What is the easiest business loan to get?
The answer to this question depends on how much you need and how you intend to use the funds. There are many lenders that have minimal qualification requirements for annual revenue, time in business and the personal credit score of the business owner. This is helpful for startups without a financial history that cannot meet the requirement lenders have for more established organizations. Be sure to read our reviews to see which lenders have less-onerous eligibility requirements.
Do startup business loans require personal guarantees?
If the loan you're considering is unsecured (no collateral is required), more often than not, you're going to need to provide a personal guarantee. This is the case for most startup loans because this is how lenders protect themselves if you're unable to repay the loan.
Will lenders look at my personal credit?
If you are starting a new business, there isn't a financial history for your company. Rather than evaluate your business's credit, lenders check your personal credit. This is common, especially if you are a new business owner. Sometimes looking into your personal credit is the only option lenders have.
How important is your credit profile when applying for a small business loan?
Your credit profile has a significant impact on whether you'll be approved for a small business loan. Unless your business has been around long enough to establish solid credit, lenders look at your personal credit profile to assess your creditworthiness. The higher your credit score, the better.
Many lenders also require collateral to underwrite the loan. It could be your home, car or other private property of value. If your business fails to pay back the loan, the lender can come after that collateral.
What credit score do I need to qualify for a small business loan?
The minimum credit score you need to qualify for a loan ranges from 620 to 640 or more. However, the requirements are based on the type of SBA program you're seeking and your lender. For an SBA 7(a) loan or SBA 7(a) express loan, borrowers should have a score of 640 or more. If you're interested in the SBA CAPLines program or an SBA export loan, you should have a credit score of at least 660. SBA CDC/504 loans require a minimum score of 680, and for an SBA microloan, a score of 620 to 640 is preferred.
Online lenders often have more flexible requirements. Some provide loans to businesses with credit scores between 500 and 550. However, if your credit score is that low, you will likely pay higher interest rates.
Can you get a business loan if you have bad credit?
It can be hard, but it's not impossible. There are lenders who don't use your credit score as a determining factor in whether you qualify for a business loan or not. Some weigh your financial history and business success more than your credit score.
If your credit score isn't great, shore up other parts of your business lenders value, such as revenue or sales.
Does applying for a business loan affect your personal credit score?
Often, to be approved for a small business loan, you must personally guarantee the debt, meaning you will pay back the loan yourself if your company doesn't. The lender has every right to go after you individually if the loan is delinquent, and that could hurt your personal credit score. The same applies to a business line of credit. If you personally guarantee any loan and the business is unable to pay it, you are on the hook for it.
What documentation is required to get a business loan?
Among the documents you will need to provide lenders are your annual business revenue and profit, bank statements, personal and business tax returns, a business plan, business licenses and permits, proof of collateral, a balance sheet, a copy of your commercial lease, and any legal contracts and agreements you already have in place.
What is the fastest and easiest way to get a business loan?
The traditional way of borrowing money has long been to tap a local bank or credit union, but this route can take weeks before your business is approved and funded. Online lenders tend to do a better job in this regard, getting loans into business owners' hands in days.
Alternative lenders typically offer several loan options, including working capital loans, merchant cash advances, equipment financing, term loans and invoice factoring. Depending on the type of loan you choose, you could have money in your bank account in less than 24 hours.
Either way you go, you can speed up the entire approval process by having your business documentation ready, including tax forms, bank statements, financials and other documents related to your enterprise.
What assets can be used to secure a business loan?
Lenders vary in the collateral they'll accept, but in general, anything with value can be used. Common types of collateral for business loans are equipment, vehicles, real estate, inventory and accounts receivables.
Some lenders may require you to offer personal collateral not tied to your business. This could include vehicles, real estate and cash in the bank.
What are typical business loan terms?
There are several types of business loans, all with varying terms. Business loan terms can be as short as a few weeks or as long as 25 years.
A traditional bank loan has terms from three to 10 years. Medium-term business loans last one to five years, while short-term business loans are typically three to 18 months in length.
SBA small business loans have terms up to 25 years, but 10-year loans are more common.
What payback terms can you get for your merchant cash advance?
