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Starting an LLC is an exciting venture, but it often requires one essential element: capital. While some entrepreneurs use personal savings to bootstrap their ventures, many turn to small business loans to fund their operations and accelerate growth.
In this article, Webinarcare Editorial Team will explore the Best Small Business Loans, exploring their features, benefits, and requirements to help entrepreneurs make informed decisions when seeking financial assistance. To know more about it, don’t hesitate to sum this up! Let’s go and do business!
On this page, you’ll learn about the following:
What is a Small Business Loan?
A small business loan is a financial tool designed to provide capital to entrepreneurs and small business owners. It serves as a lifeline to startups and existing businesses seeking funds for various purposes, such as expansion, purchasing inventory or equipment, covering operational expenses, or investing in marketing initiatives. This type of loan is usually obtained from banks, credit unions, online lenders, or government-backed programs like the Small Business Administration (SBA).
When discussing small business loans, it is important to note that they are not solely available to sole proprietorship. Limited Liability Companies (LLCs) can also qualify for small business loans. LLCs are a popular business structure that offers personal liability protection to their owners, also known as members. Since they are considered separate legal entities from their owners, Limited Liability Companies (LLCs) can apply for loans in their own name, using the business’s credit history and assets as collateral. This provides members an added layer of protection, allowing them to separate their personal finances from business liabilities while still accessing the necessary funds to fuel growth and achieve their entrepreneurial goals.
Applying for a loan is a great option to start a business. However, before you apply for it, you must know how to incorporate an LLC. We reviewed some of the Best LLC Services, including top features and prices for you to check out.
Types of Small Business Loans
Loan terms, interest rates, and qualifications vary by lender, but here are the features you can expect to find with the different types of small-business loans.
Traditional Bank Loans
One of the most common funding sources for small businesses is traditional bank loans. Banks and credit unions offer small business loans with competitive interest rates and terms. These loans can be used for various purposes, such as purchasing equipment, inventory, real estate, or working capital needs.
- Loan amounts: $10,000 to $1 million.
- Approximate APR range: 4.90% to 9.83%.
- Ideal for: Working money and business expansion.
Small Business Administration (SBA) Loans
The U.S. Small Business Administration (SBA) is a federal agency that provides support and resources to small businesses. One of the SBA’s primary functions is guaranteeing loans from banks and other lending institutions to small businesses. This guarantee reduces the risk for lenders and encourages them to provide loans to small businesses that might not otherwise qualify for financing.
Many participating lenders offer SBA loans, including banks, credit unions, and other financial organizations. SBA loans are available in various formats, including the well-known 7(a) loan program, which can be used for several things, including purchasing goods, real estate, or equipment.
- Loan amounts: $30,000 to $5 million.
- Approximate APR range: 10.25% to 12.75%.
- Ideal for: Significant one-time and long-term investments, buying property or equipment, taking over an existing company, and debt restructuring.
Business Term Loan
Internet lenders currently provide up to $500,000 term loans. While the normal payback duration for a short-term loan is three to 18 months, in rare situations, the repayment period for a long-term loan might go up to ten years or longer. Company owners can also receive funding for specialized products like inventory or equipment.
- Loan amounts: Up to $500,000.
- Approximate APR range: 6% to 99%.
- Ideal for: Substantial one-time investments
The Business Line of Credit
Access to flexible funds is made possible via a business line of credit. Lenders provide you access to a certain amount of credit (say $100,000), similar to a credit card, but you only pay something or accrue interest once you use the money.
- Credit line range: $1,000 to $250,000.
- Approximate APR range: 10% to 99%.
- Ideal for: Controlling financial flow, dealing with unforeseen costs, and funding momentary business requirements.
Equipment Financing
Asset-based finance, known as “equipment financing,” uses the actual equipment as security for the loan. Depending on the lender and your company’s criteria, you can obtain an equipment loan for up to 100% of the cost of the equipment you want to buy. You will then have to repay the loan over time with interest.
- Loan amounts: Up to 100% of the value of the equipment, plus soft costs.
- Approximate APR range: 4% to 30%.
- Ideal for: Purchasing tools and machines.
Here is a quick summary of the top 5 best business loans.
5 Best Small Business Loans
Securing a small business loan can be significant for entrepreneurs looking to grow their ventures or address financial needs. With many loan options in the market, choosing the right one for your small business can be overwhelming. This section briefly introduces five top small business loan providers: BlueVine, OnDeck, Fundbox, Biz2Credit, and Lendio.
