Small Business Loans

What Is a Small Business Loan?

A small business loan provides funding for entrepreneurs to tackle challenges, take advantage of opportunities, and invest in their businesses. You can use the funds for almost any business purpose, including working capital, equipment, expansions, payroll, and other investments.

The borrower is expected to pay the principal, plus interest, in full within the term outlined in the loan agreement. The length of your term depends on your needs and the financial background of your business, but keep in mind that the lender you’re working with plays a major role in this as well.

Short-term business loans are best for short-term revenue-driving opportunities and challenges that you need to plug quickly. Long-term business loans, on the other hand, are better suited for expenses that won’t benefit your business immediately, like opening a new physical location or purchasing a new business entirely.

Pros and Cons of Small Business Loans

Small business loans aren’t for every entrepreneur. Your business might need funding, but another type of financing could suit your needs better.

Let’s explore the pros and cons of small business loans, so you can make an educated decision for the future of your business.

Pros

• Lump sum payment to invest in your business
• No exchange of equity
• If lender reports to a business credit bureau, repayment can strengthen your business credit score
• Consistent, timely repayments can build creditworthiness and credibility with your lender
• Stagnant payment schedule

Cons

• Not as flexible as business lines of credit
• If you need additional funds, you’ll have to take out another loan
• Interest rates can be higher than other forms of financing
• May need to offer collateral

Small business loans are a great option for projects where you know the exact cost or for working capital to manage through a slow season. If you need more flexibility, business lines of credit offer access to capital on an as-needed basis.

How Can You Apply for Small Business Loans?

Whether your small business is growing or facing a challenge, you need cash to cover the expenses. Finding the best small business loans gives you the resources you need to pursue opportunities or solve problems.

Unlike selling equity, getting a small business loan allows you to maintain business ownership, profits, and full control.

There are countless fast small business loans available on the market today, but to truly invest in your future, you need the right one.

Our diverse lender marketplace puts all your options in one place, allowing you to receive multiple offers with one application and compare them with expert guidance.

Applying is fast, simple, easy, and doesn’t affect your credit score.

Discover the Types of Small Business Loans

Small business loans come in a few different formats. Here are the four main types:

• Term Loan – A term loan is one of the most basic forms of financing. Borrowers receive a lump sum of capital at the beginning of their “term,” which they repay in full by the end of the contract. They can be secured with collateral or unsecured, although unsecured loans carry heavier eligibility requirements.
• Equipment Financing – An equipment loan is a specialized type of small business loan used exclusively for equipment purchases. Not only do they allow you to break down a sizable investment over a more manageable schedule, but they can also increase your purchasing power, allowing you to afford assets you previously weren’t able to.
• SBA Loans – SBA loans are financing solutions backed by the Small Business Administration. They feature funding amounts of up to $5 million and favorable terms for businesses of all sizes. Borrowers can secure SBA loans from SBA-sponsored lenders, which include banks, credit unions, and some non-bank lenders.
• Business Line of Credit – While not technically a loan, business lines of credit offer flexible access to capital, where entrepreneurs can draw from their total credit limit on an as-needed basis. You only pay interest on the amount you draw, and if you secure a revolving term, you can draw the same funds again after you’ve repaid them.

There are no best business loans; The option that’s right for you will depend on your business and where it’s headed. In reality, the best small business loans are the ones that come with terms that fit your goals and allow you to take full advantage of your financing.

Learn more about IBA Business Solutions other business financing solutions here.

How Small Business Loans Can Help Streamline Cash Flow

Cash flow is like the oxygen of your business, and small business loans are a great way to get more of it.

When cash flows smoothly, you can cover all of the essential expenses in your business, including payroll, operating costs, and other bills. More importantly, though, positive cash flow allows you to pursue new growth and expansion opportunities in your business.

At some point, all businesses face cash flow challenges like seasonal slowdowns and late-paying customers. Business credit cards and personal loans generally don’t provide enough cash to accomplish what you need to. You could find yourself in a situation where you’re struggling to:

• Pay your employees
• Hire new workers
• Pay for inventory
• Manage office rent or mortgage payments
• Pay for supplies
• Finance operating costs
• Cover utility expenses
• Pay taxes

When you’re set on growing your business, it’s important to have enough working capital to stay ahead of the competition and not fall behind. With IBA, you can establish a relationship that allows you to secure the capital you need—when you need it—with terms that fit your business.

How to Use Business Financing to Grow

Every owner wants to grow their business, but doing so requires money.

The only ways you can grow your business are by reinvesting profits, raising equity, or using small business loans (or another business financing option).

