Find the Right Loan for Your Small Business

Business Loans fund everything from working capital to equipment financing

Business Loans for Every Purpose

Businesses of every stripe have numerous loan options available when seeking credit. There are a variety of government-backed loans designed to support small-business growth, as well as conventional and alternative lenders that may extend business financing as long as you meet their varying eligibility requirements.

Business loans are broadly divided into government-backed secured loans, conventional secured loans, and conventional unsecured loans. To identify the right loan that can help you reach your business objectives, begin with your assessments: available collateral, small business credit score, liquidity and desired loan purpose.

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Loan Types

Government-backed, conventional secured and unsecured

Loan Term

1 to 10 years, depending on loan factors

Collateral Options

Capital and short-term assets, liens, personal guarantees

Government-Backed Business Loans

The U.S. Small Business Administration (SBA) offers several financing channels for businesses that are new, small or underserved. The SBA is not a direct lender, rather it guarantees certain small-business loan programs. This guarantee reduces risks for lenders, and broadens eligibility requirements, which allows more borrowers to be eligible for funding. SBA loans are generally secured by liens, capital or short-term assets. Personal guarantees also may be used as collateral in certain situations.

The primary government-backed loans available include the following loans.

General Small Business: SBA 7(a) Loans

The SBA 7(a) loan program extends financing to eligible small businesses for a variety of uses, including business startup or expansion, short- or long-term working capital, real estate or equipment purchases, construction needs, and debt refinancing.

Real Estate and Equipment: SBA 504 Loans

Under the SBA 504 loan program, the SBA regulates regional nonprofit organizations called Certified Development Companies (CDCs). This program works with lenders to extend credit for the purchase of real estate and long-term equipment, property improvement, construction and renovation work.

Microloans

Microloans — loans that don’t exceed $50,000 — may be used as working capital or for the purchase of equipment, inventory and supplies. Typically, they are used to help small businesses get established or expand.

Disaster Loans

A variety of disaster loans are available for the replacement and repair of real estate, equipment, inventory and other business property damaged by a declared disaster.

VA Business Loans

Eligible veterans may obtain business loans through the SBA Veterans Advantage or SBA Express loan programs, both under the 7(a) loan program.

Loans for Minorities and Disadvantaged Borrowers

Socially or economically disadvantaged borrowers looking to establish a business can potentially gain financing through the 8(a) Business Development Program. Black, Hispanic, Native American, Asian Pacific and Subcontinent Asian Americans are all defined as socially disadvantaged. Non-minorities who can demonstrate economic disadvantage are also eligible for the program. Additionally, there are several conventional lenders and nonprofit organizations outside of the federal government with special loan programs for minorities.

Resources for Women

Although there are no government-backed loans exclusively for women-owned businesses, several agencies provide resources to help women looking to establish a business and gain financing. The SBA’s Office of Women’s Business Owners has a network across the country offering counseling for women entrepreneurs on how to obtain SBA business loans.

Startup Loans

Government-backed loans for starting a business. 

  • SBA 7(a) loans
  • SBA microloans
  • SBA advantage loans

Conventional loans for starting a business. 

Other options. 

  • Crowdfunding
  • Grants

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Conventional Business Loans

Banks and credit unions offer both secured business loans — where capital assets, short-term assets or liens are used as collateral — and unsecured business loans. Within these two categories are short-term, long-term and revolving credit options. Common business loan purposes include loan options below.

Working Capital Loans

Working capital loans are designed to fund short-term, daily expenses that businesses might face, such as purchasing supplies or making payroll when capital is insufficient during the off season. These loans have a fixed term over a period of usually six years or less.

Secured and unsecured working capital loans are available, though strong credit is required to obtain an unsecured loan and interest rates will be high. Compare lenders to see what loans your business qualifies for. Small businesses with little history or poor credit may consider alternatives, such as cash advances or invoice factoring.

