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Small Business

18 Options for the Best Small Business Loans in 2019

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Historically, business lending involved a massive time commitment, high costs and a high risk that a business wouldn’t get all the funding it needs. Online lenders have completely changed the business lending landscape, making it possible to get funding in as little as a few days in some cases. That being said, borrowing from one of these newer online lenders means working with a company you may not be familiar with, which may pose some challenges.

If you’re a small business owner looking for a loan, this guide can help you decide which type of loan best suits your needs. It will also help you compare some of the best lenders and small business loan marketplaces, so you can apply with confidence.

18 options for online small business lenders

Start with LendingTree*

LendingTree is an online marketplace for business loans. It has one of the largest networks of lenders in the U.S. Business owners can submit one simple form for business financing, and LendingTree will match the owner with real offers from several lenders. This gives business owners the power to pick the best deal for their business.

  • Financing options include: Term loans, SBA loans, working capital loans, equipment financing, business lines of credit, accounts receivable financing and business credit cards.

*LendingTree is MagnifyMoney’s parent company.

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National Funding

National Funding is a non-traditional lender that’s been in business since 1999. The company specializes in lending smaller dollar loans (less than $100,000) to businesses that are underserved by banks. National Funding often takes less than a day to underwrite loans. Loans from National Funding are fixed-interest loans, but the company offers discounts of up to 7% to customers that pay off their loans early.

  • Financing options: Short-term loans, equipment financing, merchant cash advances
  • Short-term loans:
    • Four to 24 months
    • daily or weekly payments
    • $5,000 to $500,000
  • Equipment financing:
    • Two to five years
    • Monthly payments
    • Up to $150,000
  • Funding in under 24 hours

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Rapid Finance

Rapid Finance is an alternative business lender that’s been issuing loans for more than a decade. The company has an A+ rating with the Better Business Bureau, and most customers appreciate the company’s quick and thorough customer service. Rapid Finance helps business owners get funding fast, but its loans tend to carry very high-interest rates.

  • Financing options: Short-term loans, unsecured lines of credit
  • Must be in business two years, with at least $5,000 per month in revenue
  • $5,000-$1,000,000 (lines of credit up to $500,000)
  • Loan terms up to 18 months
  • Interest rates starting from 11.00%` APR (fixed simple interest rates)
  • Funding in three days or less

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OnDeck

OnDeck is an online business lender and a leader in transparent pricing. It is a member of the Innovative Lending Platform Association, which is an industry coalition that has adopted the SMART Box™ to increase transparency in pricing. OnDeck offers both term loans and lines of credit. Most OnDeck customers will have fair or better personal credit scores (above 600 FICO scores).

  • Financing options: Short-term loans, unsecured Business lines of credit
  • Short-term loans:
    • Three to 12 months
    • Fixed simple interest (you pay all the interest, even if you pay off the loan early)
    • Daily or weekly payments
  • Longer term loans
    • 15 to 36 months
    • Compounding interest rate (you pay less when you pay off the loan early)
    • Daily or weekly payments
  • Lines of credit:
    • Up to $100,000
    • Fixed weekly payments
    • Only pay interest on what you draw
  • Funding in under 24 hours

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Credibly

Started in 2010, Credibly (originally RetailCapital) is a small business lender with a focus on using technology and customer service to make business underwriting easier and better. Credibly focuses on short-term lending, and it differentiates itself by having reasonable interest rates of 6 to 18* month loans.

  • Financing options: Working capital loans and “business expansion loans” (short-term loans with weekly repayment options)
  • Working capital loans
    • 6 to 18  months*
    • $5,000–$400,000
    • Interest expressed as interest rates (not expressed as an APR*)
    • Daily repayments
  • Business expansion loans
    • 6 to 24 months
    • Up to $250,000
    • Interest rates set as a factor fee. Paying off the loan early will not reduce interest payments.
    • Weekly repayments
  • Funding in 48 hours on average

*Excludes the Business Expansion Loans which are 6 to 24 months).

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All loans through Credibly are originated by WebBank, member FDIC.

