Small businesses will run into situations where they need cash once in a while. When this happens, there are several options for them. Several lenders focus on lending to small businesses. These lenders provide loans on varying terms. The loan terms, APR, and loan amounts vary from one lender to another. This makes it difficult for business owners to settle on the lenders they want to work with. There is a way to identify the best lenders. You will only need to compare the terms of the lenders as well as ratings from reputable review sites to know the best options. Customer reviews are also important.
We have put all these into considerations and has identified the best small business lenders. Check out the list of the best.
Types of Short-term Loans
- Merchant Cash Advance
When you need urgent cash, you can apply for a merchant cash advance to supplement your income. With this option, the lender will offer you a lump sum in exchange for a portion of your business’ future sales. You can decide to make weekly or daily payments with your credit card sales. You can also decide to make payments from your bank accounts. The rates on merchant cash advance are determined using a risk assessment. When the lender realizes that it is riskier lending money to you, they will charge a higher interest rate. Merchant cash advance can be very expensive if the risk assessment reveals that you are not creditworthy.
- Business Line of Credit
This form of funding is just like getting a credit card. The lender will approve you for a revolving line of credit. A limit is usually placed on the line of credit. Since the line of credit is revolving, your balance increase when you pay back the amount you withdraw. You can withdraw any amount within the limit of your line of credit. There are no restrictions on what you use the cash for. You can use it to purchase equipment, expand your business, or fund a new project.Make sure that you make payments when you need to and you should also stay within the limit and then you can use your loan of credit for a long time.
- Invoice Financing
If your business receives invoices from customers and you are having a hard time because they have not paid their invoices, you can opt for invoice financing. Invoice financing companies will offer you a lump sum that is equal to an agreed percentage of your invoices. You will pay this cash back when your customers pay their invoices. Invoice financing attracts fees as well and it gets expensive when your customers do not pay their invoices early.There is another option called invoice factoring (aka accounts receivable factoring). With invoice factoring, the factoring company will purchase the invoices. They will offer between 80 to 95 percent of the total cost of the invoice. The rest will be paid when the customers pay their invoices. When you factor invoices, the factoring company is now responsible for the unpaid invoices and they will need to collect them themselves. Before a factoring company purchases your invoices, they will review the credit history of the customers whose invoices you intend to factor. That means that the success of your invoice factoring depends on the creditworthiness of your customers. If the company finds a customer that is not creditworthy, they will decide not to buy that customers invoices.Invoice factoring is a good source of funding for small businesses that need fast cash. They are also great for businesses who are having difficulty qualifying for loans from traditional lenders. There are two types of invoice factoring: recourse and non-recourse invoice factoring. Recourse means that you will be responsible for all invoices that remain unpaid after selling them to the factoring company. If the factoring company realizes that the customer will not pay the invoice, they will let you know about it. When they do that you will need to replace the invoice with another one that has the equivalent amount or a higher amount. The non-recourse factoring, on the other hand, takes the responsibility off the small business. The factoring company will be responsible for all the invoices sold to them. It becomes their cost when a customer does not pay up their invoice. The rates for non-recourse factoring is higher since there is more risk involved.Small businesses are advised to factor invoices of reliable customers only. This will make it possible to establish a good relationship with the factoring company.
- Equipment Financing
This loan can be used to purchase a huge equipment for your business. You will need to make a 10% to 20% down payment for this kind of financing. Some lenders will request down payment as low as 5% of the total principal. Some lenders request that you use the equipment you will purchase as collateral for the funds. This means that you will risk losing the equipment if you do not pay up the cash you receive.
- SBA Loans
The Small Business Administration is a government agency that provides resources for small businesses. They also help business owners to access funds for their business. This agency does not provide the funds themselves. They guarantee loans provided by lenders. They approve lenders who offer SBA loans. There are four types of SBA loans:
- SBA 7(a) loan
The is the commonest SBA loan program available and they also attract a cheap rate. This loan can be used for several purposes. You can use it to supplement your business’ working capital. You can also use it to refinance debts, renovate your office spaces, expand an existing business, starting new businesses, and start new projects. There are restrictions on using this loan; you cannot use it to pay off an owner who has invested in the business.Loan amounts range from $25,000 to $5 million and you will be expected to make monthly payments. You can apply through SBA participating lenders. The loan term also ranges from 5 to 25 years. There is a special type of program under the SBA 7(a) loan program. This is called the Express Loan Program. When you apply through this program, you will receive a response in 36 hours. Even though you will receive a fast response, there are limitations when you apply through this program. The maximum amount you can apply for through this program is $350,000. SBA guarantees 50% of the loan.
- Microloan Program
You can access up to $50,000 in this SBA loan program. You can use this cash to purchase inventory, furniture, equipment, supplies, machinery, or use it as working capital. This loan package is ideal for new and expanding businesses. The maximum repayment term is six years. The loan term depends on several factors including the loan amount and the purpose of the loan.These loans are offered through intermediary lenders who have experience in funding businesses and helping in business management.
- Real Estate and Equipment Loans
This loan type is popularly called the CDC/504 loan program. This loan is provided by the certified development company (CDC); an organization that focuses on the economic development of its community. The CDC/504 loan program provides fixed rate, long-term loans for businesses who need to purchase real estate or equipment. Unfortunately, this loan cannot be used for inventory or working capital. This loan is 100% backed by the SBA, and the maximum amount you can get through this loan is $5.5 million. The loan term ranges from 10 to 20 years.
