The world of small business lending is no longer just traditional term loans. From SBA loans to invoice financing, your business has options with APRs starting at 6.29%.
Fundera's marketplace covers many different small business loan products--offered by a variety of the country's leading lenders. Learn more about each of these products below.
An SBA loan is government-guaranteed, long-term funding made by SBA lenders that allow businesses who may have been turned down by the bank to receive low-interest rate funding that can be used for many business purposes.Learn More
$5,000 - $5 million
5 - 25 years
Starting at 6.5%
As little as 3 weeks
Just like a traditional bank loan, with a traditional-term business loan, you are lent a set amount upfront, which you pay back (along with fees) over a set period of time.Learn More
$25,000 to $500,000
1 - 5 years
7 - 30%
As little as 2 days
With equipment financing, the lender will upfront you cash to help purchase the equipment outright. You then pay back the total amount lent, plus fees, for a set period of time.Learn More
Up to 100% of equipment value
Expected life of equipment
8 - 30%
As little as 2 days
With a business line of credit, a financial institution gives you a credit limit, or a maximum amount of capital you are able to draw on at any given time. Just like a credit card, you only pay interest on the amount you use.Learn More
$10,000 to over $1 million
6 months to 5 years
7 to 25%
As little as 1 day
Invoice financing allows you to sell your invoices to a lender, who will then upfront you a large majority of the invoice amount, holding a remaining percent (usually 20%) until the invoice is paid.Learn More
Approx. 50 to 90% of the total invoice amount.
When customer pays the invoice, you receive the remaining 10-50% reserve amount, minus the fees.
Approx. 3% + %/wk outstanding
As little as 1 day
With a short-term small business loan, you are lent a set amount upfront, which you quickly pay back (along with fees) over a short period of time.Learn More
$2,500 - $250,000
3 - 18 months
Starting at 10%
As little as 1 day
Merchant cash advances are not your typical small business loan. With an MCA, financing companies upfront you a set amount of cash and then you repay this advance (plus their fee) with a set percent of your daily credit card sales.Learn More
$2,500 - $250,000
Automatically deducted each day through your merchant account
1.14 - 1.18
Our three startup loan products can help your young business get the capital needed to grow. These three products (business credit cards, business line of credit, and equipment financing) are a more traditional form of startup capital and a great option if you have a strong personal credit score.Learn More
6 months to 4 years
7.9 - 19.9%
As little as 2 weeks
A lot of people donât know that you can actually use a personal loan for business purposes. Personal loans are especially helpful for new businesses that donât have a long financial history to show lenders. Personal loans can often have lower interest rates than some business loans, making it a great option for young companies looking for financing to grow their business.Learn More
3 to 5 years
5.99 - 36% APR
As little as 1 day
With so many loan options available to your business, where do you get started? What product is best for you?
Follow this checklist to decide.
One of the first questions lenders will ask you when you start your small business loan search is âHow much are you looking for?â Yes, we would all love a cool $5 million. But instead of thinking of this question as how much you want or need, think along the lines of what you can actually afford. If you donât know the answer to that question, follow the steps below.
The best way to determine the small business loan payments your business can afford is to calculate your debt service coverage ratio. This is the number lenders will use to see how much cash you have to service your debt. This is also a number YOU can use to make sure you are comfortable with any potential debt payment. Your debt service coverage ratio is simply:
You can calculate this on a monthly or annual basis. Hereâs how it works.
On average, how much cash flow (sales - expenditures) do you have coming into your business each month? Letâs say itâs $3,000. And how much do you project your monthly loan payment will be (both principal and interest)? Letâs say $1,000. This means you would have a debt service coverage ratio of 3, which is healthy!
All lenders are going to want to see that you have a DSCR of at least 1, because if you donât, where are you getting the cash to pay them back? However, most lenders will require that you have a DSCR of at least 1.5 or greater. But, donât forget, you should use this ratio for yourself too! What number are you comfortable with? Decide now. Letâs say itâs 2. Now, take your current monthly cash flow, divide it by 2, and use that number as you shop. Aim to find a loan that will allow your total monthly loan payment to be equivalent to that amount. Want to calculate what your DSCR would be with various small business loan amounts and interest? Download our DSCR calculator to the right!
It is important to remember that the reason you are taking out a small business loan is to invest in your business. Before taking on the debt, you need to make sure that you will in fact have a return on this investment. Can you safely say that this debt will grow your business? Itâs not an easy question to answer, so a great thing to do before committing to a loan is forecasting loan performance. By running a loan performance analysis, you can see how this small business loan will financially impact your business. It is also a great way to ensure you arenât taking out too large (or too small!) of a loan.
Now that youâve taken a look at how small business loans can financially impact your business, and how to calculate your debt coverage ratio, decide on a rough estimate of a total monthly loan payment youâd be comfortable with. Keep this number close as you start your search.
Believe it or not, your personal credit score is one of the most important parts of the small business loan application. The way lenders see it is that they are lending money to the small business OWNER, so they want to ensure that youâve got a strong history of acting wisely when someone has given you âcredit.â The better your credit score, the better your chances of your securing an affordable small business loan.
A great thing to do before you apply for a small business loan is to pull your own credit report and check your credit score. You can do so for free at annualcreditreport.com. Be wary of any other site that makes you pay! By pulling your credit report, you now know exactly what lenders will be looking at.
