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Business Loan Comparisons

Finding the Right Business Loan

A business loan is an excellent way to grow and fund your business. Nowadays, they come from many different sources, you no longer just have to rely on a bank, especially with the explosion of online lending readily available. The options range from business lines of credit to term loans, SBA loans (Small Business Administration loans funded by lending institutions that participate in government schemes), and invoice-based financing. At US Patriot Loans, we work hard so you make the right decisions for your business loan. We only provide business loan products from trusted partners and always evaluate business loans from as many products as possible. All opinions on business loan products are our own. We suggest that when seeking a business loan, compare different products to find the one that meets your requirements best.

Different Types of Business Loans in Brief:

SBA (Small Business Administration Loans)

  • Low-cost and excellent for businesses that are established but want to refinance debt or finance expansion

Online Term Loans

  • Loans on a repayment system over a fixed period while incurring interest
  • Good for business start-ups or new businesses that require short-term funding
  • The better your business credit score, generally the lower the loan cost
  • Products available for fast-term loans for those businesses with lower credit scores

Short Term Business Loans

  • Good for businesses that require short-term fixed period finance
  • Products available for businesses with poor credit (at higher interest)

Equipment Financing Loan

  • Good for buying equipment

Lines of Credit

  • This means you can draw from a fixed limit and only pay interest on the amount borrowed
  • Good for short-term borrowing
  • Good for short-term cash-flow slow-down or where there is a requirement to buy inventory
  • Various products available for business owners with poor personal credit scores (interest rates will be higher in these situations)

Invoice Factoring

  • Upfront cash at a reduced value for receivables or unpaid invoices
  • Beneficial if your customers are reliable with their payments to you

The APR (Annual Percentage Rates)

With any business loan that you take out, you need to be aware of the APR. These are the loan term and the monthly payments, estimated based on analysis of information provided by lenders and available public information. Loan information is always presented without warranty. The APR provided at initial application stage is an estimate and the terms at this stage are not binding. Lenders provide loans with a range of APR’s defined by the borrower’s credit score and other factors. Only borrowers with a high credit score qualify for the lowest APR rates. Actual APR depends on: credit score, credit history, loan amount and length of loan term. All loans are offered subject to review of credit and approval.

Different Types of Business Loans in Detail:

Small Business Loans

Ideal for businesses that are in their infancy (with a year of history and revenue). Entrepreneurs that qualify for a small business loan have a range of options; US Small Business Administration loans, business lines of credit, invoice factoring and term loans. There are other financing options available for business start-ups operating for less than one year.

SBA or Small Business Administration Loans

This type of loan is government guaranteed and is a program working in conjunction with banks to offer low interest rates over a longer term repayment period. These loans take a while to receive approval and funds because of strict requirements. You only qualify if you have a good personal credit score of at least 690 (some SBA lenders may consider a lower credit score) and good business finances in place. Funding often takes time. Generally, an SBA loan means you can apply for anything from $30,000 to $5 million with an APR of 6% to 11%. We recommend these for longer-term investments, one-off payments, purchasing equipment, purchasing real estate, refinancing debt or for buying existing businesses.

Business Term Loan

Online lenders can offer business loans up to $500,000 on short-term or long-term basis. Repayments for short-term business loans range between 6 and 12 months. Long-term business loan repayments can for up to 10 years (sometimes longer). This financing is useful for inventory, one-off investments or equipment. Typically expect to be able to borrow up to $500,000 (subject to approval) with APR of 9% to 99%. Online lenders offer loans to more business owners than banks, (one in five businesses that apply for bank business loan get approved). Online lenders tend to offer better rates and faster funding.

Business Line of Credit

This is an excellent method of gaining accessibility to cash and works well for cash flow management, financing short-term business requirements or unexpected business expenses. Lenders give borrowers access to a fixed limit amount of credit. There’s no interest or repayments until you access funds. Credit lines range from $2000 to $250,000 with an APR of 8% to 99%.

Invoice Financing and Invoice Factoring Loans

These types of loans turn your business’ unpaid invoices into cash, immediately. They are good for managing short-term financing and cash-flow. Your invoices are sold to a factoring company; they pay you and recoup the money when they collect it from your customers. The benefits are financing up to $5 million with an APR ranging from 10% to 79%. If you’d rather keep control over your invoicing, you may prefer invoice financing.

How to Get Business Loans through Other Business Financing Options

There are other business loans options; personal loans for business or business credit cards.

A personal loan for business is suitable if your business is still in its infancy and you don’t yet qualify for traditional financing methods. Personal loan providers check your personal credit history and income stream rather than your business’ history.
A business credit card gives you revolving credit and is good for short-term expenses. Usually, a business credit card is easier to qualify for than a small business loan product but credit limits tend to be smaller. Some business credit cards offer incentives such as cash rewards or travel points.

