The Best Business Loans and Financing Options for 2018
Funding is a necessary aspect of any small business venture. Whether you're expanding your business, investing in marketing or advertising, or managing cash flow, it's hard to grow without the right kind of financing. Luckily, there are several different types of financing options for small business owners. Traditional banks offer long-term loans for major purchases, SBA partners can provide small business-specific loans, and alternative lenders provide creative options like invoice financing and lines of credit. Banks and alternative lenders can generally meet your funding needs if your business is financially stable and relatively healthy.
Many lenders provide very different offerings, and rates and terms vary widely depending on what your business needs. Regardless of what you need the funding for, it's important to partner with a company that has a proven track record as a reliable lender. It's also important to assess your own financial stability before taking on debt. For businesses, finding the right kind of funding means looking into all your options.
Balboa Capital provides a wide range of small business loans, including term loans, equipment leasing, vendor financing, franchise financing and business cash advances. Both its term loans and business cash advances are ideal for small businesses. Business owners interested in term loans can get up to $250,000 on terms of three to 24 months. It has a simple online application process.
Crest Capital provides equipment financing of up to $500,000 for small businesses. The company has been lending to small businesses since the late '80s and has a reliable online reputation. Crest can provide financing for equipment you've already selected, or it can partner you with one of its vendors so you can get the equipment you need. It also has relaxed qualifications and attractive terms.
Noble Funding is an alternative lender and broker organization – it provides some loans and arranges loans with other industry leaders. It can arrange two invoice financing options: invoice factoring and A/R lines of credit. The company will assess your business's financial situation and then recommend which type of financing is ideal. It has a favorable fee and can pair you with a lender that's ideal for your business. In addition to invoice financing, Noble Funding can arrange various other types of loans, like term loans, cash advances and unsecure business loans.
RapidAdvance can provide merchant cash advances on up to 250 percent of your company's monthly credit card sales. It provides one of the most compelling merchant cash advance offerings of any company we reviewed. It has relaxed terms, granting loans to companies that have been established for two years and have at least $5,000 in credit card sales each month.
Fora Financial is a solid funding option for small business owners. Interested business owners can take out term loans and merchant cash advances. What separates Fora from the crowd, however, is the fixed interest model. Business owners pay a set total amount based on their financial stability as opposed to a fluctuating interest rate. It's also possible to pay off Fora's loan at any time with no prepayment penalties.
SBG Funding offers working capital loans with simple qualifications and appealing rates. It provides loans ranging from six months to five years, and it has a solid online reputation. Its standout aspect is its credit requirements. SBG says it grants loans to applicants with credit scores as low as 500. The company is more concerned with your monthly income and profitability than your credit. This makes it an ideal lender for business owners with rocky credit history.
There are a few different kinds of alternative lenders that provide small businesses with the funding for growth. Each has varying requirements and qualifications to get a loan. While traditional banks can be great funding resources, they will likely be the hardest to get financing from. They have strict underwriting processes and require a lot of financial documentation for a loan. You'll also have to put up collateral with loans from traditional banks. Wells Fargo is the only traditional lender we looked at with unsecured loans. In May 2018, big banks only approved roughly 25 percent of the small business loan applications they received, according to Biz2Credit.
In the same month, Biz2Credit found that alternative lenders approved around 56 percent of their applicants. Alternative lenders provide a wider range of loans and qualifications, like unsecure loans and short-term funding. Interest rates with these lenders will likely be higher than with traditional banks, but if your business can't meet the standards of a traditional lender, alternative lenders can be a great option. Oftentimes, they provide instant quotes and prequalified information online without a hard credit inquiry. This is a good way to see what kind of loan you would qualify for without committing to a loan.
In addition to traditional banks and alternative lenders, small businesses can get funding through the Small Business Administration. The SBA has a lending program that provides various types of loans for small businesses. These loans are financed by banks, like Chase or TD Bank, and the SBA incentivizes these institutions to lend to you by guaranteeing a certain percentage of the loan. As with traditional banks, getting an SBA loan may be a longer, more difficult process than going with an alternative lender, but overall, it's a great way to get funding from a reliable source.
Regardless of the lender, there are a few types of small business loans you should be aware of. Term loans are more traditional loans for small businesses. Revolving lines of credit generally have no defined terms and can be drawn on, paid off and drawn on again. Working capital loans are generally short-term loans to help manage cash flow. Invoice financing is a way to get an advance on outstanding invoices. Lenders will generally provide factoring services or provide a line of credit backed by your accounts receivable for a loan. Merchant cash advances are cash advances that are paid back with daily credit card sales; these loans are also ideal for quick funding needs. Equipment financing are loans tied specifically to vehicle, equipment and software purchases. Knowing about these types of loans and what your business needs can help you make the right decision when it comes time to partner with a company.
Rates and Terms
Small business loans include some form of interest, which can be either a fixed or fluctuating rate depending on your agreement. Many alternative lenders provide a fixed payback amount at the beginning of the loan. This means you make weekly or monthly fixed payments toward both the interest and the principal.
You can also sign up for loans with interest rates. Sometimes, rates are adjustable, meaning they can fluctuate over the time of the loan. Depending on your agreement, lenders often charge either simple or annual percentage rates. While a simple interest rate would be the percentage of interest paid off on the total loan, an APR is an annualized interest rate that accounts for fees as well. The total cost to you varies based on your agreement and the type of interest rate, so it's important to analyze how much loan will cost you in total (not just per month) before you sign.