Finance Factory

The Finance Factory is a one-stop shop for all things related to business financing. It is an online lending marketplace that matches small business lenders to small business borrowers. Because it is a network, it offers a huge range of business loan products including start-up loans, SBA loans, lines of credit, unsecured business loans and more. Some of the products have very low-interest rate loans (however, the underwriting times aren’t as fast as other lenders).

  • Financing options: Start-up funding, SBA loans, business express loans, revenue-based loans, equipment financing, franchise financing
  • Most loans range from $5,000 – $500,000 (revenue-based advances from $10,000 to $1 million)
  • Up to 25 years
  • Funding time varies based on loan type. Some loans can be funded in less than 48 hours, but other loans, like SBA loans, may take a month or two.

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Seek Capital

Seek Business Capital is a business lending broker that helps business owners navigate the complex business funding world. Seek Capital will use information that you provide to create a funding estimate which is a range of funding amounts, rates, and payback terms that a business owner can expect to procure. Business owners who are happy with the estimate can apply for loans, and Seek Capital will have the loans funded in one to three business weeks. Seek Capital does charge broker fees, so businesses should be careful to compare Seek’s offers and fees with other competitors.

  • Unsecured business loans
  • $5,000-$500,000
  • Same-day loan estimates, three weeks to funding

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The Business Backer

Despite major innovations in the world of online business lending, The Business Backer believes that financing is still all about relationships. To help businesses qualify for better interest rates, The Business Backer gives business owners the opportunity to share the story of their business and the circumstances leading them to apply for a loan.

The Business Backer funds some of its own loans, but they also have a network of lending partners. The network means that borrowers can use a single application to apply for multiple types of financing.

  • Financing options include: SBA loans, business line of credit, long-term loans, short-term loans, equipment financing, commercial real estate loans, start-up loans
  • Start-up loans
    • Up to $150,000
  • Short-term loans
    • Up to $200,000
    • Four to 18 months
    • Daily, weekly or monthly payback
    • Fixed interest with early payment discounts available
  • Business line of credit
    • $5,000-$150,000
    • 1- to 3-year terms
  • Funding in as little as 48 hours (though this can vary by loan type)

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LoanMe

LoanMe is a business lender that specializes in lending to businesses that don’t qualify for loans from banks, and businesses with urgent cash needs. Interest rates on loans from LoanMe are higher than those from traditional banks, but terms range from two to ten years. Also, unlike many other lenders, LoanMe uses traditional interest formulas. That means the faster you pay off the loan, the less interest you’ll pay.

  • Funding options: Term loans
  • $3,500 – $250,000
  • Loans from 6 to 120 months with monthly repayments
  • Interest rates from 19.37% – 168.00%
  • Same-day funding available

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Elevation Capital

Elevation Capital is a lender that offers alternative loan products (especially unsecured short-term loans) to business with as little as three months of revenue history. Elevation’s unique underwriting style means that business owners with poor credit may be able to qualify for a loan.

  • Financing options: Not available
  • Payback terms: Not available
  • Interest Terms: Not available
  • Up to $500,000 in loans
  • Funding in as little as 24 hours.

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Reliant Funding

Reliant Funding was founded in 2008, in the midst of the financial crisis. It boasts of over $1 billion in lending to small businesses, and an A+ rating with the Better Business Bureau. Reliant focuses on speed of funding, and underwrites using current business performance rather than personal or business credit history.

  • Term loans ranging from six to 18 months
  • Loans up to $250,000
  • Fixed simple interest rates- (you’ll pay the same amount of interest, no matter how quickly you pay off the loan)
  • Daily payment schedules
  • Same day loan approvals and funding

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SmartBiz

smartbiz is an online marketplace for SBA-guaranteed loans. SBA-guaranteed loans are known for slow turnaround times (with an average of 45 days to funding), but SmartBiz streamlines the process. Their computer algorithm can help determine whether you’re SBA loan-eligible before you complete the complex application. Businesses that qualify can complete their application through the SmartBiz website and may receive funding within seven days of completing their loan application.

