Whether you’re just starting out or have an established small business, an infusion of low-cost funds is a great way to grow and save money. Here are loan options for small business owners followed by detailed information on each.
- SBA Loans
SBA 7(a) loans
504 loan program
- Non-SBA Bank Term Loans
- Business Lines of Credit
- Merchant Cash Advances
- New Businesses Loan Options
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.
The 7(a) Loan Program
Proceeds form an SBA 7(a) loan can be used for a variety of purposes.
- 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.
Requirements to Apply for an SBA 7(a) Loan
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 to help 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. To help you get organized, the SmartBiz Blog has a checklist to follow: 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. 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.
A 504 SBA loan might be a good fit for small business owners interested in purchasing a commercial real estate property. To find your local CDC, visit the SBA website here.
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 its 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 rates and business owners won’t waste time going from bank to bank.
Bank term loans are 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 bank term loans through its lending 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
Applying is easy through the SmartBiz Loans online application process streamlined for efficiency and speed. Create an account here to determine the best loan product for your needs.
Business Lines of Credit
A business line of credit allows you to borrow funds up to a limit based on your credit, typically smaller than a term loan. You only pay interest on the amount you use, and you can continue borrowing as necessary until you reach the set maximum. These loans are usually unsecured, meaning that you won’t have to provide collateral to qualify. For in-depth information, read this post from the SmartBiz Blog: Small Business Lines of Credit Pros and Cons
Business credit cards are revolving lines of credit. The main distinction is that they don’t terminate once the predetermined limit is reached. They work like personal credit cards, with varying spending rewards and offers depending on the lender. Learn more here: 5 Business Credit Card Myths.
Merchant Cash Advances
A merchant cash advance (MCA) is most often used by small businesses that accept credit and debit card sales. You receive a specific sum in advance that is repaid either by a percent deduction from daily transactions or through daily or weekly payments.
Keep in mind that MCAs often lead to extremely high annual percentage rates. Even the minimum within the range can be several times larger than term loan annual percentage rates and can reach up to well over 300%. For more info, read What You Need to Know About an MCA.
Options for New Businesses
Do you operate a new business? Explore these options if you need funds to grow:
- Friends and family
- Credit cards
- Personal business loans
The Final Word
No matter what type of loan you are considering for your small business, it’s important to have strong credit scores. Banks view borrowers with high scores as less risky and are willing to offer a loan product with low rates and long terms. For all the information you need to know about credit scores and how to build yours, visit the SmartBiz Blog.