A business loan is a debt that requires repayment with added interest. Its qualification requirements vary by lender. Some lenders have lower credit score requirements and allow startups to qualify, while others require more time in business and higher revenue.
It’s important to understand which financing options are best for your business. These include term loans, business lines of credit, and invoice factoring.
Easy to qualify for
If your business needs additional funding, you may consider applying for a business loan. These loans usually have a fixed amount and repayment terms that can range from a few months to several years. However, the underwriting process can take longer than with other financing options, and you’ll have to meet certain requirements. These include your business’s credit score, cash flow, and industry.
If you have bad credit, you can still qualify for a business loan. However, your lender may require you to offer collateral or sign a personal guarantee. You’ll also likely pay higher interest rates and fees than a borrower with good credit.
If you don’t meet the requirements for a traditional business loan, you can still obtain financing from online servicers or nonbank finance companies. These lenders typically have flexible eligibility requirements, which could work in your favor if you’re struggling to meet the requirements of more traditional financiers. These funding options are often easier to get than traditional business loans, but they come with higher interest rates and repayment fees.
Easy to apply for
As a business owner, you can use a business loan to improve cash flow or invest in new equipment. You can also fund employee incentives like company retreats, which can help you motivate and retain employees. However, paying off a business loan is a significant financial commitment, and you should carefully consider whether it is right for your business.
Business loan requirements vary by lender, but most will want to see your personal credit scores and the financial history of your business. They may also require you to provide financial statements, including balance sheets, profit and loss statements, and bank statements. You will also need to submit legal documents proving your ownership status and business registration.
Some lenders may require collateral, which is a physical object of value that the lender can repossess if you default on your payments. Others may charge higher interest rates and fees for riskier borrowers. To lower your risk, you should work to bolster your personal and business credit scores and make sure your business has enough income to cover ongoing expenses and future loan payments.
Easy to fund
When comparing business loan options, it’s important to consider fees and repayment terms. Some lenders charge upfront fees, which can add up to a significant amount of money. Others may require collateral, which can affect a borrower’s credit score. If you’re concerned about financing fees, consult with a financial adviser to help you make the right decision for your business.
Most lenders will request documentation to verify your personal information, including income, assets and other debts. They’ll also ask for a business plan that outlines how you will use the funding. They may also request other types of collateral, such as a pledge of real estate or equipment.
Some lenders offer fast turnaround times, including same-day funding for lines of credit. However, speed should never be your main consideration. It’s more important to choose a lender that can meet your needs and provides you with the best possible rates. You can also consult with a business advisor to learn more about your options.
Easy to repay
While business loan repayments may feel like a big commitment, they can be relatively affordable. Consistently making payments can help your company establish a history of good financial health, and make it easier to secure new funding in the future.
Before lending you money, a lender will review your latest financial accounts. These include profit and loss (P&L) statements, balance sheets, bank statements, cash flow projections, and other detailed information. Lenders will also want to know how you plan to use the funds.
Often, lenders will request personal financial guarantees from a small business owner. This is especially important for new businesses that don’t have a long credit history.
Generally, business loans are based on an interest rate and a term of months or years. Other types of financing, such as a merchant cash advance or invoice financing, are based on an actual sum of money. These types of loans typically have lower rates and shorter terms.