- Disaster Loans
This loan can be used to repair or replace machinery, equipment, business assets, or real estate when they get damaged by a disaster. Qualified businesses can access up to $2 million when they apply for this loan. This loan is recommended in cases of disaster because the interest rate is low.
- SBA 7(a) loan
Kabbage is one of the popular short term lenders. This lender offers fast loans to small businesses. Business owners who need fast cash but do not have good credit can rely on this lender. This lender does not have a minimum credit score requirement. Kabbage can offer loan amounts between $2,000 and $250,000 at an APR that ranges from 24% to 99%. The payment terms differ but you will need to choose between 6, 12, and 18 months to repay your loan. This loan package is ideal for business owners who need loans with shorter repayment periods. Businesses who have been in operation for at least one year.You will not pay an origination fee when you apply to Kabbage. This lender has an A+ rating from the Better Business Bureau and an excellent score from TrustPilot.
This is another lender that is worth mentioning. Blue Vine has granted loans to several small business owners since its inception. You will need a minimum credit score of 600 and your company should be in business for at least 6 months. Your business is also expected to have an annual revenue of $120,000. You will not need to provide collateral for this loan. This lender will, however, request for a personal guarantee. You can choose between 6 months and 12 months to repay your loan.This loan package is ideal for business owners who have been in operation for less than 1 year. It is also a great option for business who need fast cash but have a small annual revenue. The downside about this loan option is that the APR is relatively higher than that of other lenders. The APR ranges from 15% to 78%.
OnDeck was founded in the 2007 and this lender offers two types of loan options. You can get up to $500,000 when you apply for term loans. You can also get up to $100,000 when you apply for a business line of credit. OnDeck is ideal for business owners who have a low credit score due to their low credit score requirement. You will need a minimum credit score of 500. The loan term varies, however, it is up to 36 months.You will need to provide a personal guarantee when you apply for this loan. You will also need to provide a minimum annual revenue of $100,000 and you need to be in business for at least one year. There is no origination fee when you apply for a line of credit from OnDeck, however, you will pay an origination that ranges from 2.4% to 4% on term loans. this lender has an A+ rating from the Better Business Bureau and an excellent score from Trustpilot.
- Funding Circle
Funding Circle is a peer-to-peer lender that connects small businesses with lenders. This lender has helped businesses to raise over 7 billion since it began operation. This lender charges one of the lowest APR, however, you will need a good credit score to qualify for this loan. The minimum credit score requirement is 620 and the APR ranges from 4.99% to 26.99%. You will pay an origination fee that ranges from $0.99 to $6.99. they have flexible payment terms that range from six months to five years.When you miss a payment, you will be penalized. You will pay a 10% flat fee for missing payments. You can borrow between $25,000 and $500,000 when you apply to Funding Circle. You will need to provide your business and personal tax returns as well as bank statements to qualify for this loan. Funding Circle provides a great loan option for business owners who have good credit scores.You will also need an annual revenue of $150,000 to qualify for this loan. You will also need to be in business for at least 2 years. Funding Circle has earned an excellent score from TrustPilot. If you need a loan as soon as possible, you can consider applying to this lender since they offer loans in less than 10 days.
- Lending Club
Lending Club is another peer-to-peer lender that has made a name for itself in the small business lending industry. They can offer loan amounts that range from $5,000 to $300,000 and you will need to pay back from 1 to 5 years. Your minimum annual revenue should be at least $50,000 and you should have no records of bankruptcies or tax liens. You are also expected to own at least 20% of your business. You should also a good or fair credit score. The APR on their loans varies from 5.99% to 29.99%.Lending Club charges certain fees including an origination that ranges from 1.99% to 6.99%. You will also be charged a $7 processing fee. Late payments also attract a fee; you will pay between 5% and 15% of your unpaid loan. Applicants from Iowa and West Virginia will not qualify for this loan since this loan facility is not available in their state.
Best Banks for SBA Loans
If you are considering SBA loans, these are the best banks to apply to.
- Wells Fargo: This bank offers SBA 7(a), CDC/504, and Express Loans for small businesses. This bank has over 8500 branches nationwide and they also offer other loan options including commercial purchase loans, business lines of credit, and unsecured business loans. This financial institution has been operating since 1852.
- Huntington Bank: The Columbus, Ohio based bank is another financial institution that is noted for providing small business loans. This lender has branches all over the country. They offer SBA 7(a), CDC/504, and Express Loans. They also offer a business line of credit, term loans, and real estate loans to small businesses.
- TD Bank: TD Bank has over 1,300 branches throughout the United States. They also offer the most common SBA loan options: SBA 7(a) loan, Express loans, and CDC/ 504 loan programs. They also offer other small business loans including commercial mortgage loans, a business line of credit, expansion loans, and equipment loan.
- US Bank: You can also apply for SBA 7(a) loans, CDC/ 504, and Express Loans through JPMorgan Chase. The company founded in 1863 and has offered over $398, 168,600 worth of loans to small businesses. It has more than 3,000 branches in the United States. You can also other small business loans such as real estate loans, equipment financing, a business line of credit, franchise financing, and they also fund professionals such as dentists, ophthalmologists, optometrists, and veterinarians who need funds to expand their practice.
- JPMorgan Chase: This bank is another reliable SBA loan provider. This lender offers SBA 7(a), CDC/504, and Express Loans. They also offer trade financing, commercial real estate financing, term loans, business lines of credit, and equipment financing. This lender has offered $534,496,000 in loans to small business over the years.