Loans for Business Owners, According to Your Needs (and How to Pick)

Meredith Turits

Managing Editor at Fundera
Meredith is Fundera’s Managing Editor, overseeing editorial. Drawing on her own background in small business and startups, she writes on business, finance, and entrepreneurship. Meredith has contributed to publications including the New Republic, Rolling Stone, Vanity Fair, The Paris Review Daily, and more.

Nearly every small business owner understands the need for funding. No matter what stage your business is in, understanding your options for loans for business owners is always a good thing. Because whether you’re in the early stages of growing or you’re well established and ready to expand, you always want to know how to have enough money on hand.

When you haven’t been through the small business loan process before, you can easily feel smothered when looking through all of the financing options. It’s absolutely true that there’s a pretty steep learning curve of finance terms and application requirements involved. Enough that you can want to rage quit taking any action at all.

Even so, the growth of your business depends on knowing how to get a hold of what’s out there. And it’s perfectly possible to understand loans for business owners. We swear.

Here’s an in-depth-but-accessible look at the various loans for business owners. With a little bit of research and some analysis of your business’s current needs, you’ll be ready to pick and pursue the right small business financing for you.

Loans for Business Owners Who Need Long-Term Financing

Maybe your business needs capital to refinance existing debt, purchase inventory or equipment, or take on any other large expenditure. In that case, a long-term business loan will almost always be your best option.

Along with offering the longest period of time to repay the amount borrowed, long-term loans for business owners tend to be the lowest interest financing available. At the same time, long-term loans for business owners are some of the most flexible products, too. Nice, right?

Among them, each loan product is designed using different criteria, but all have the same advantage—they’re created with predictable repayment terms (usually monthly or bimonthly), which makes them easy to budget for. Of course, with convenience and low cost comes the caveat that these are the most difficult loans to qualify for—but you should still try!

loans-for-business-owners

Still, these loans are excellent if you’re looking for debt financing that you can repay over a long period of time. In that case, consider one of these long-term loans for business owners:

SBA Loans

The US Small Business Administration partners with intermediary lenders to offer some of the lowest-cost small business loans available. Because these SBA loans are guaranteed up to 75% by the federal government, they’re attractive for both business owners and lenders alike.

Because traditional bank financing is too tough to get for the vast majority of borrowers, the SBA is trying to fix that. Their goal is to make loans for business owners more readily available for new and small businesses.

Let’s take a look at some of the SBA’s most popular loans for business owners who need long-term financing:

SBA 7(a) Loans

  • This is the SBA’s most popular loan.
  • It’s intended to help new and existing businesses afford financing for a wide variety of needs, including start-up capital, equipment financing, inventory expansion, additional working capital, and more.
  • Successful applicants generally have 620+ credit scores, and can provide collateral for the loan.
  • Depending on the lender, loan amounts range from $5,000 to $5 million with fixed or variable interest rates between 6% and 13%.

SBA CDC/504 Loans

  • Lenders offer the CDC/504 Loan for purchases of major fixed assets like long-term equipment or commercial real estate.
  • The formula for determining the interest rate is convoluted, but it’ll generally be between 5% and 6%.
  • This loan requires a 10% down payment and can have maturities of between 10 and 20 years.

When an SBA loan might not be a fit: SBA loans are the least expensive business loan products available. But the application and approval process can be very lengthy and pretty complicated. We’re talking three to four months! So, if you need to resolve your funding issue more quickly, an SBA loan product probably—or, okay, definitely—won’t be the right choice.

Term Loans

When you think of the word “loan,” you’re more likely than not imagining a term loan. Term loans are the most traditional, familiar type of loan product. A lender gives you a lump sum of money up front in exchange for your promise to repay that “principal” amount, with interest and fees, over a predetermined period of time. Equal payments are made at regular intervals until the loan is paid.

Term loans for business owners come in all different amounts with differing interest rates and repayment periods, too. These are all determined by things like your credit score, the amount loaned, collateral required, and/or intended purpose of the loan.

Typical term loans range from $25,000 up to $500,000. And you can pay off most term loans financed through alternative lenders in one to five years with interest rates between 7% and 30%. Unlike the SBA loans, term loans can often be processed and closed in as few as two to three days. Much faster!