1. Bluevine
As a leading bank, Bluevine offers a variety of small business loan options, including traditional term loans, lines of credit, and SBA loans. With competitive interest rates and dedicated support for small business customers, Bluevine is an excellent option for entrepreneurs seeking financing.
BlueVine is an online lender that provides small business loans and lines of credit. They offer invoice factoring and a business line of credit ranging from $5,000 to $250,000. BlueVine’s loan application process is simple, with fast approvals and funding within 24 hours. They focus on businesses with at least six months of operation and a minimum annual revenue of $100,000.
Pros 👍
- No setup, upkeep, upfront, or closing costs.
- Accepts applicants with as little as a six-month business history
- Accepts mediocre credit ratings (from the upper 500s to the mid-600s, depending on the credit-scoring model)
Cons 👎
- Same-day bank wire transactions include a $15 cost.
To qualify for a Bluevine line of credit, your business must be an LLC that has been in operation for at least 24 months (issued by Celtic Bank, a Utah-based financial institution). A credit score of at least 625 and a minimum monthly income of $40,000 are also required. To learn more about Bluvine, click the button to apply for their loans.
2. OnDeck
As a member-owned, not-for-profit financial institution, OnDeck supports small businesses. They offer competitive rates on small business loans and lines of credit and provide personalized assistance throughout the application process.
OnDeck is a leading alternative lender specializing in small business loans. They offer term loans and lines of credit ranging from $5,000 to $500,000. OnDeck is known for its quick and straightforward application process, often providing funding within 24 hours. They consider factors beyond credit scores when evaluating loan applications, making them accessible to businesses with less-than-perfect credit.
Pros 👍
- Same-day funding without fees in several states
- No draw, opening, closure, or prepayment costs
- Rewards for staying loyal when you request a new loan and pay off 50% of your current one.
Cons 👎
- Only accessible in specific jurisdictions and for loans up to $100,000, same-day funding
- Needs a personal guarantee and a company lien.
To qualify for a short-term loan with OnDeck, you must have a minimum FICO score of 625, at least $100,000 in annual revenue, and have been in business for at least one year — a longer period of time than other lenders require. However, the company claims that its average customer has been in business for over three years, has an annual revenue of $300,000, and has a credit score of 650 or higher. You may want to explore Ondeck loans by clicking the button below.
3. Fundbox
Fundbox provides small businesses with short-term loans, lines of credit, and merchant cash advances. Their flexible requirements and fast approval process make them attractive for businesses needing quick capital access or less-than-perfect credit.
Fundbox Insights forecasts cash flow for qualifying businesses based on transaction history. This feature forecasts future revenue and alerts when cash flow falls below a predefined threshold.
Fundbox provides small business loans and lines of credit ranging from $1,000 to $150,000. They offer a unique financing solution by focusing on invoice financing and accounts receivable. Fundbox’s application process is entirely online, with approvals typically granted within a few minutes. They prioritize businesses with at least three months of operation and a minimum annual revenue of $50,000.
Pros 👍
- A three-day grace period on payments made on a line of credit
- There are no prepayment penalties or origination fees.
- There are no inactivity fees for credit lines.
Cons 👎
- Cash Flow Insights are in beta and unavailable to all businesses.
- Charges a draw fee for credit lines
- Funds will be available in two business days.
To be eligible for a loan or line of credit from Fundbox, your company must have used a compatible business bank account for at least three months before applying. You must also have been in business for at least six months, have a credit score of at least 600, and have annual revenue of at least $100,000. To learn more about Fundbox, click the button to apply for their loans.
4. Biz2credit
Biz2credit is an online business loan marketplace known for its BizAnalyzer tool. This tool gives business owners a scorecard based on their creditworthiness and financial health, personalized feedback, and financial recommendations.
Biz2Credit is an online marketplace connecting small business owners with various lenders to secure the best loan options for their needs. They offer a wide range of loan products, including SBA loans, equipment financing, lines of credit, and more. Biz2Credit streamlines the loan application process by allowing business owners to provide their financial information once and get matched with multiple lenders. Their platform caters to businesses of all sizes, from startups to well-established enterprises.
Pros 👍
- Connects small businesses with bank and non-bank financing options.
