Compare Types of Small Business Loans Financing Options
Type of Small Business Loan | Good For | Estimated APR | Required Credit Score |
|---|---|---|---|
SBA Loans | Low-interest working capital; refinancing debt, equipment | 1-15% | 155 FICO SBSS *some lenders may require higher |
Traditional Bank Loans | Versatile loans for a variety of purposes | 4-13% | 680 FICO |
Merchant Cash Advance | Quick access to capital if you don’t have great credit | 10-350% | 550 FICO *sometimes no score is required |
Business Lines of Credit | Access to funds when you need them | 10-90% | 500 FICO |
Microloans | Businesses with thin credit profiles looking for small loan amounts | 12-18% | Varies |
Cash Flow Loans | Quick access to cash without great credit | 11.0-90% | 600 FICO |
Alternative Online Loans | Quick access to cash without great credit | 11.0-90% | 600 FICO |
Business Credit Cards | Fast turnaround time with less required documentation | 7-30% | 600 FICO |
Equity Crowdfunding | Capital without having to repay; experienced investors can act as mentors | n/a; investors get equity | n/a |
Reward Crowdfunding | Testing out your idea; capital you don’t have to repay | Crowdfunding platform: 0-5% Payment processing: 3%+$.30 per transaction | n/a |
Equipment Financing | Capital to buy equipment that doesn’t require asset (other then equipment) | 15-25% | 600 FICO |
Invoice Financing | Leveraging future accounts receivable | 15-25% | n/a |
Trade Credit | Building credit | 5-15% | May or may not be applicable |
Types of Financing Options for Small Businesses
Small Business Administration (SBA) Loan
SBA loans are available in amounts from $50,000 – $5 million, you’ll get lower rates and favorable repayment terms. These programs primarily offer business term loans, though there are some business lines of credit available and some SBA loans may be used for refinancing debt. The loan process can take weeks or months, depending on the type of SBA loan you are trying to obtain. Only SBA Disaster Loans are made by the SBA. All others are made by participating lenders.
Traditional Bank Loan
Get a term loan or business line of credit from a bank you already do business with (or a new one) and pay some of the lowest rats of all the options—if you meet the often rigid criteria. Loan amounts vary, and repayment terms range from one to twenty years. Get an answer in less than four months with approved personal or business credit.
Microloan
These lenders don’t consider your credit to be as crucial as others, but your credit profile still matters. These lenders are also more inclined to work with younger businesses with loan amounts much smaller (up to $50,000), hence the “micro” name. Get an answer within three months for these loans with rates that are comparable to the better credit cards.
Non-Bank Online Loan
Because of the quick response to a loan application and the speed with which they can make funds available, online lenders are the first choice for many small businesses today. If you’re willing to pay up a higher APR and pay your debt in less than five years, you could possibly get a loan for between $25,000 – $500,000. Credit may still count, but revenues are often more important. Many lenders can approve your loan the same day and have funds available in your account within a day or two.
Business/Merchant Cash Advance
Post PPP, a business cash advance will likely be one of the only available financing options for many businesses for the next several months. Available amounts are based upon revenues and can range from $5000 – $250,000 or more. Even those with less-than-perfect credit can get approval, provided they have the transactions to justify the advance, and the turnaround time is often within 24 hours.
Cash Flow Loan
As the name implies, cash flow loans are very focused on your cash flow. Although your credit profile will be part of the equation, these lenders want to confirm you have the cash flow you’ll need to service debt. Get approval within minutes from some lenders for amounts of up to $100,000. Be prepared to pay a minimum of 25% APR and up to 90% APR or more.
Business Credit Cards
Business credit cards are one of the best ways for a younger business to access borrower capital (and are a great tool for mature businesses as well). Pay industry-standard rates of up to 25% for business credit cards that offer between $1000 – $25,000. These make good short-term funding solutions, and although your credit profile is a major approval factor, it is often easier to qualify for a business credit card than a term loan or line of credit. Find out if you’re qualified within three weeks of applying.
Lines of Credit
One final option for an existing business is a line of credit, which can generally be borrowed against again and again. This is traditionally a popular source of borrowed capital for many business owners, but depending on the lender can be more difficult to qualify for. Credit profile and revenues are often major factors for these loans, which range from $1,000 – $100,000 for qualified borrowers.