How To Start & Grow Your Business

7 Small Business Loans You Can Now Apply For Online

Meredith Wood
Aug 31st, 2016
  • 5 min read
  • Hummy's
    Highlights

    1Consider federal-based loans 2Loan based on need 3Be sure to shop and explore
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Finance Misc.

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Finding the right fit for small business financing is a unique process for each business owner. The Small Business Administration, private investors, crowdfunders, family, and friends are all tried-and-true options for financing your company and keeping the cash flowing. Every option has its pros and cons, so be sure to explore the risks and advantages for each to find the best fit for your situation.

Unlike bank loans, which can take months to secure, many online business loan solutions can be approved quickly, and are available even to business owners with less-than-perfect credit. So if you need cash fast, checking online may be your best bet.

Not sure where to start? Here’s a quick review of the some of the most popular options currently available in order to help guide your loan product research and help you choose the best fit for your business.

1. SBA Loans

The Small Business Administration (SBA) helps connect businesses with approved lenders who offer long-term, government-guaranteed loans that enable businesses to receive low-interest rates.

Pros

SBA guaranteed loans offer the widest flexibility with the lowest down payments, longest-terms and reasonable interest rates. Therefore, they are suitable for a wide range of needs—anything from working capital to refinancing other debts—and may be attractive to those who may have been turned down by a bank in the past.

Cons

As you may have already heard through the grapevine, acquiring an SBA-backed loan can involve lengthy paperwork, a longer wait for approval (usually around 30 days), and the possible requirement of collateral. If you need cash fast, this might not be the best route for your business.

2. Traditional Term Loan

Similar to a traditional bank loan, with a traditional term business loan, you borrow a set amount upfront, and pay it back over a set period of time with fees, most often at a fixed interest rate. It’s probably the most common form of business loan, so you are likely already familiar with how they operate.

Pros

Traditional term loans have lower monthly payments and longer pay-off periods than short-term loans, as well as a set payment structure. These loans work for a wide range of business purposes.

Cons

One major downside with this type of loan is the potential for prepayment penalties, so be sure to examine your terms carefully before you sign any paperwork.

3. Invoice Financing

Invoice financing allows you to borrow money from a lender against your outstanding accounts receivables. The lender will then upfront you a large majority of the invoice amount, holding a remaining percent (usually 15-20%) until the invoice is paid. Once your invoices are paid, you pay the lender back plus fees and interest. It’s important to note that the responsibility still lies with you to collect from customers, unlike with invoice factoring.

Pros

With invoice financing, loans are given based on credit of the invoiced business, and can happen as fast as one day. In addition, the invoices serve as collateral and it’s not necessary to wait for invoice payment to get cash on hand. It’s a perfect solution for late-paying customers that are impacting your cash flow.

Cons

Invoice financing may have higher fees than traditional financing because they can be based on the time it takes for the invoice to be paid off. If you have any doubts that you’ll be able to collect on your outstanding customer invoices in a timely manner (or at all!), you might find yourself paying back a pretty hefty sum to your lender.

Presentation of Business Contract and Pen to Sign

4. Short Term Loan

Short-term loans are designed to meet short-term financing needs. They can be a flexible financial tool to better manage cash flow, solve a capital emergency, or leverage an unexpected business opportunity.

Pros

Short-term loans can take as little as two days with limited paperwork to secure and offer a set repayment structure. Less-than-perfect credit is accepted.

Cons

These loans come at higher APRs than those of longer term loans, and daily payments may be difficult for companies with intermittent revenue.

5. Merchant Cash Advance

A merchant cash advance is a quick, easy way to get a business cash advance with no need for collateral—even if you don’t have a great credit score.

Pros

With an easy approval process and quick access to funds, these loans are suitable for a wide range of options. Plus, lenders accept less-than-perfect credit.

Cons

The quick and easy access comes at a price: significantly higher fees than traditional loans. There’s also less flexibility to change service providers, and a daily deduction of credit card receipts will reduce your cash flow. While a merchant cash advance is an okay fit for some businesses, it is also often the most expensive financing option you could choose, so do your research to make sure it’s the best fit for your business.

6. Personal Loans for Business

It’s not common knowledge that you can actually use a personal loan for business purposes. Personal loans often have lower interest rates than many business loans and are especially helpful for new businesses without an established history—making them a great option for young companies looking for financing.

Pros

A personal loan for business may be far less costly than a business loan. This type of product is great for customers with limited business history who would rather repay monthly versus weekly or daily.

Cons

Personal loans used in this capacity require the mixing of business and personal finances. It reports to your personal credit history and has a $35,000 ceiling.

Finance-Approved small business loan app and money

7. Startup Loan: Business Line of Credit & Equipment Financing

Startup loans can help young businesses get the capital they need to grow. A business line of credit and equipment financing are two startup loan products that will appeal to business owners with a strong personal credit score who are looking to boost their business credit score as well.

Pros

As with many startup loans, you have quick access to cash. These types of startup loans work well for business owners with limited financial history. In the case of equipment financing, your equipment can serve as collateral. And if you open a business line of credit (they work similarly to personal credit cards), you only pay interest on the amount of financing you actually use.

Cons

Excellent credit is required and these loans are available in relatively low amounts. In addition, any equipment you secure could be obsolete by the time the loan is fully repaid.

Small Business Lending Is In Expansion Mode

The world of small business lending is no longer limited to traditional term loans—there are dozens of options for borrowers available online. From SBA loans to invoice financing, your business can secure the cash you need to grow your business at a reasonable rate, even if you have a limited business credit history or need funds fast.

To make sure you get the best possible rate, we recommend that you shop rigorously and explore a variety of loan products before you sign on a dotted line.

About the Author

Meredith Wood

Meredith Wood is the Head of Content and Editor-in-Chief at Fundera, an online marketplace for small business loans. Prior to Fundera, Meredith was the CCO at Funding Gates. Meredith manages financing columns on Inc, Entrepreneur, HuffPo and more, and her advice can be seen on Yahoo!, Daily Worth, Fox Business, Amex OPEN, Intuit, the SBA and many more.