- There are no application fees.
- Loan programs tailored to women, veterans, and minorities
Cons 👎
- Most bank financing products have an origination or closing fee.
- Charges an underwriting fee for the majority of non-bank financing products.
To qualify for a working capital loan through Biz2credit, you must have a minimum credit score of 575, be at least six months old, and have a minimum annual revenue of $250,000. For term loans, you’ll need the same minimum revenue but a credit score of at least 660 and at least 18 months in business. You may want to explore Biz2credit loans by clicking the button below.
5. Lendio
Lendio is one of the few marketplaces that provide startup loans with competitive interest rates and terms of up to 25 years.
Lendio is another online marketplace that simplifies the small business loan application process by connecting business owners with multiple lenders. They offer diverse loan products, including term loans, lines of credit, equipment financing, and commercial mortgages. Lendio assists businesses in securing funding ranging from $1,000 to $5 million. Their platform provides a user-friendly experience, allowing entrepreneurs to compare and choose the best loan options for their needs.
Pros 👍
- Loans for startups of up to $750,000
- Compare more than 75 banks and online lenders.
- Up to $2 million for merchant cash advances and term loans
- Up to $5 million in other loan types and for company acquisitions
Cons 👎
- Prepayment fees vary depending on the lender.
- Several documents, including three months’ worth of business bank statements, are needed for the online application.
Lendio provides a wide selection of loan choices as a marketplace. The most important of these are startup loans, which not all lenders provide but are essential for starting a new company from scratch. Lendio offers startup loans of up to $750,000, durations of up to 25 years, and interest rates ranging from 0% to 17%. To learn more about Lendio, click the button to apply for their loans.
When comparing these alternative lenders, small business owners must consider factors such as loan amounts, interest rates, repayment terms, eligibility criteria, and application processes. Additionally, entrepreneurs should assess their needs and financial situation to select the lender that aligns most closely with their business goals and requirements.
Factors To Consider When Seeking Loans
A loan can offer businesses a financial lifeline, allowing them to scale operations, manage cash flow, and invest in new opportunities. In choosing the right loan for your business, you must know the factors to consider in this article.
- Interest Rates: This is the amount charged on top of the loan you take. The interest rate is essential because it can significantly affect the total amount you’ll eventually repay.
- Loan Amount: Understand how much money you need for your business. Overborrowing could lead you into unnecessary debt, while under borrowing might leave you without enough funds to meet your business goals.
- Terms of the Loan: You must consider the period to repay the loan. Longer loan terms may result in lower monthly payments, but you will pay more in interest over the life of the loan. Shorter terms can be a great option if you can afford higher monthly payments and want to save on interest.
- Lender Credibility: Considering the lender’s reputation is critical. Ensure that the lender is credible and trustworthy to avoid being scammed or getting unfavorable terms.
- Fees and Penalties: Understand all the possible fees associated with the loan, such as application fees, origination fees, and potential penalties for early repayment or late payment.
- Loan Type: There are different types of small business loans, such as term loans, lines of credit, invoice factoring, equipment financing, etc. Each loan type serves different purposes, and picking the one that fits your requirement is crucial.
- Personal Credit Score: Your personal credit score may affect your business loan approval. Lenders often consider the borrower’s credit score to indicate their ability to repay the loan.
- Collateral: Some loans require you to have collateral – security like real estate or inventory. If you fail to repay the loan, the bank or lender can seize your collateral to recoup their loss.
- Cash Flow and Business Plan: Your current cash flow and a sound business plan can play a vital role when obtaining a small business loan. Lenders want to see that your business is financially healthy and that you plan to use and repay your loan.
- Flexibility: Finally, it would be best to consider the flexibility of the loan terms offered by different lenders. Can you adjust your payment schedule if your revenue dips? Can you get an extension on your loan term? Choose a lender that’s understanding and flexible.
Advantages of Small Business Loans
With varied loan types available to suit specific needs, the right small business loan can empower businesses to reach new heights while ensuring financial stability. Here is a list of advantages to consider before you get loans.
- Easy Access to Capital: The best small business loans make funding more accessible, allowing businesses to tackle many expenses they otherwise would struggle with, from day-to-day operational costs to big investments for growth.
- Cash Flow Management: Loans can provide a cushion for the ebbs and flows of revenue, particularly in businesses with cyclical or seasonal sales. They help manage inventory, pay employees, or other expenses during slow periods.