In addition to a few different kinds of interest rates, companies may charge various fees, such as origination or returned item fees. As with any business agreement, make sure you read the fine print and understand the fees you're being charged.
Some lenders also require collateral, which can come in many forms. Oftentimes, banks and alternative lenders require business or personal assets to back a loan. These assets can be liquidated in the event of a default. When you provide collateral, you're entering into a secured loan. Unsecured loans have no collateral, but they sometimes require a personal guarantee. The personal guarantee is a legally binding statement that says you personally will pay back the loan if your business defaults on its payments.
To find our best picks, we started by analyzing more than 130 lenders. We compiled this initial list by finding industry leaders, considering vendor list requests, researching other review websites and reviewing former best picks. We started by considering each company's loans, website experience and online reputation. We also looked at whether the lender is geared toward small businesses. From this stage, we narrowed our list down to roughly 30 lenders.
We then took a more in-depth look at each lender, analyzing loan amounts, specific types of loan options, online transparency and deposit time. This brought our list down to about 18 companies, each of which earned a review on Business.com. We looked at each company's loan process, requirements, individual rates, term lengths and customer reviews. We called some company's sales teams to find out more about their loans.
After this stage, we compiled potential best picks – about six companies – and took an even deeper dive into each company's service. We posed as small business owners and called each company's sales teams to test its customer service and learn more about its loans. We verified online information and asked for other information that wasn't available online. We looked at additional fees, repayment structure, other considerations and requirements for a loan, and restricted industries. Our best picks withstood each round of research and held up as the best lenders in the industry.
Here are all our reviews of business loan and financing providers. These services include small business loans, merchant cash advances, equipment financing and alternative business loans.
How to Qualify for the Right Loan for Your Business
Qualifying for a loan basically means proving to the lender that, based on your revenue and credit, your business is healthy enough to pay back the money you're asking for with interest. Individual requirements and qualifications depend largely on what type of lender you work with. Traditional banks, for example, have higher requirements and standards than alternative lenders. However, there are a few basic principles to keep in mind when looking for a loan from any source. Lenders generally have benchmarks for credit scores and revenue. This verifies that you have a history of paying back loans and currently have a business that can support monthly payments. In general, the less stable your business, the higher the interest rate.
Some alternative lenders will give you a loan without checking your credit score. Instead, they want to have a detailed idea of your cash flow so they know you can pay your loan back based on how much money you take in each month. Others give credit scores much more weight. While revenue benchmarks vary widely among lenders, credit scores are easier to quantify. You need a credit score of at least 500 to secure a loan from some companies. In general, the higher the credit score and the better the revenue, the lower the interest rates.
Documentation and Financial Statement Preparation
The required financial documentation also depends on what type of lender you're dealing with. Almost all lenders want to at least look at your recent bank statements, so make sure you have the last six months of statements at the ready. Some lenders require tax returns or business plans. Financial documentation required for a loan varies so widely that it's a good idea to ask your loan specialist upfront – especially if you're looking for quick funding. They'll be able to tell you exactly what the lender requires based on your situation.
Common Business Loan and Financing Options Questions & Answers
Have a business loan or financing option question of your own?
Hi Renata - Wais and George are 100% correct in asking their questions. What business are you in and what do you need the money for? The banking world is a different place than it was even 10 years ago especially for small businesses looking to borrow. Collateral has to be stellar or replaced by some really spectacular business history. If you repost some details I am sure there are plenty of us who can give you some good or even great advice - but I'm hesitant to give more here without...
First, you'll need a business or strategic plan that describes how much and how you will get revenue that merits 3rd party funding via a loan or cash infusion (also a loan of sorts). Alternatively, your type of business might resonate with a crowd-funding platform (Kickstarter, etc.), BUT you'll still need a strategic plan that answers the same questions in order to optimize your likelihood for success.
Man, the issue is, a lot of people have billion dollar ideas. The problem is getting someone to believe in you.
Networking is imperative and time is an issue. The longer you wait, the quicker it will be for someone else to create your idea.
With no avenues for getting funding, you need to use networking to find someone that may know someone.
-LinkedIn may be an avenue.
-Small Business Association meetings.
-Check with your banker, they may not be interested,...
I can't speak for all investors. I can speak for how I look at business plans in the tech industry. The answer I'd give is somewhat in-between simplified and detailed. Specifically,
The business plan should convey that you know what value you will be creating...and have a solid idea of how to navigate to product-market fit and then tackle the challenges of scaling the business. It's much less about the detail: since no forecast will be accurate, it's not worth digging down to three...
What counts the most is "confidence" - confidence that there's a chance to make a return on the investment. That's simple, but then things get fuzzy rapidly. First, there's "return." Most investors want a financial return, especially for larger investments, but some are looking more broadly (i.e., "to change the world"). You need to tailor your pitch to this. Further, there is a time value to returns and you need to fit the investor's timeframe. (For many VCs, the fund expires at a...
Ask three questions:
1 What is my most important business objective(s) and timeline and which relationship type best fits that?
2 What kind of personal relationship and responsibility am I most desirous and comfortable with?
3 What are the consequences and process of getting out of a commitment that doesn't work? (buy back, buy-sell, repayment)
Partners, angels, capital investors have some overlap but are very different business arrangements and usually better fit to those three...