At first glance, reinvesting your profits is the cheapest option. But, with working capital covering every cost, it can take years for you to reach your goal.

Utilizing small business loans for startups and other types of businesses can actually be more profitable for your business in the long run. You can obtain cash to cover all growth-related expenses right away, putting you on track to boost revenue as soon as possible.

Here are some of the ways financing can help your business.

• Grow Your Business – Financing gives you access to the cash you need to fast-track projects and scale your business. You can use funding to open a new location, hire new employees, invest in marketing campaigns, upgrade internal processes, and much more.
• Cover Expenses – If you’re unable to meet your business’s day-to-day expenses, you could find yourself in a situation where your goals are side-tracked or, at worst, you have to close your doors. When cash flow gets tight, financing can help you cover your most critical expenses like payroll, utilities, supplies, inventory, travel costs, and more.
• Buy Inventory – Retail businesses are well-aware of the issues that can arise out of delayed inventory, including revenue loss and poor customer experience. Stocking up on supplies early can help you mitigate potential problems and prepare for busy seasons beforehand.
• Have Extra Cash on Hand – Any business owner knows that there’s always a chance the unforeseeable can happen. You could find yourself stuck with an unexpected expense or even presented with a fast-paced opportunity. In either case, additional access to capital will keep you prepared for whatever happens.
• Buy New Equipment – Heavy equipment like machinery and vehicles are oftentimes the backbone of construction, trucking, and manufacturing companies. However, every business relies on equipment in one way or another. Funding can help you upgrade your computer software systems and other technology inputs to boost efficiency and productivity.
• Weather Seasonal Slumps – Many industries experience slow seasons. It can be challenging to navigate operating expenses and make preparations when your cash flow is tight. Financing can help you weather the storm now while also giving you the means to put plans into place for the upcoming busy season.

What’s the Easiest Way to Get a Business Loan?

You can apply at a bank, but you know that’s not easy. That’s why you’re here—to find an easy way to get a small business loan.

Banks aside, there are many other small business lenders, which makes finding the best option for you even more confusing.

Every lender offers different programs with varying interest rates, term lengths, and funding amounts.

Online marketplaces simplify and speed up this process.

Our industry-leading marketplace brings the best small business lenders together in one place, making it easy for you to apply, compare options, and ensure you choose the right loan.

The entire process takes place electronically, meaning you don’t have to take time out of your busy day for a meeting. You can also submit the required financial information online.

Eligibility Requirements for Small Business Loans

To apply for small business loans, the first thing that you will need to consider is the lender. Lenders may have different guidelines, requirements, and application processes, but the standard eligibility requirements are:

• Credit Score – Most lenders want to see a 680+ credit score. Some lenders don’t uphold credit score requirements, but you should expect them to mitigate their risk in a different manner.
• Time in Business – Newer businesses are more likely to fail, and lenders are well aware of the statistics. You’ll need to have some experience in order to secure financing. While most banks require 2+ years in operation, non-bank lenders typically want to see at least one year in business.
• Annual Revenue – Your business’s profitability is the number one indicator of whether or not you’ll be able to pay back the borrowed amount within the term. Most lenders need to see at least $500,000 in annual revenue. If you generate more, your terms will only increase from there.

Most lenders, especially banks, will want to see a minimum credit score of around 680. This is also typically the requirement for SBA funding as well. Of course, having higher credit can boost your approval odds and help you access better interest rates.

At IBA Business Solutions, you can find options regardless of your credit score. We have programs for small businesses with good credit, bad credit, and everything in between.

Showing a profit helps, of course, but is not always essential to receive financing. Instead of focusing only on your business and personal credit scores, we consider your annual revenue and how your new opportunity could help you grow.

How to Get a Credit Approval for a Business Loan

Lenders must check your credit score and credit report before approving your application. This process, otherwise known as a credit check, provides a detailed history of how you’ve managed your credit in the past, which lenders use to determine how likely you are to repay your financing in the future.

Your credit report shows:

• The types of credit accounts you have/have had
• The dates each account was opened
• Account balances
• Your payment history
• Any credit limits
• Unpaid balances and bankruptcies

A “soft” credit pull won’t affect your credit score, whereas a “hard” credit pull can damage your score. Soft pulls are primarily used by individuals checking their own credit or when companies send “pre-approved” offers. Hard credit checks occur when an individual or organization checks your credit because you took action, like applying for a credit card or loan, that requires a credit check.

Make sure the lender you’re working with performs soft credit pulls to protect your credit!

