What business loans are the easiest to be approved for?
The answer to this question depends on how much you need and how you intend to use the funds. Many lenders have minimum qualification requirements for annual revenue, time in business and the business owner's personal credit score. This is helpful for startups without a financial history that cannot meet the requirements lenders have for more established organizations. Be sure to read our reviews to see which lenders have less-onerous eligibility requirements.
What are the types of SBA loans?
There are several types of SBA loans available for business owners. Three of the most common ones are:
SBA 7(a). This loan is the most popular type of SBA loan. It has a loan limit of $5 million and can be used to obtain working capital, buy commercial real estate and repay debts. The SBA 7(a) loan is ideal for small to medium-sized businesses. It has low interest rates and long repayment terms.
SBA 504. This loan is a combination of two loans, one from a traditional lender and the other from a Certified Development Company. It has no funding limit, and an owner can use it to purchase real estate for their business or pay for construction or renovations.
Microloans. Microloans are distributed through nonprofit intermediaries without the SBA guarantee behind 7(a) loans. SBA microloans have a cap of $50,000, making them ideal for very small businesses whose owners need to offset startup or early expansion costs.
Are SBA loans fixed-rate or variable?
The interest rates on SBA 7(a) can be fixed or vary with time. SBA 504 loans and microloans are fixed-rate.
Do you need to provide a personal guarantee if you're a startup?
If the loan you're considering is unsecured (no collateral is required), more often than not, you'll 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 a startup, 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 for new business owners. Sometimes, looking at your personal credit is the only option lenders have.
How important is your credit score when you're applying for a small business loan?
Your credit profile has a significant impact on whether you'll be approved for a small business loan or not. Unless your business has been around long enough to establish a history of good 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 is necessary to qualify for a small business loan?
The minimum credit score you need to qualify for a business loan ranges from 500 to 640 or more. However, the requirements are based on the type of loan you're seeking and your lender. For an SBA 7(a) loan or SBA Express loan, borrowers need a score of 640 or more. If you're interested in the SBA CAPLines program or an SBA export loan, you need 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 those who have credit scores between 500 and 550. However, if your credit score is that low, you will likely pay higher interest rates.
Can borrowers with bad credit get approved for a business loan?
It can be hard, but it's not impossible. Some lenders 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 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 repay it, you are on the hook for it.
Is there specific documentation required to get approved for a small business loan?
Among the documents you'll need to provide lenders with 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 been to apply at 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 or hours.
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 want, you could have money in your bank account in less than 24 hours.
Whichever option you go with ‒ a traditional lender or an alternative lender ‒ you can speed the approval process by having your business documentation ready, including tax forms, bank statements, financials and other documents related to your enterprise.
What are some assets business owners can use as collateral for a loan?
Lenders vary about the collateral they'll accept, but in general, anything valuable 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 a 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 I apply for an SBA loan?
You can DIY by searching for lenders who are approved by the SBA. Armed with that list, you can comparison shop and apply directly on the lenders' websites or through their mobile apps.
Another, easier, 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 is up to you to pick the lender, but once you've settled on one, you apply directly with them. (The SBA's Lender Match tool is not for its disaster relief loans and assistance.)
Can you still get a COVID-19 EIDL loan through the SBA?
The pandemic EIDL loans expired at the end of 2021. While small business owners can no longer apply, they can request an appeal or reconsideration if they were turned down. The SBA is also accepting applications for loan increases.
What loan can you get through the SBA now that the COVID-19 SBA loan program is over?
You can still get a Economic Injury Disaster Loan if your business was impacted by a fire, hurricane, or other natural disaster.
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 term of the loan. Once you pay it off, the debt is settled. Interest rates on installment loans are typically lower than credit card interest 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 funding your startup. If you want it for this purpose, you'll need good credit, collateral, a sound business plan and a willingness to sign a personal guarantee.
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 be secured or unsecured. With a secured line of credit, you need to provide collateral.
With an unsecured line of credit, you don't have to provide collateral, but you may need to sign a personal guarantee. [Read related article: Should You Get an Unsecured Business Loan for Your Small Business?]
Which bank is best for small business loans?
For small business owners with a strong credit score, a well-established and growing business, and valuable collateral, a bank loan is often the best option. Interest rates tend to be lower with a bank. Sure, it may take longer to get the cash, but it's cheaper than using an alternative lender. If you are applying through a bank, the best first place to try is your local bank. They already know you and your business and will be more inclined to offer favorable terms to an existing customer than a stranger.
Online lenders vs. traditional banks: Which one is better?
We recommend that you assess how much money you need to borrow and for how long. You don't want to take out a long-term loan for a short-term cash-flow problem. Nor do you want to wait weeks for funding that you needed yesterday. If fast funding is your priority, an online lender is the better option. The same goes for your credit profile. If you have less-than-perfect credit, you'll do better with an online lender versus a bank. If you care about the cost of borrowing above all other considerations and are in good financial standing, choose a bank.