Improvements in economic conditions has lenders competing to lend funds to small business owners. Read this guide to the best small business loans.
If you’re having trouble finding the funding your small business needs, you’re not alone. According to a survey from the federal reserve, one-third of small businesses have difficulty getting loans from traditional banks.
Before you get discouraged by these statistics, you should know there are other financing options for small businesses. Alternative lenders have increased the loan market with different online options. In 2015 alone, small businesses received $593 billion from online lenders.
This is great news for small businesses looking to grow. The question is, how can you find the best small business loans for your business needs? There are several options available to choose from.
Make Sure You’re Ready for a Loan
Before you decide to take out a loan, it’s important to make sure your business is ready for the financial responsibility. To ensure you get the funds you need, first, take a look at your current financial situation.
First, check your credit score. As a small business owner, you need to consider the credit score for your business along with your personal credit score. Lenders will take both into consideration before deciding on loan terms.
If you have a lower credit score, this won’t necessarily keep you from getting a loan, but it can decrease the amount or raise rates. If you have a weak score, take some time to increase your score before applying.
You also need to make sure you understand your current needs. Take stock of your current situation so you can apply for the amount you need. Where is the area you need the most growth?
You don’t want to take out more than you need. Doing so could make it more difficult to pay back. You do want to make sure you get the amount necessary to take care of your business needs.
To increase your chances of receiving a small business loan, you should strive for a credit score of at least 600. Higher is better, but businesses can receive loans with a 600 score.
Most lenders will also require your business to be active for at least one year. Another common requirement is to have at least $150,000 in annual income. While you can find loans without fitting these requirements, these are the recommended minimums.
The Best Small Business Loans
Once you determine your small business needs, you’ll have a better understanding of which type of loan you need. This will also help you determine which are the easiest business loans to get for your business.
There are several options to choose from when looking for the best small business loan.
Asset-Based Loans
An asset-based line of credit is a loan based on current assets. You are borrowing money against current assets to get the line of credit you need. Most asset-based credit loans are revolving loans, meaning the amount you can use increases as the amount borrowed is paid off.
Accounts Receivable Loan
One example of an asset-based loan is an accounts receivable (A/R) loan. With an A/R loan, you borrow against outstanding invoices. This is a great option for cash needs between customer payments.
With an A/R loan, you maintain ownership of your accounts receivable. You are only borrowing against the outstanding balance. While some lenders will require the submission of individual invoices, some will let you borrow against the total balance.
Merchant Cash Advance
Another asset-based loan is the merchant cash advance. This type of loan is also known as a daily debit loan. With the daily debit loan, your business receives a cash advance against future sales.
This loan requires a fixed daily payment, pulled directly from your business bank account, towards the cash loaned. The amount you can borrow depends on your sales projections and your credit score. This is an option that allows access to the cash within 24 hours.
Businesses with better credit receive larger cash advance options. They also have extended payment options. A business with less credit will have less cash available and shorter payment periods.
Inventory Line of Credit
An inventory line of credit is a good option for small businesses looking to increase their inventory without tying up their current cash flow. This is another revolving credit option.
An inventory credit line allows you to take advantage of bulk purchases, decreasing the amount you spend. If you take out a credit line for inventory with a top small business lender, you can take advantage of an eight week, interest-free payment period.
Term Loans
A term loan is a set loan. This means there are fixed rates and fixed payments. This type of loan allows your small business to borrow without any surprise changes to the payments owed.
A term loan is a good option for funding needed building improvements, for advertising, or for new hires. This is also an option for purchasing needed equipment.
Small Business Loans for Different Needs
While the different loan options can be used for similar needs, they each have specific recommended uses. Each loan will provide different levels of rate and payment options. They will also provide different levels of cash flow for your business.
You want to keep the differences in mind when applying for your small business loan. You should also keep the reputation of your lender in mind. It’s important to do your research before choosing a lender.
One thing to look for is if the lender is on the list of best SBA lenders. These are the lenders with the best reputation among online banks. This ensures you get the best bank for your small business needs.
Top Small Business Lenders
Now that you’ve checked your readiness for a loan and you’ve looked at your options, it’s time to apply for a loan. If you’re having trouble picking the best small business loans options, there are resources available to help you.
If you need help picking the best loan for your business needs or you’re ready to start applying for loans, check out our resources page for more information.