Your credit score and report must pass the lender’s guidelines to get a credit approval. Each lender will use different criteria to determine your eligibility, but it’s still important to approach the situation with the strongest credit possible. If time permits, consider proactively strengthening your credit score or removing problematic accounts from your report before applying for financing.

The emergence of FinTech platforms has made the credit approval process for a small business loan much easier and less tedious than it once was. At IBA, our streamlined digital application entirely eliminates the need for any paperwork. We work with a wide variety of lenders that maintain options for all different types of credit scores.

The application process is also fast and secure. Once you complete the online application, simply connect your bank accounts – and your information will be verified automatically.

Finding the Best Available Loan Programs

To choose the best loan offers, start by identifying your financing needs. The best options for you might differ if you are looking for funding to grow your business, purchase inventory, or pay debt. Ideally, you should begin your research in a marketplace where you can compare multiple options at the same time.

In today’s world, there are countless financing and loan programs available at your fingertips. But even though some of these loan programs are fast and easy to qualify for, they may not be the best.

Every lender offers different programs, and every business has different needs. It’s important to start your search for funding options with your needs in mind.

Direct lenders provide only a limited number of options. If you apply through a direct lender, you limit your potential to find the best option on the market.

Applying through a marketplace allows you to access options from numerous lenders instead of just one. For example, IBA offers options through multiple small business lenders.

In addition to small business loans, online marketplaces also offer other financing options.

You can find SBA loans, which are backed by the federal government through the Small Business Administration. Often, applying through a marketplace makes this a faster and easier process than applying through a bank.

You can also find other options, such as a business line of credit, merchant cash advances, and equipment financing.

By considering multiple options, you can choose the one that best fits your business and goals.

What Are Secured & Unsecured Business Loans?

The difference between secured and unsecured business loans is simple. Secured business loans require collateral, such as real estate, heavy machinery, or other assets, while unsecured business loans don’t require any collateral as a guarantee for being able to pay the loan.

With secured business loans, the borrower agrees to give the lender an asset or piece of property if they’re unable to repay their debt. Collateral can make the financing process less risky for lenders.

Banks and other lenders have more certainty that they will get their money back in the event you default. This can translate to lower interest rates, higher funding amounts, and better terms for borrowers.

Typically, traditional banking institutions will require your loans to be secured with collateral, like real estate or heavy machinery.

Unfortunately, borrowers face additional risks with secured business loans. In case you are unable to meet your debt obligations, you could risk losing the asset you’ve put up as collateral.

In the modern business financing world, however, you can find small business loans without collateral.

If you have collateral to back your small business loan, then you can choose to put it up. If not, then you can still find financing options. We can help you find either option within our marketplace.

Calculate Small Business Loan Interest Rates

To calculate the interest rate on a small business loan, lenders will consider your requested loan amount, financial history, annual revenue, and more. But when you get a small business loan, you need to consider more than just the interest rate itself. You also need to consider the total payback amount.

We created an easy-to-use small business loan calculator specifically for small business owners considering the full price of taking out a loan.

By entering your estimated interest rate, loan amount, and term length in months, you can calculate your estimated monthly payments. Then, you can calculate your total payback amount by multiplying the monthly payment by the number of months

Small Business Loans 101

Small business loans function a lot like personal loans, although they serve a different purpose—they’re only meant for small businesses.

If you’ve ever taken out a loan, such as a student loan or mortgage, then you probably already understand how they work. The lender provides you, the small business owner, with capital for a need. As the borrower, you’ll then repay the balance of the loan, plus interest

Depending on how and where you borrow, different financing products come with different terms. You may make payments based on a fixed interest rate in some situations and with a variable interest rate in others.

Owners use the extra cash from small business loans to cover any expenses, whether they’re solving a challenge or pursuing an opportunity.

Curious about how small business loans could work for your company? Speak to a Business Financing Advisor at IBA to learn more.

Minimum Credit Score for a Small Business Loan

Most lenders, especially banks, will want to see a minimum credit score of around 680. This is also typically the requirement for SBA funding as well. Of course, having higher credit can boost your approval odds and help you access better interest rates.

If your credit score is less than 680 or your business is fairly new, it’s possible your financing application may be rejected by a bank. But before you get too discouraged, it’s helpful to keep in mind that not all small business lenders have a minimum credit score requirement.

Bank rejections can be discouraging, but not all small business lenders have a minimum required credit score.

At IBA Business Solutions, you can find options regardless of your credit score. We have programs for small businesses with good credit, bad credit, and everything in between.

Instead of focusing only on your business and personal credit scores, we consider your annual revenue, and how your new opportunity could help you grow.