  • Funding options: Commercial real estate loans, SBA-guaranteed working capital loans
  • Commercial real estate loans
    • $500,000 – $350,000
    • Terms up to 25 years
    • Interest rates ranging from 6.75%–9.99%
  • Debt refinance and working capital loans
    • $30,000 to $350,000
    • Terms up to 60 months
    • Interest rates ranging from 6.75% – 9.99%
  • Funding as fast as seven days after application is complete (but it may take longer)

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Funding Circle

FundingCircle is one of the nation’s first peer-to-peer (P2P) business lending companies. It specializes in low interest-rate term loans for established businesses. Applications for the loans can take as little as 10 minutes if you have all the required financial documentation ready. Funding Circle is a signatory of the Small Business Borrowers’ Bill of Rights which means that business owners can expect clear and transparent terms from Funding Circle.

  • Funding options: Term business loans
  • Loans from $25,000 – $500,000
  • Terms ranging from 6 to 60 months
  • Interest rates from 4.99%–22.99%
  • No prepayment penalties
  • Funding in five days or less

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Fora Financial

If your business grosses at least $12,000 per month, and you need cash fast, Fora Financial could provide a viable loan solution for you. The company provides unsecured short-term loans with funding in as little as 72 hours. Business owners who are looking into these loans should read the fine print carefully. Fora offers partial discounts for early repayment. Early repayment discounts are not equivalent to the interest savings you would receive if you paid off a traditional loan early. This means that loans from Fora may be substantially more expensive than traditional loans if you pay the loan early.

  • Financing options: Unsecured short-term loans
  • $5,000-$500,000
  • Terms up to 15 months
  • Fixed simple interest with partial discounts for early repayment.
  • Funding in as little as 72 hours

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LendingClub

Lending Club is a P2P lender that specializes in affordable term business loans for business owners that have fair credit (or better). Businesses must have been in business at least 12 months and have revenue in excess of $50,000 annually.

  • Financing options: unsecured term loans, secured term loans
  • Loans above $100,00 require a blanket lien on all business assets
  • Loans from $5,000–$300,000
  • Payback terms from 6 to 60 months
  • Interest rates ranging from 9.77% – 35.98%
  • Funding takes an average of 7 days

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Headway Capital

Headway Capital is a lender that specializes in small business lines of credit with fixed simple interest rates. This means that Headway charges interest as soon as the funds are drawn, and businesses pay the funds back through weekly or monthly payments.

The Headway Line of Credit may be a good solution for businesses that cannot qualify for traditional credit lines, but need the flexibility that a line offers. To qualify for a Headway line of credit your business must have been operating for at least 12 months with at least $50,000 in annual revenue.

  • Financing options: Line of credit
  • Credit limits: Up to $50,000
  • Repayment periods: 12 to 24 months
  • Fixed simple interest (interest charged when you withdraw and does not compound over time).
  • Weekly or monthly repayments

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BlueVine Capital

BlueVine Capital is a company that’s creating innovative working capital solutions for small businesses. They currently offer business lines of credit and invoice factoring options that allow businesses to only pay for financing when they need it. Business owners need a 600 credit score and above to qualify for a business line of credit and a 530 credit score and above to qualify for an invoice factoring option. Businesses also need at least $10,000 in monthly revenue to qualify for either option.

  • Financing options: Line of credit, invoice factoring
  • Line of credit
    • Weekly payments
    • $5,000-$5 million
    • Interest rates from 6.9%
  • Invoice factoring
    • $20,000- $5 million
    • Invoice due date must be less than 13 weeks
  • Funding within 24 hours for first advance, and faster afterward

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StreetShares

StreetShares is a newcomer in the P2P lending space. It specializes in moderate interest rates and fast lending. Military members and veterans are especially valued customers, and StreetShares makes sure to give veterans special treatment.

  • Financing options: Term loans, lines of credit, invoice factoring
  • Term loans
    • Three to 36 months
    • $2,000- $100,000 limits
    • Weekly repayments
    • No prepayment penalties
  • Line of Credit
    • $5,000- $100,000
    • Weekly repayments
    • Three to 36-month paybacks
    • No prepayment penalties
  • Invoice factoring (contract factoring)
    • Advance rates up to 90%
    • Monthly factor fees as low as 1%
  • Funding in as little as a few days

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4 ways to use a business loan

Business financing tends to be more complex than consumer finance, so it pays to understand how business lending works.

