The ability to secure low cost funds is an advantage established businesses have over younger enterprises. New business owners often have to rely on high cost loans, borrowing from friends and family or giving equity to investors. If you’re running an established business, here are the best financing options.
Low Cost Financing Options for Existing Businesses
In the world of business lending, 2+ years in business is considered “established”. Existing businesses with a proven track record are seen as a lower risk to lenders.
Small Business Administration Loans
If you’ve been in business 2+ years, have a healthy credit score and strong cash flow, the SBA’s low-cost loan programs can be your best option. SBA loans are known as the “gold standard” with low rates, long terms and very low monthly payments.
There are three types of SBA loan programs available for small business owners. The 7(a) loan program, the CDC/504 loan program and the microloan program are options available for existing businesses. The SBA doesn’t make the loans; they guarantee a portion of the funds, making SBA loans more attractive to lenders.
The 7(a) Loan Program
SBA 7(a) loans can help a business grow and save money. Here are ways you can use funds to grow your business and save.
- Working Capital – Purchase equipment, increase inventory, add marketing programs, use for operating expenses or to hire additional staff.
- Debt Consolidation Loans – Refinance merchant cash advances, short-term business loans, high interest business loans, daily or weekly payment loans or business credit cards.
- Commercial Real Estate – Refinance an existing commercial real estate mortgage, buy an office building or other owner-occupied commercial space and avoid balloon payments.
For in-depth information about the popular SBA 7(a) loan program, review our comprehensive article: What is an SBA Loan?
Advantages of SBA 7(a) Loans
SBA 7(a) loans have several advantages compared to other options including:
- Low interest rates
- Long terms
- Very low monthly payments
- Available for many uses
- Can help build business credit
- No prepayment penalty
- Available nationwide
Read why SBA loans are so popular on the SmartBiz website here.
Requirements to Apply for an SBA 7(a) Loan
Lenders and loan programs have unique eligibility requirements for an SBA loan. For example, some lenders may require a business plan while others do not.
Requirements for an SBA loan facilitated by SmartBiz include:
- Time in business must be above 2 years
- Business owner’s personal credit score must be above 650
- The business must be U.S. based and owned by US citizen or Lawful Permanent Resident who is at least 21-years old
- No outstanding tax liens
- No bankruptcies or foreclosures in the past 3 years
- No recent charge-offs or settlements
- Current on government-related loans
How to Apply for an SBA 7(a) Loan
Step 1: Check your eligibility. Before you even begin your application, make sure your business is eligible. Visit the SBA website for a list of eligible businesses. You must also meet the requirements listed above.
To determine if your business is SBA loan ready, sign up for SmartBiz Advisor. SmartBiz Advisor is a free tool that helps you learn how banks typically evaluate your business. You’ll also get recommendations on how to increase your likelihood of approval when applying low-cost funding.
Step 2: Review requirements and gather paperwork. The more organized you are, the swifter the application process will move. For a list of documents required for an SBA loan, visit the SmartBiz Blog. How to Get an SBA Loan: Documents You Need
Step 3: Choose a lender. Although SmartBiz Loans is not a lender, we work with multiple banks to match you with the lender most likely to fund. You won’t waste time going from bank to bank. This video has step-by-step information about how to get an SBA loan:
The SBA’s 504 Loan Program
This program was created to give small businesses low cost funds for expansion or modernization. Typically, up to 50% of project costs are funded by a lender backed by the SBA. CDCs (Community Development Corporations) usually fund up to 40% of the project cost. The final 10% is a cash down payment expected to come from the small business owner.
The SBA’s Microloan Program
The Microloan Program is for very small businesses and provides loans of up to $50,000. Requirements to qualify for a microloan can vary depending on the lender. Proceeds from an SBA Microloan can be used for most business expenses but not for paying down debt or real estate purchases.
Non-SBA Bank Loans
Low-cost SBA loans have some of the lowest interest rates and lowest monthly payments available. However, not every business owner initially qualifies and some businesses need funds more quickly than the SBA application process can provide.
SmartBiz Loans worked with our bank partners to offer clients the next best loan option – a bank term loan. Because SmartBiz has multiple banks on its platform, customers are matched with the bank most likely to fund. This drives up approval ratings and business owners won’t waste time going from bank to bank.
Non-SBA loans are term loans meant to be repaid in a shorter amount of time than the 10-year term of a typical SBA loan. This type of loan can be a great way to get the funds you need to grow or maintain your business until you are ready for an SBA loan.
SmartBiz currently offers non-SBA loans through its bank partners. Here are the details:
- $30,000 to $200,000 loan amounts
- 2 – 5 year repayment terms
- Fixed interest rate from 7.99% to 24.99%*
- Monthly repayments
- No pre-payment penalties
- Funds can be used for working capital, debt refinance and new equipment purchase
Next Steps for Existing Businesses
Ready to apply for an SBA loan? Discover if you’re prequalified in minutes without impacting your credit score here.
If you’re not quite ready for an SBA loan, our loan experts will help you explore other options.
* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. 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.