Successful applicants for business term loans generally need:

  • a healthy credit score, ~600+
  • at least one year in operation
  • a minimum of $90,000 in annual revenue

When a term loan might not be a fit: If you’re looking for long-term funding for your business and are seriously considering a bank or SBA loan product, it’s important to keep in mind that these long-term loans do have some disadvantages as well.

The application process for these financing products tends to be much more involved than with other forms of financing, meaning it can take weeks or even months to get cash in hand. And because of the strict qualification standards involved with these financing options, getting approved for these long-term loans for business owners can be a struggle.

→Too Long; Didn’t Read (TL;DR): Long-term financing for business owners is cost-effective for big purchases but among the hardest to qualify for.

loans-for-business-owners

Loans for Business Owners Who Need Fast Cash

Even when you’ve planned carefully for large capital expenses within your business, you’re still not a psychic. Unforeseen circumstances demanding quick access to cash might sneak up on you.

Maybe your five largest customers aren’t paying on time, or an excellent expansion opportunity presents itself suddenly. When these scenarios arise, traditional term loans for business owners with lengthy application processes won’t be an option.

If having a streamlined application process that will put cash in your hands faster is what you need, consider these notoriously fast loans for business owners as a potential alternative.

Business Line of Credit

A business line of credit works similarly to a credit card cash advance. The lender authorizes a set amount of funds, or maximum credit line, from which funds can be drawn whenever you need and for any purpose. You only pay interest on the amount you have withdrawn, and your credit line can be used over and over again.

A business line of credit is an excellent way to establish or help rebuild your business credit history. It’s also a good choice to serve as a lifeline for emergencies that might arise in the business.

Applicants with less than perfect credit scores are usually acceptable. Flexibility and convenience are also advantages with a line of credit.

When a business line of credit might not be a fit: These do come at a cost. Interest rates tend to be higher than with some other funding products, so you’ll have to check that you can afford the convenience.

Short-Term Loans

Short-term loans are very similar to traditional term loans, but they have much shorter repayment schedules. These loans are most often offered between 3 and 18 months in duration, and payments are made on a weekly or even a daily basis. (You’ll prearrange that with your lender.)

In addition to offering a faster process, short-term loans are not as stringent on credit history, so a credit score in the ballpark of 525+ is often acceptable.

When a short-term loan might not be a fit: On the downside, for businesses with unpredictable cash flow, the stress of frequent payments can be a challenge.

Merchant Cash Advance

If your business receives a significant number of payments via credit card sales, a merchant cash advance (MCA) could be a good option for fast cash. The financing company gives you a set amount of cash upfront. In exchange, you repay the advance plus their fee with a percentage of your daily credit card sales.

A merchant cash advance is usually easy to qualify for and can be processed in as little as one week.

When a merchant cash advance might not be a fit: Do note that the MCA is one of the most expensive financing tools on the lending market. So, although this might be a fit for you, make sure the math works for your company, and give careful consideration to other methods of funding before you decide to proceed with this product.

→TL;DR: There are lots of loans for business owners who need fast access to cash. But for the speed, you can expect to pay a much higher interest rate than you would receive with other, longer-term loan products.

Loans for Business Owners with Poor Credit

If you’re a business owner with a less-than-perfect credit history, it doesn’t necessarily mean that you lack responsibility or work ethic! Perhaps your business has fallen victim to unpredictable economic conditions in recent years, or maybe you simply haven’t had sufficient time to build up a solid credit history of any sort.

Whatever the reason, even with poor credit, there are still options for funding your business needs. Here are some asset-based loans for business owners that won’t require any additional collateral on your part and will work even with a credit score that needs improvement.

Equipment Financing

If your financing needs are for new equipment—such as computers, manufacturing equipment, or transportation/shipping vehicles—equipment financing can be a good choice. This type of financing is attractive to both the lender and the business owner because the equipment itself acts as collateral and is built right into the loan. So, for business owners with bad credit, equipment financing is often a good option.

When equipment financing might not be a fit: Keep in mind that the term of the loan is closely tied to the projected lifetime of the equipment, so you’ll need to consider whether the equipment will be obsolete and need to be replaced before you can make full repayment.