Businesses typically look for financing during start-up or expansion phases, but businesses may need financing for more mundane reasons. These are a few common reasons businesses seek financing.

Starting a business: More than half of all start-ups use personal savings to start their business, but in many cases personal savings alone aren’t enough to pay for start-up costs. That means many companies need to consider taking out a start-up loan (or finding other means of finance). Antara Dutta, a volunteer mentor and former president of the Delaware chapter of SCORE (the nation’s largest network of volunteer expert business mentors), explained, “Start-up companies need enough money to cover at least twelve months of expenses. It usually takes at least twelve months to get to break even, and we usually say about 18 months to get to the point of earning a profit.”

Managing cash flow: Seasonal businesses may need to seek financing to pay for inventory and materials to complete a project or to stock a store. Other businesses experience a gap between when they pay their bills and when customers pay them. Business owners who cannot cover cash flow needs from personal or business savings may require financing. Invoice factoring or a line of credit may provide the right financing solution for businesses that need to pay bills.

Expanding operations: Businesses looking to expand often need a loan to cover certain costs. Although profitable businesses should consider using business savings, a loan can help a business achieve faster growth. Dutta recommended, “When you’re expanding operations you may be in a good position to refinance any existing debts. Combining debts can allow you to get better terms on all your debts.”

Refinance existing debt: A business that has debt may be able to refinance to cut back on interest or reduce monthly payments. This will strengthen their financial position, and allow for more growth, more profitability or better cash flow.

What to know before you borrow

When it comes to finding the right loan for your business, you’ll have to weigh multiple priorities to find the right loan for your business. These are a few areas business owners should consider when applying for a loan:

Know exactly how much you need to borrow: Whether you’re starting a new business or you’re expanding current operations, you need to explain how much money your business needs, how the business will use the proceeds and how the business will pay back the loan.

Understand the cost of capital: The cost of capital is how much it costs to borrow money. The most common measure for this is APR, although you may see other terms being used. Business owners may struggle to maintain profitability when the cost of capital is too high.

Ask about repayment terms: Unlike most consumer loans, business loans can have a variety of repayment schedules. You may have to make daily, weekly or monthly payments. Be sure you understand how the repayment schedule will affect your cash flow and ability to make timely payments during the repayment period.

Collateral requirements: Business loans may require you to put up certain assets as collateral against the loan. Collateral reduces the lender’s risk because the lender can automatically seize the collateral to recoup their losses. A bank’s collateral requirements aren’t limited to just business assets. Oftentimes, business owners have to use personal assets (like home equity) to guarantee the loan.

“Banks need to know that you’re going to pay them back,” Dutta told MagnifyMoney. “So they might need some collateral, especially for start-ups or high-risk businesses. A lot of times, you’ll have to take out a second mortgage to cover your collateral.”

How much funding you’ll receive: Most start-up companies (69%) who apply for a loan experience a financing shortfall, according to a 2017 small business survey by the Federal Reserve Board of New York. This means the business is approved for a smaller loan than what the company needed. When applying for a loan, it’s important to understand that you may struggle to get enough financing.

How long it will take to get the funds: According to one Harvard Business School working paper, time to funding for business loans ranged from an average of less than five days for short-term lines of credit to more than 45 days for SBA-guaranteed loans. Most online lenders focus on high speed lending, but business owners may have to make sacrifices in other areas (such as cost or repayment terms) to find fast underwriting.

Are pricing and terms transparent? Small business owners often have a tough time comparing prices and payback terms on products from nontraditional (online) lenders. To be sure you’re getting a fair deal, look for clear pricing and terms, including an estimated monthly payment, an APR calculation and whether you face prepayment penalties. If a lender has adopted the SMART Box pricing approach, you can find all this information in your schedule of fees.