The Best Way to Get a Business Loan

Lenders dictate different underwriting guidelines, they look at your personal credit score, annual revenue, your time in business, cash-flow and whether you are able to repay the debt. Most lenders request financial documents, e.g. bank statements, cash-flow statements and tax returns.

How to Qualify for Your Small Business Loan

Identify What You Need your Business Loan For

Think about what you want to use your financing for to identify the best type of business loan for you. To finance regular business expenses you’ll probably want a traditional line of credit. Or to finance past invoices, consider invoice factoring or financing. These are common reasons for taking out a business loan:

  • Business start-up
  • To harness a new business opportunity
  • For expansion
  • To cushion cash-flow
  • To manage expenses
  • To finance inventory or equipment

Once you know what you want, you should be able to work out the right loan for your needs.

Work Out What you can Afford

Next, consider how much you need and how you’ll meet repayments. The first thing a lender will ask is the amount you want to borrow. Don’t pluck a figure from the air, work out how much you need, how you will repay it and if you’re comfortable that figure, then tell the lender. So, calculate your “debt service coverage ratio”, the number lenders use to see what cash you have for debt repayment. The sum is cash flow/loan payment = DSCR (debt service coverage ratio). Calculate it on a monthly or an annual basis. Lenders seek be a DSCR of at least 1 or 1.5. Then, aim to find a business loan that allows your monthly repayment to be the same as the amount calculated. Analyse your loan performance and check you will get a return on investment. If it doesn’t work and won’t grow your business, it isn’t worth doing. Analysis can determine if you’re borrowing too much or too little.

Once you’ve done the above steps, write down what you want to repay monthly, this is your estimate and is what you can afford, keep this in mind while choosing your lender.

Do You Qualify for a Business Loan?

There are a few factors to consider; length of time in business, annual revenue and credit score. The better your credit score, the higher chance you have getting the loan you want. Check your credit report and score to know if you need to improve on it or if it’s strong enough for a business loan. Lenders look for credit scores over 550, giving better offers if your score is between 620 and 640. Lower-rate and longer-term small business loans need high credit scores (such as SBA loans, some business lines of credit). If you have poor credit, you may still qualify for a short-term loan and some smaller business lines of credit.

If your credit report isn’t great, check for errors. Sometimes, these occur, one in 5 Americans have errors in their personal credit reports. Things like erroneous accounts, credit lines judgements or collections. Also, accounts, judgments or collections that were closed but appear as outstanding. There may be judgments or collections listed that you don’t know about! If you have proof of errors, you can dispute your credit report with supporting documents, contact the credit bureau in question directly.

Being in business for a short period time could impact acquiring a business loan because according to the SBA, approximately 80% of US businesses survive their first year. If you’ve been around for 2 years +, you’re more likely to qualify as you are less risky than a business that’s not been around for a year. You still have options with online lenders.

Potential lenders will examine your revenue to decide the right loan for you. They will look at monthly or annual revenue. It’s unlikely that a lender will give you a business loan if your monthly repayments exceed what you’re bringing in.

Compare Lenders

Once you know what business loan type you want and you are comfortable with what you can borrow, compare business loan options. You could go to a bank or look at online lenders. Traditional business bank loans are excellent if you’ve been in business for 2 years or more with a strong credit record, usually, this type of loan has lower cost attached to it. However, it takes longer to get funding. With online lenders, you can get funding much quicker (sometimes same day) because everything is done online and they require less documentation. They are more expensive than bank business loans. Do research first, by keying in a few details online, you can view a variety of options from different online lenders.

Get Your Documents Together

Applications require certain documents for the approvals process, the lower the loan cost over the longer period of time requires more paperwork and different lenders have different requirements. You’ll likely be asked for:

  • Business bank statements from 3 months to 2 years history
  • Balance sheet
  • Profit and loss statement (or income statement)
  • Business debt schedule
  • Tax return (business and personal)

Understand the Fees Attached to Your Loan

Look at each loan’s terms and conditions, including their repayment requirements. Request the APR (annual percentage rate), look out for the fees, such as the origination fee, application fee and sometimes, with an SBA loan you’ll have a guarantee fee. Other fees to examine are late payment, pre-payment (for early loan repayment) and check processing fees (if you choose to pay by check).

Before Signing on the Dotted Line…

Ask yourself:

  • Is your business loan at the lowest rate you can find?
  • Can you afford the repayments?
  • Are you comfortable with the loan repayment times (e.g. daily, weekly, monthly)?
  • Have you investigated all the fees attached to the business loan?

Happy with your answers? You just might be ready to apply for your business loan.