The first thing you need to do is check your report for errors. There could be things on your report that arenât correct or even applicable to you that are bringing down your score. This could be things like:
To get this information removed, you need to first verify that the information is in fact erroneous. If itâs a collections matter, you could start by tracking down the collection agency and asking them to let the credit bureaus know youâve satisfied the debt. Or, if it is an unknown outstanding debt, pay it off and then ask the agency to contact the bureaus. For other matters, contact the credit bureaus directly. Send a dispute letter along with the supporting documents needed to verify the claim. The credit bureaus are obligated to investigate these matters and will usually get back to you with a result in around 30 days.
If you donât find errors on your report, but you think you can stand to improve your credit history, try to identify the areas where it needs the most work.
As you can see, your payment history has the biggest impact on your FICO score. The best place to start improving your score is to make sure youâre paying all your bills on time!
If youâre curious what credit score you need to apply for a loan, thatâs a tough one to answer. For online lenders, youâre going to want to have credit score over 550, but you will receive better offers if your credit score is higher, say over 620 or preferably 640. If you think you can improve your score, it may be worth it to take the steps to do so and wait a few months before applying.
Here are a few steps you can take to improve your credit score within the next year.
The small business loan world is a lot more complex than it used to be. Itâs no longer just bank loans and lines of credit. There is an entire new universe of online lenders offering a plethora of products. Itâs important you are familiar with these options before you get started.
Small business loans can have pretty extensive applications â depending on the loan product you are applying for. Generally speaking, the lower the cost of the loan and the longer the term of the loan, the more paperwork that will be involved. But, no one lender is alike and each will have their own set of requirements. Hereâs an idea of some of the most popular documents needed for small business loan applications. Keep in mind â this is only a portion of what many lenders will ask for!
Bank statements are a document you will almost always be expected to provide. For some lenders, you may just need 3 months. Others may ask for 6 or 12 months. Some will even ask for 2 years. Be prepared to pull whatever history length the lender asks for.
Many lenders will want to see your balance sheets or âstatements of financial position.â They will most likely want to see a balance sheet that has been updated within 60 days. This is to give the lender a âsnapshotâ of the companyâs recent financial health.
You can download a balance sheet template here.
Many lenders will want to see your Profit and Loss Statements, also known as your Income Statements. They will most likely want to see your P&Ls from the last two fiscal years (also shown on business tax returns), as well as a company prepared Year-to-Date (YTD) version that has been updated within 60 days. This is primarily to determine the cash flow of the business and if it is able to meet existing and proposed debt obligations.
You can find a profit and loss statement template here.
Some lenders are going to want to know if you currently have business debt and if you do, the payment details of that debt. To do this, they will ask for a debt schedule. This helps the lender determine your current debt obligations and if your cash flow is able to meet existing and proposed debt obligations.
Find out more about debt schedules here.
Most lenders will want to see your most recent personal tax return to verify your income. If you havenât filed your taxes for this year, it might be best to do so before you apply, or at least have your extension paperwork readily available.
Most lenders will want to see your business tax returns from the last two fiscal years. If you havenât filed your taxes for this year, it might be best to do so before you apply. Lenders will use your business tax return to verify revenue, among other things. If you are a sole prop or LLC who doesnât file a separate business tax return then donât fret! Lenders will just want to see the forms and paperwork tied to your business, like a Schedule C, on your personal tax returns.
Read more about what lenders care about on your tax return here.
When you are shopping small business loans, it can be very difficult to compare the various products on an apples-to-apples basis. Why? Many lenders advertise the cost in âinterest ratesâ but, truth be told, this doesnât offer a full representation of the price of the product. So, how can you compare products?
APR stands for Annual Percentage Rate. It is probably a term you are familiar with if you use a credit card. It represents the cost of a loan by including the interest rate AND any other fees you will incur to take on the loan. You may think youâre getting a killer interest rate from a lender, but if they have a ton of hidden fees, they may not be the most affordable option. Thatâs why APR is so important â it lets you compare loans across the board. APR can sometimes be difficult to calculate, so it is best to use an APR calculator.
Now that you know fees affect APR, youâre probably wondering what type of small business loan fees weâre talking about. Hereâs a cheat sheet of fees you need to watch for with small business loans:
An origination fee directly reflects the cost lenders incur to make a loan (think administrative work, etc.) It is often quoted as a percent of the principal.
Since it costs money to run credit and background checks, as well invest the time to underwrite a loan, some lenders will charge you a processing/application fee to recoup that cost upfront, or wait until the loan is closed.
If youâre considering an SBA loan, there is a chance you might have to pay a guarantee fee. Why? The SBA doesnât directly make small business loans. Instead, they guarantee portions of loans, making it less risky for lenders to make loans to small business. But, to do this, lenders must pay a portion of the guaranteed amount to the government, so they often pass this fee directly on to the borrower.
Probably not much of a surprise here, but with some lenders, if youâre late on a payment, theyâll charge you a fee. If they arenât automatically drafting from your account, be sure youâve got a good internal reminder system in place so you never forget a payment!
Considering paying your loan off early? Better be sure the lender doesnât have a pre-payment penalty! This fee is usually calculated as a percent of the outstanding principal at the time you decide to pay it off. Many lenders do this to ensure they recoup their costs from underwriting/servicing the loan.
Many borrowers make their payments through ACH. If you prefer to send your payment in with a check, some lenders may charge you to process it. It is very important to discuss payment methods with lenders before signing on the dotted line.
Youâve done a lot of hard work to get this far! Now it is time to make the call. Ask yourself: