learn more via the SmartBiz Loans Guide to SBA Loans.

Step 3:  Choose your lender. Keep the following in mind as you do so:


No worthwhile lender will obscure your loan’s APR and annual interest rate. These numbers are important determinants of a loan’s quality, so working with a lender that obscures them may not be best for your business needs.

Obvious loan terms

Fine print that veers on incomprehensible should concern you, as this text often masks unfavorable loan costs and payment schedules. Make sure that any loans you consider taking clearly state your total loan amount, prepayment penalties (if applicable), collateral requirements, and your payment amounts and frequency.


A lender who gives you extremely favorable loan terms but can’t be easily reached via phone or email may still be a risky choice. You may be better off choosing a lender who goes out of their way to connect you with a representative familiar with the direct sales industry as well as your company and loan application.


Read your lender’s reviews on TrustPilot, Consumer Affairs, and Google to see whether other borrowers have had good experiences. You might notice other direct sales owners among the reviewers – focus the most on what these reviewers say about your lender.


Your loan should include interest fees, repayment fees, and few other charges. Excessive fees are a sign to choose a different lender, as are provisions stating that fees aren’t due before your loan’s lifetime or funding.

The SBA 504 loan program

For low-cost expansion or modernization funding, your direct sales company can turn to the SBA 504 loan program. If your direct sales company is opening a second office, adding a new team, or investing in new technology that brings you on par with your competitors, you can use an SBA 504 loan toward all associated costs.

You can also use SBA 504 loans if your direct sales company meets the public policy goals of your local community development corporation (CDC). In this case, your CDC may cover up to 40% of your project costs, with your 504 loans covering up to 50%. You will be responsible for the rest, which you can cover with a down payment.

The SBA microloan program

If your direct sales business meets the SBA definition of a very small business (a.k.a. microbusiness), you may be able to obtain funding through the SBA Microloan Program. Microloans are at most $50,000, and you can use them for all business needs other than debt payments and commercial real estate purchases.

Non-SBA loans and other funding options

Although SBA loans are the best funding option for most direct sales companies, not every business qualifies for them. That’s part of why other funding options exist, though they may have larger payments, shorter terms, and higher rates than their SBA counterparts. They include:

Bank term loans

Use bank term loans if you need funding as quickly as with SBA loans but don’t qualify for the latter. Your loan proceeds can go toward working capital or debt refinancing. Ask your lender about your repayment terms, prepayment penalties (if applicable), rates, and potential loan amounts.

Merchant cash advances

If your direct sales customers can pay you via debit or credit card, you may be eligible for funding via merchant cash advances (MCAs). Through these loans, a card provider will lend you money that you’ll repay in one of two ways. You can either direct a small portion of all card transactions to your loan provider or set up a traditional payment plan in regular installments.

While convenient, MCAs have one major catch: Their APRs are usually extremely high. Learn more via the SmartBiz Loans blog What You Need to Know About an MCA.

Business lines of credit

Through business lines of credit, you obtain funding of an amount proportional to your credit score. However, this amount will usually be less than you could obtain through a bank term loan, though you don’t have to use all your loan proceeds. And you may be wise to use only some of your loan, as you’ll only pay interest on funds you actually use.

You can access your business line of credit as often as you want until you reach your maximum. Additionally, since most business lines of credit are unsecured, they typically don’t have collateral requirements. Learn more about business lines of credit via the SmartBiz Loans blog Small Business Lines of Credit Pros and Cons.

As you might be able to tell, business lines of credit somewhat resemble business credit cards, as both funding options present you with revolving lines of credit. However, you retain your credit cards when you max them out, whereas business lines of credit immediately cease at this point. Additionally, business credit cards sometimes offer spending rewards, which business lines of credit do not.

Why Choose SmartBiz Loans?

Need funding to rebuild your business? Don’t waste time going from bank-to-bank filling out multiple applications. SmartBiz helps you find the best financing for your unique needs whether that’s an SBA loan, Bank Term loan, or other financing.  About 90% of qualified applications we refer to banks are funded and our financial professionals are on hand to answer your questions. Discover if you’re pre-qualified here without impacting your credit scores** and read the SmartBiz 5-star customer service reviews on TrustPilot.

 *The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes only. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.

**We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.

 What you need to know: The information provided through SmartBiz® University and the articles contained therein are for educational purposes only. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.