Types of small business loans

Small businesses operate in every industry, with revenues ranging from less than $100,000 per year to over $100 million per year. On top of that, business have varying levels of profitability and business credit quality. With such diverse business circumstances, it’s not surprising that there are dozens of business loan options.

These are the most common loans for businesses.

#1 Term loans aka short-term, unsecured, secured and equipment loans

Term loans are an umbrella category of business loans comprised of several different types of loans. In general, a term loan is repaid over a fixed period of time, usually by making even payments on a fixed schedule.

Here are the main types of term loans available to small business owners:

Short-term loans

What they are: Short-term business loans have payback periods ranging from three months to two years. Business owners make fixed payments on the loans until they are paid off.

How they work: After approving a loan, lenders deposit funds directly in a business’s bank account. Then, business owners make regular payments to pay off the loan.

General terms offered: Short-term loans often require daily or weekly payments. Many short-term loans have fixed simple interest rates. This means that you will pay the same amount of interest and fees whether you pay off the loan early or on time. The interest rates on short-term loans can be very high.

Most of the time, short-term loans are not secured by any collateral. However, there are important exceptions to this rule. For example, invoice financing (where invoices serve as collateral) can be set up as a short-term loan arrangement.

Speed: Online lenders specialize in short-term lending, and most can fund loans within 72 hours.

Who should use them: Business owners should be careful when taking out short-term loans. The daily payment schedules may make it difficult to maintain positive cash flow while the loan is being repaid. Short-term loans offer funding fast, but they aren’t a sustainable way to fund a business.

Unsecured term loans:

What they are: Unsecured term business loans are loans that are not backed by any underlying asset like your home. Unsecured business loans may require a personal guarantee, which is a promise to repay the loan regardless of business performance.

How they work: When funding on an unsecured term loan, a lender gives a business owner a lump sum of cash to be used for the business. The lender generally doesn’t restrict how the business uses the loan. In exchange for the upfront cash, the business commits to ongoing payments until the loan is repaid.

General terms offered: Unsecured business loans range from short-term loans (such as the loans explained above), to loans lasting up to several years. They may require business owners to make fixed daily, weekly or monthly payments. Except in the case of short-term loans, business owners will generally save money by paying off unsecured term loans early.

Speed: The time it takes to receive funds depends on the type of lender you work with. Online lenders offer funding in as little as three days, but larger lenders may take a week or more.

Who they are best for: Unsecured loans offer excellent protections for borrowers and are ideal to fund riskier ventures. If the business defaults on payments, the lender will have to go through proper collection channels before collecting any assets from the business owner. However, this protection comes at the cost of higher interest rates.

Secured term business loans

What they are: Secured term business loans are term loans that are directly secured by some collateral. That means if the business fails to pay its loan, the lender can immediately seize the underlying asset. Two in five (42%) business loans are secured by business assets (such as equipment, inventory, buildings or land), but an almost equal number (39%) are secured by personal assets, such as a personal vehicle, cash reserves or home equity, according to the Federal Reserve small business credit survey.

How they work: When business owners take on a secured loan, they receive an upfront sum of cash. The lender may limit how the business can use the cash (for example to purchase equipment). The business will make fixed monthly payments until the loan is paid off.

General terms offered: Most of the time, secured business loans have terms longer than two years. The interest rates on secured loans tend to be lower than rates on unsecured loans.

Speed: Like unsecured term loans, midterm loans tend to take several weeks to fund, but the time for funding will vary by lender.

Who should use them: Secured term loans are riskier for business owners since defaulting could lead to the loss of personal assets. However, they are a good choice for a stable business that has the cash flow to support the new loans.

Equipment loans

What they are: An equipment loan is a loan that’s backed by the equipment you purchase for the business. Business equipment would generally include heavy machinery, vehicles, computer servers, farm equipment and more.

How they work: In general, business owners put 10%-20% down on an equipment purchase, and finance the rest using the equipment loan. The business owner will make monthly payments on the loan (in most cases). If the business defaults on the loan, the lender may repossess the equipment and sell it to recoup its losses.

General terms offered: Down payment requirements generally range from 10% (on an SBA 504 loan) to 20% or more. Payback periods usually range from five to 10 years).

