Money is the lifeblood of every small business, so having access to funding when you need it can make or break your situation. Business loans come in many shapes and sizes, though, so it’s not always easy to identify the right option for you. Figuring out precisely which loan—and which lender—best suits the needs of your business is vital if you want to stay competitive.
With that in mind, let’s review some of best options out there for online business loans.
1. The Small Business Administration (SBA) Loan
Small business owners who need an infusion of capital—but might have trouble qualifying for a conventional loan because of a short time in business—are excellent candidates for an SBA loan. These loans are government-backed and offer extremely competitive interest rates, although they do require high personal credit scores. The SBA offers a variety of loans for different purposes and borrowers, so the odds are good that you’ll find a loan product that matches your needs.
The SBA also offers borrowers significant flexibility. Terms last between 5 and 25 years, interest rates range from 6-13%, and loans can be processed in as little as 30 days. Small business loan amounts generally fall between $5,000 and $5 million.
2. Conventional Term Business Loan
Business owners who need money to purchase equipment or property, or just extra working capital, have long looked for traditional term loans. While these loans are popular options, rates and terms vary considerably between borrowers. Many conventional bank lenders have strict standards, so borrowers with credit issues seeking traditional term financing might have to deal with higher rates.
Traditional loans are generally shorter in term than SBA loans, from 1 to 5 years. Interest rates vary widely—typically 7% to 30%, depending on borrower qualifications. Term loans offer the advantage of speed, with some loans being processed in as little as 2 days.
3. Short-term Business Loan
Sometimes business owners have immediate capital needs. Whether it’s a cash flow shortage, unexpected financial setbacks, a seasonal spike in business or a timely investment opportunity, shorter-term financing is designed to help borrowers meet these challenges.
While these loans have much in common with traditional term lending, the maximum loan amounts tend to be smaller (usually around $2,500 to $250,000), while the term is shorter (3 to 18 months). These loans can be processed in as quickly as two days, and interest rates typically start around 14%.
4. Business Lines of Credit
Similar in structure to a credit card, a business line of credit gives borrowers access to a preset amount of money that can be used, as needed, for business purposes. This setup gives you excellent flexibility—borrowers don’t start accruing interest or make payments until the line of credit is used. Like a credit card, these loans are usually revolving, meaning that borrowers don’t have to reapply after the full loan maximum is reached. If you repay the full amount, the line of credit gets reset to its original value.
Small business borrowers can typically take out a line of credit worth up to $1 million, and terms are usually 1 to 5 years. Interest rates vary from 7% to 25%, depending on qualifications, and these loans can be processed in as little as two days.
5. Merchant Cash Advance
Borrowers who need their financing as quickly as possible might want to consider a merchant cash advance. These loans can be approved and paid out in as little as one day—there’s very little paperwork to fill out. Paying these loans back is also simple, since the payments get automatically deducted from a merchant’s account.
These loans are often made according to the total monthly credit card transaction volume of a borrowing business. Typically, businesses can borrow up to 125% of their total transaction volume. While these loans are relatively easy to qualify for and a snap to repay, interest rates tend to be sky-high.
6. Equipment Financing
These loans let small companies borrow the money they need to pay for standard business equipment like computers, equipment, and machinery. Instead of paying the sometimes burdensome full cost of these items up front, business owners instead make monthly payments. Because the equipment acts as collateral, it can be easier to qualify for equipment financing when compared to conventional, unsecured lending.
These loans can be processed in as little as two days, with loan terms that cover the expected lifespan of the equipment. Interest rates vary according to borrower qualifications.
7. Invoice Financing
Anyone who’s ever owned or operated a business is familiar with the challenges of invoice payment. Some customers pay slowly and some, unfortunately, don’t pay at all. This has the unfortunate effect of tying up that cash flow a business owner could otherwise use for a whole array of purposes.
Invoice financing lets business owners sell these unpaid invoices in exchange for ready cash. Generally, lenders will offer loans equal to 50-90% of a borrower’s outstanding invoices, with the rest being held in reserve. When the invoice gets paid, the remaining money is forwarded to the borrower, minus the lender’s fees. While these loans can be expensive, they can often be processed in 24 hours.
Choosing the right small business loan is an important decision. By thoroughly exploring the options listed above, you can make the best choice for your company’s needs.
from Fundera Ledger https://www.fundera.com/blog/2016/04/13/online-business-loans/