A merchant cash advance gives you quick access to the money from your credit card sales. However, it's a costly and risky way to access cash, with complicated terms.
With a merchant cash advance, you get an upfront payout and pay it back with a percentage of your future credit card and debit card sales, or you can make daily or weekly fixed payments. Either way, you make payments plus fees and interest until you've paid back the advance. The lender assesses how likely and able you are to pay back the advance, which impacts the fees you'll pay; your riskiness to the lender is known as the factor rate. The higher your factor rate (i.e., the greater risk the lender determines you to be), the more fees you're on the hook for.
Where can you find an SBA loan application?
There are a couple of ways to find an SBA loan application. You can DIY the entire process, starting out by searching for lenders who are approved by the SBA. Armed with that list, you can comparison shop and then apply directly on the lenders' websites or through their mobile apps.
Another option is to use the SBA's Lender Match tool, which connects borrowers with SBA lenders. You answer a series of questions, which the SBA says takes five minutes, and two days later you'll receive an email with offers from lenders. It falls on you to pick the right lender for you, but once you've settled on your lender, you apply directly with them. (The SBA's Lender Match tool is not for its disaster relief loans and assistance.)
What is a business installment loan, and why would I need one?
An installment loan is financing that you use to pay for equipment or property over a set period of time. Unlike a credit card where you have a revolving line of credit, your payments are fixed over the terms of the loan. Once you pay it off, the debt is settled.
Interest rates on installment loans are typically lower than credit cards' rates, but there's more risk. If you can't pay back the loan, the lender claims your collateral.
Installment loans are common for purchasing property, expensive equipment, business vehicles or other high-priced items. You can also use an installment loan for your startup funding. If you want it for this purpose, you'll need good credit, collateral, a sound business plan, and a willingness to offer up more guarantees.
What is a business line of credit, and how does it work?
A business line of credit is a revolving loan that business owners tap as they need funds to grow and/or fill cash-flow gaps.
Instead of getting a lump sum and paying interest on the full amount, you pay interest on the money you draw from the line of credit. Typically, a line of credit ranges from $1,000 to $250,000, though some lenders may issue higher amounts. Most lines of credit have a variable interest rate, which means the amount you pay changes depending on the prevailing interest rate.
A business line of credit can either be secured or unsecured. With a secured line of credit, you need to provide collateral – which is usually real estate or a valuable piece of equipment. If you don't pay back the money from the line of credit, the bank or lender can seize your collateral.
With an unsecured line of credit, you don't have to provide collateral, but you may need to sign a personal guaranty. [Read related article: Should You Get an Unsecured Business Loan for Your Small Business?]
What is the Paycheck Protection Program Flexibility Act?
The Paycheck Protection Program (PPP) is part of the CARES Act, which received more than $2 trillion in aid to businesses and individuals in March 2020 to weather the pandemic. The PPP provided small business owners with forgivable loans on the condition that they used the money to keep workers on the payroll. The program proved extremely popular, and the money earmarked for loans quickly ran out.
Under the new stimulus approved in late December, the U.S. government is providing $284 billion in new PPP loans to small business owners. Small business owners who received a PPP loan in the first round but have seen sales decline 25% or more can apply for the new PPP loan.
How can you use your small business loan?
Business loans can be used for multiple purposes. Some business owners take out a line of credit to expand their business, to manage cash flow or just for peace of mind. Term and installment loans can be used to cover an expensive piece of equipment, for inventory or for other business purposes. Equipment loans are typically used for specific equipment purchases, similar to how a real estate loan can only be used for properties.
Depending on the type of small business loan, there could be restrictions on how you can use the proceeds. For example, some banks won't let you use term loan funds for speculative investments and other risky endeavors.
How is the CARES Act supporting small businesses?
In the early days of the COVID-19 pandemic, the federal government passed the CARES Act, a $2 trillion stimulus package aimed at lifting up struggling individuals and small businesses. Two programs born out of the CARES Act designed specifically for small businesses are the Paycheck Protection Program and the Small Business Administration's COVID-19 Economic Injury Disaster Loans. The PPP, which has been funded twice, provides forgivable loans to small business owners who keep employees on the payroll, while the EIDLs are low-interest loans that business owners pay back over 30 years.