Conventional Term Loans

A conventional term loan can be secured or unsecured, and is typically used for large, single expenses, such as the acquisition of another business or a remodeling project. Interest rates can be fixed or variable, and depend on your business credit and liquidity. Secured business loans will carry lower interest rates, longer terms and higher loan amounts than unsecured loans. With no collateral, unsecured term loans require the borrowing business to be well capitalized and have strong credit.

Equipment Financing

One way to reduce the upfront costs of purchasing machinery, technology or other physical business assets is through an equipment financing loan. It is a secured loan, since the asset being purchased is the collateral. Interest rates are typically fixed. For businesses that use equipment or technology that requires frequent upgrades or replacement, leasing may be a better option.

Companies that own equipment can use the equity to access capital through a purchase leaseback or cash-out refinance.

  • Equipment purchase leaseback. This is a way of obtaining cash upfront by selling the equipment to another party and then immediately beginning to lease it back via fixed monthly payments.
  • Equipment cash-out refinancing. A company can get cash from the equity built in a piece of equipment. This is done by refinancing an equipment loan for more than is owed, gaining the difference in cash.

Franchise Financing Loan

Establishing a franchise can be costly and often requires paying marketing fees, royalties and initial charges. Lenders offer franchise financing loans to help get new franchise start-ups on their feet, but eligibility requirements are strict. A strong personal credit score and low debt-to-income ratio are preferred, and most franchise loans are secured by a down payment of 10 percent to 30 percent of the loan.

The franchise itself is often involved in the vetting process and have net worth minimums for potential new owners. They are also frequently able to direct potential owners to available credit, but it is worth comparing franchise financing lenders to see what options are available.

Commercial Real Estate Financing

A company and the property on which it operates are distinct products when it comes to purchasing businesses. In some situations — typically with a small business in a fixed location, such as a beauty salon — an owner may wish to purchase the commercial real estate where the business is located. There are loans for purchasing the business and its property in one transaction. Alternatively, the borrower can seek a separate mortgage on the commercial real estate.

Alternative Lenders

When conventional lenders turn you down, there are several alternative lenders to turn to, including cash advance providers, invoice factoring companies, peer-to-peer (P2P) lending and online lenders. While qualification requirements are less strict, alternative financing tends to carry high interest rates, so it is important to compare lenders carefully.

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Business Loan Eligibility Requirements

Lenders will assess a variety of factors when determining your eligibility for a business loan and its corresponding interest rate.

  • Small business credit score or personal credit score of owner
  • Time in business
  • Minimum annual revenue
  • Minimum period of demonstrated profitability
  • Available collateral
  • Loan purpose
  • Organization type
  • Industry
  • Loan term
  • Borrower citizenship and nationality

As a general rule, unsecured loans are harder to obtain than secured loans and require stronger credit and business liquidity. SBA loans in particular carry extensive documentation and strict eligibility requirements.

Borrow Despite Bad Credit

Businesses or owners with credit scores below 680 will likely face difficulty obtaining loans from the SBA or conventional lenders unless their business can demonstrate strong, sustained profitability. There are financing options available for those with bad credit.

  • Cash advance or invoice factoring companies
  • Nontraditional unsecured business lines of credit
  • Online lenders

Be aware that many lenders willing to extend loans to companies or owners with bad credit will charge high interest rates. It is essential to compare options.

8 Questions to Ask Before Taking Out a Business Loan

  1. What are my objectives in taking out this loan and how much money do I need?
  2. What are my small business credit score and personal credit score?
  3. Do I qualify for an SBA loan?
  4. Can I find a lender that specializes in working with my industry or profession?
  5. What documentation is needed for the loan and how long is the time to fund?
  6. What is the total cost of the loan in terms of interest rates, fees and other charges?
  7. What are the repayment term and process, and when is the first payment due?
  8. With the above considerations in mind, can my business afford to repay the loan?

Are Business Loans Tax-Deductible?

Interest payments on business-related debts are tax deductible. Note that interest paid on personal loans taken for business purposes — for example, to start up a company from scratch — are not tax deductible. If you are seeking tax benefits, ensure that the loan taken out is clearly identified as business debt. Check with your tax adviser.

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