Invoice Financing

This one’s for businesses that use invoicing as a means of receiving payment from customers and struggle with delayed payments. Invoice financing can be a good option for fast cash.

A financing company will give you a majority percentage of your outstanding invoices—around 85%—and withhold the remaining 15% until payment is received. As your customers pay their invoices, you repay the lender and they give you the remainder, less their fee.

Again, because the invoices themselves act as collateral on this loan product, invoice financing loans for business owners tend to be more accessible than other options for those with poor credit.

When invoice financing might not be a fit: You’ll have to take a look at the fees to decide if invoice financing is the right fit for you. That said, although invoice financing can seem expensive when compared to other more traditional funding products, having your cash tied up in unpaid invoices can cause serious cash flow issues. The extra expense might be worth it for the benefit of restoring smooth business cash flow.

→TL;DR: You might be surprised to find out there are plenty of loans for business with poor credit. Most of these are collateralized loans, or finance a specific need.

loans-for-business-owners

Startup Loans for Brand-New Business Owners

Many of the loans for business owners in the marketplace today are engineered for businesses that are well established and can provide an operating history. And that makes sense, since lenders are essentially looking to mitigate their risk when loaning out money.

But are there funding options available that are geared for startup businesses and those just beginning in their chosen markets?

With some creativity, choices are out there for those just beginning the business finance journey. Keep an open mind with these financing options, though, as you may find that combining more than one of these will be your best bet to get the financial jumpstart your new business needs.

Small Business Startup Loans

As a more traditional model of startup capital, the combination of business credit cards, business lines of credit, and equipment financing can be packaged together or offered individually and tailored specifically for the startup business.

These financing tools for startup business owners have repayment terms from six months to four years, and can be closed in as few as two weeks. Often these products are offered interest free for the first 9 to 15 months, and typically come with no prepayment penalties.

When small business startup loans might not be a fit: These aren’t quick-cash loans, and aren’t easy to get, either. Applicants for small business startup loans with the best chance of approval need excellent personal credit scores (680+) since startup owners won’t have business credit history for lenders to evaluate.

Personal Loans for Business

Did you know that you can use personal loans for business purposes? These loans are especially helpful for brand-new business owners who have no credit or financial history to provide for the lender.

In many instances, personal loans have lower interest rates, lower fees, and easier repayment terms than other business loan products. This makes them more cost-effective for the new business in the long run. Surprising, maybe, but true!

For personal loans, the lender will be looking for a pretty solid personal credit score—upwards of 580—and some form of collateral will likely be required.

When invoice financing might not be a fit: Important! If you use a personal loan for your business, you are personally responsible for the repayment of the loan balance. If your business should fail, the lender will look to you as the responsible borrower since the agreement is with you and not the business. That’s why you’ll need to carefully consider the financial strength of your business as well as your own ability to cover the debt in the unlikely event of business failure.

→TL;DR: Although startups and new businesses don’t have credit history for lenders to evaluate their risk, there are a few loan options for these business owners. It’s important to note, though, that either tough qualifications or personal risk is involved.

Finding the Right Loan for the Business Owner You Are

Before you look into the loan options that you’re qualified as a business owner, you’ll want to as yourself a few questions:

  • What are you doing with the financing?
  • How quickly do you need the money?
  • How much business credit history do you have?
  • And how strong is that credit history?
  • Do you have collateral for your loan?

Once you figure that out, you’ll be able to zero in on your options. You might see that it’s easy to figure out the small business loan that is best for you. Or, be surprised to find out you have more options than you thought.

If you’re still overwhelmed, that’s also okay! You can apply for several loans at once online to see what you’re qualified for, and speak to a loan specialist who’ll help guide you through the process, too.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Meredith Turits

Managing Editor at Fundera
Meredith is Fundera’s Managing Editor, overseeing editorial. Drawing on her own background in small business and startups, she writes on business, finance, and entrepreneurship. Meredith has contributed to publications including the New Republic, Rolling Stone, Vanity Fair, The Paris Review Daily, and more.

Our Picks

Ready to Grow Your Business?