Venturize

Which loan is right for your small business?

Before talking to a lender about a loan for your small business, you should understand the basics of your funding options. Having a better understanding of your options at the outset can save you a lot of time, energy and money. We’ve identified the most popular types of loans for small business owners as well as their features and things to consider before applying for funds.

Traditional Bank Loans

Banks are the largest small business lenders and probably the first place you think about when getting a loan. They offer some of the lowest cost loans, but qualifying can be difficult; about 72% of small business owners who apply get rejected. Banks usually require strong personal and/or business credit scores, a personal guarantee, collateral, and healthy financials.

Credit score requirements: High (700+)
Loan wait times: Varies
Interest rates: Low

Small Business Administration (SBA) Loans

The U.S. Small Business Administration (SBA) is a federal agency that helps entrepreneurs manage their businesses and gain access to capital. SBA loans have some of the lowest interest rates available, but usually require strong personal and/or business credit.

Credit score requirements: High (700+), Good (650-700)
Loan wait times: Varies
Interest rates: Low

Mission-Driven Loans

Mission-driven loans are offered by institutions committed to supporting job-creating enterprises in underbanked and low-income communities where other financial opportunities may be limited or include rates that are not favorable to borrower.

Credit score requirements: High (700+), Good (650-700)
Loan wait times: Varies
Interest rates: Varies

Microloans

Microloans are available for small business owners or startups that have a thin credit file or can’t secure funds through a traditional bank. Microlenders are non-profit organizations that offer smaller loan sizes, which max out at $50,000 but tend to average much less than that.

Credit score requirements: High (700+), Good (650-700)
Loan wait times: High
Interest rates: Low

Personal Sources

Personal funding can be a viable option for your small business needs, but doing it successfully requires you to thoroughly calculate all of your costs, so that you don’t run out of money before your business can support itself. Your goal should be to finance your business so it can stand on its own, without co-mingling personal assets and credit.

Credit score requirements: High (700+), Good (650-700), Low (600-649)

Online Marketplace Loans

Non-bank loans have become an increasingly popular alternative for borrowers who have been denied a loan by the bank, or don’t have the time to go through a lengthy application process. A new generation of online-only “marketplace loans” is designed to appeal to business owners who have lower credit scores, or who have been in business for a short time.

Credit score requirements: High (700+), Good (650-700), Low (600-649)
Loan wait times: Low
Interest rates: High

Merchant Cash Advances

Merchant Cash Advances (MCAs) are a pricey option that’s available to businesses that have credit or debit card sales. MCAs are probably the most expensive borrowing option, with APRs between 25% – 350%. Usually, they require a minimum daily payment regardless of your sales. Merchant cash advances can usually be approved in a day or two—with very little paperwork.

Credit score requirements: High (700+), Good (650-700), Low (600-649)
Loan wait times: Low
Interest rates: High

Cash Flow Loans

With cash flow loans a lender provides you funds and accepts your expected future cash flow as collateral for the loan. You’re essentially borrowing from cash that you expect to receive in the future, and giving the lender the rights to a predetermined amount of these receivables. These loans are primarily used for working capital or take advantage of short-term ROI opportunities.

Credit score requirements: High (700+), Good (650-700), Low (600-649)
Loan wait times: Low
Interest rates: High

Business Credit Cards

Though not necessarily a “loan” in the traditional sense, a business credit card can help you obtain financing without the hefty process of loan approval. Business credit cards are a popular choice among entrepreneurs who have limited business history and don’t qualify for lower-cost financing, such as bank lines of credit. 65% of small businesses use them on a regular basis.

Credit score requirements: High (700+)

Interest rates: High