- Competitive Interest Rates: The best lenders offer competitive interest rates, making the cost of borrowing relatively low compared to other financing options.
- Longer Terms: Small business loans, particularly term loans, often have longer repayment periods. That means smaller monthly repayments, which can be easier on a tight business budget.
- Borrower-Friendly Terms: Many loans can come with borrower-friendly terms, such as no prepayment penalties or flexible repayment schedules, making it easier to manage your debt.
- Achieve Business Goals: These loans can help execute your business goals, such as expansion, purchasing new equipment, investing in new technology, or even increasing working capital.
- Boosts Business Credit: Regularly paying off your small business loan can help improve your business credit score. A good credit score can help you secure future loans at even better rates.
Here’s a quick rundown of these advantages for easy visual reference:
| Advantages of Having Small Business Loans |
|---|
| 1. Easy Access to Capital |
| 2. Cash Flow Management |
| 3. Competitive Interest Rates |
| 4. Longer Terms |
| 5. Borrower-Friendly Terms |
| 6. Achieve Business Goals |
| 7. Boosts Business Credit |
Case Studies of Obtaining Small Business Loans
We gathered some case studies to understand how small business loans operate. All the examples must guide you to obtain the appropriate loan for your business.
- Baked by Melissa
Baked by Melissa, the famous New York-based cupcake shop, was born when co-founder Melissa Ben-Ishay was fired from her advertising job. She collaborated with her brother and started baking thousands of mini cupcakes in her apartment, eventually realizing she needed a loan to take her small business to the next level.
They opted for a small business loan and, with the funds, made crucial investments in marketing, opened up different retail outlets, and developed a robust e-commerce platform. Today, Baked by Melissa boasts over 14 stores across the United States and is famous for its bite-sized cupcakes and innovative flavors.
- Eileen Fisher
Eileen Fisher, the founder of the women’s clothing line, started her business in 1984 with a mere $350. Eileen recognized the growth potential and secured a $400,000 loan from a Japanese fabric vendor. This timely financial boost allowed her to expand production, explore international markets, and position her brand as an industry leader.
The company now generates approximately $300 million in annual sales and operates more than 60 locations worldwide. The loan tremendously impacted the company’s trajectory, allowing it to innovate and grow continuously.
- Stony Creek Colors
Sarah Bellos, the founder of Stony Creek Colors, used two loans totaling more than $600,000 to help farmers grow indigo plants in Tennessee, breaking ground in a new type of agriculture.
With the money received, she built a processing plant for indigo leaves, developing a plant-based dye for denim companies looking for more sustainable alternatives to synthetic indigo. Today, Stony Creek Colors partners with well-known global brands and continues positively impacting the environment.
- Death Wish Coffee Company
Founder Michael Brown took out a small business loan to start his business, fuelling its early stages, including a gamble on a 30-second commercial spot during the Super Bowl. With this move, Death Wish Coffee increased its visibility exponentially, increasing sales and company growth.
Each successful business illustrates how loans, when utilized effectively, can facilitate growth, fund crucial business strategies, and ultimately drive a small business toward unprecedented success. The common thread in these stories? A clear vision, strategic financial management, and the right loan that matched each business’s unique needs.
FAQs
The Small Business Administration (SBA) offers various loan programs tailored for startups, such as the SBA 7(a) loan program, which provides working capital and other financing needs.
The SBA loan approval process can take several weeks to a few months, depending on the complexity of the application and the lender’s processing times.
Yes, SBA loans have eligibility criteria such as a good credit score, a business plan, financial statements, collateral, and evidence of the borrower’s ability to repay the loan.
Yes, many online lenders offer an easy, streamlined application process for small business loans, allowing entrepreneurs to apply and receive funds entirely online.
Interest rates for small business loans can vary depending on factors such as the borrower’s creditworthiness, the loan amount, and the type of loan. Rates generally range from 4% to 13%.
Some lenders offer unsecured small business loans that do not require collateral. However, these loans may have higher interest rates compared to secured loans.
To improve your chances, ensure your strong credit score, have a solid business plan, maintain accurate financial records, and demonstrate your ability to generate steady revenue.
Invoice financing can provide immediate access to essential cash flow, allowing you to meet ongoing business obligations and fund growth while waiting for clients to pay their outstanding invoices.
Equipment financing loans typically have repayment terms ranging from 3 to 7 years, depending on the lifespan of the equipment being purchased.
Yes, most lenders will consider the personal credit scores of LLC members when evaluating loan applications, especially for startups or small businesses without an established credit history.
Yes, many lenders offer small business debt consolidation loans that allow borrowers to merge multiple debts into a single loan with more favorable terms, such as a lower interest rate.
Yes, there are specific loan programs like the SBA Women-Owned Small Business Program and Minority Business Development Agency that offer tailored loan options to support women and minority entrepreneurs.
Some lenders allow early repayment without penalties, while others may charge a prepayment fee. It is important to review the loan terms and conditions before applying.
Yes, a business line of credit provides a flexible source of funds that can be used to cover payroll expenses during times of cash flow gaps or temporary financial setbacks.
While securing a traditional loan with bad credit may be challenging, some alternative lenders specialize in providing small business loans to borrowers with less-than-perfect credit histories.
Microloans typically range from a few hundred dollars to $50,000, with repayment terms typically extending from a few months to several years, depending on the lender.
Yes, lenders offer commercial real estate loans specifically designed to help LLCs and other small businesses purchase properties for their operations.
Yes, some lenders specialize in providing small business loans for franchises, allowing entrepreneurs to finance the initial investment or expansion of their franchise business.
If you default on your loan, the lender has the right to take legal action to collect the outstanding debt, seize the collateral if applicable, and report the default to credit agencies, negatively impacting your credit score.
How to Choose the Best Small Business Loan for Your Business
To start, it’s essential to assess your specific financial needs and business goals. Understanding how much funding you require and how it will be allocated is imperative. A clear assessment of your business’s current financial standing and prospects will allow you to determine the exact loan amount needed, preventing you from taking on unnecessary debt.
Next, explore the diverse lending options available to you. Traditional bank loans may be your first thought, and they can work well for established businesses with strong credit scores. These loans typically offer lower interest rates, longer repayment terms, and larger loan amounts. However, the application process for bank loans can be time-consuming and rigorous, requiring extensive documentation and thorough credit checks. Additionally, if your credit score falls short or your business is in its early stages, gaining approval may become significantly more challenging.
Alternative lending sources, such as online lenders or microfinance organizations, represent a growing segment of the lending market. These options often have more lenient qualifying criteria, allowing businesses with lower credit scores or shorter operating histories to secure loans. Online lenders, in particular, provide faster and more accessible application processes, allowing businesses to receive funding within days rather than weeks. However, it’s important to note that these benefits come with higher interest rates and shorter repayment terms, so thoroughly evaluating the associated costs is essential.
An additional crucial factor to consider is whether you opt for a traditional term loan or a line of credit. Term loans provide a one-time infusion of funds and have a specific repayment schedule over a fixed period. Such loans can be highly suitable for financing significant investments, like purchasing real estate or expanding manufacturing capacities. In contrast, lines of credit offer flexibility, allowing businesses to borrow a set amount from their approved credit limit whenever needed. This option is particularly helpful for managing shorter-term expenses or dealing with unexpected financial obstacles.
Beyond the loan itself, assessing the lending institution’s credibility and reliability is crucial. Research lenders thoroughly to ensure you are partnering with trustworthy and reputable organizations. Read customer reviews and check the lender’s track record to ensure they have a history of supporting small businesses effectively.
Lastly, consulting with financial advisors or independent professionals can offer valuable insights throughout the decision-making process. These experts can help you navigate the complexities of loan terminology, repayment terms, and interest rates, improving your overall understanding of the terms you are agreeing to. Remember, though, that the final decision always rests with you as it depends on your specific needs and financial situation.
Securing the right small business loan can provide a valuable lifeline, fueling your growth and enabling you to seize new opportunities. By carefully evaluating your financial needs, exploring various lending options, and considering the pros and cons of different loans, you will be well-equipped to make an informed decision. This will ensure that your business has the financial support it needs to thrive and succeed for years to come.
Conclusion
Obtaining a small business loan is an important step toward growing and expanding entrepreneurial ventures. When entrepreneurs choose, it is crucial to research and evaluate the options available thoroughly. Understanding the lending landscape and each loan’s features, benefits, and requirements will empower entrepreneurs to make informed decisions, equipping them with the right financial assistance to fuel their business success.