Speed: Business owners who complete an equipment loan application should expect to receive funding in under one week.

Who should use them: Businesses with good credit history are approved for equipment financing more than 90% of the time. If your company needs new equipment, an equipment loan is likely the best way to finance it.

#2 SBA-guaranteed business loans:

What they are: SBA-guaranteed business loans are loans that are partially guaranteed by the Small Business Administration. In most cases, the SBA will reimburse banks up to 85% of the loan value if a business owner defaults on the loan. The SBA limits the interest rate that can be charged on these loans, so SBA loans tend to have low-interest rates relative to other forms of business financing.

How they work: To qualify for an SBA loan, business owners must put up personal or business assets as collateral for the loan. In general, the collateral must cover at least 20%-25% of the loan value.

General terms offered: SBA loans are term loans with monthly payments. The interest rates on SBA loans vary by product, but SBA 7a loans (with terms less than seven years) have maximum interest rates ranging from 7%-9% depending on loan size.

Equipment and inventory loans have terms ranging from seven to ten years. Real estate loans may have terms up to 25 years.

Speed: Compared with other loans, SBA loans tend to have slow funding times. The fastest turnaround time is likely from SmartBiz, which claims it can fund loans as fast as seven days after the application is complete. However, the average time to funding for SBA loans tends to be much longer. Industry experts estimate that most SBA loans take at least a month to fund, and could be much longer.

Who should use them: With great interest rates and limited collateral requirements, an SBA loan makes a great choice for any business owner who has the time to wait for funding. These can be especially helpful for starting or expanding a business.

#3 Business lines of credit

Business lines of credit allow business owners to draw from a predetermined credit limit to meet business needs. After drawing down on the line of credit, business owners will make regular payments to pay it off. Business owners only pay for money they borrow, which makes lines of credit a cost-effective financing option for seasonal businesses.

These are a few lines of credit your business might consider:

Unsecured lines of credit

What they are: Unsecured lines of credit are business lines of credit that don’t require any specific form of collateral.

How they work: An unsecured line of credit allows business owners to draw on a line of credit to meet business needs. The business can continue to draw up to the credit limit. When the business repays the line, the credit limit is replenished.

General terms offered: Unsecured lines of credit have a drawdown period (where the business owner can draw from the credit limit). The drawdown period is usually a year long. After that, businesses must renew their line of credit or begin repayment. Generally, the business owner has to make minimum monthly payments during the drawdown period. The interest rates on unsecured lines of credit can be as low as 6.25%, but can be far higher.

Speed: Time to access funding will vary by lender. Large lenders may be able to approve your loan within a week and have funding to your business shortly thereafter.

Who should use them: Unsecured lines of credit are a low-cost, short-term financing solution for mature businesses. Business owners must have a plan to repay the credit line, or they may end up defaulting.

Asset-based lines of credit:

What they are: An asset-based line of credit is a line of credit that’s backed by an asset. The assets are usually outstanding invoices and equipment or real estate.

How they work: Some businesses have a long gap between when they produce work and when they receive payment for it. These businesses may need access to cash to bridge the gap between the time they spend money and when they receive payments. An asset-based line of credit allows businesses to draw on a line of credit that is secured by outstanding receivables and equipment. The business is free to draw on the line up to the credit limit. Once the business repays the loan, the credit limit is restored.

General terms offered: Most lenders will extend asset-based lines of credit for short terms (under a year). Having short terms on the line of credit gives the lender repeated opportunities to evaluate the strength of the line of credit. To qualify for an asset-based line of credit, you generally have to work in the B2B space, and have large receivables.

Speed: Establishing an asset-based line of credit generally takes a week or more.

Who should use them: Asset-based lines of credit are ideal for businesses with long collection cycles such as custom manufacturers and other businesses that sell on terms.

#4 CAPLines

What they are: CAPLines are SBA-guaranteed lines of credit designed to meet cyclical or short-term working capital needs. Businesses may need to show the expected costs of their projects or contracts to qualify for a CAPline.

How they work: Businesses apply for a CAPLine based on the projected costs of an expansion or larger product. When approved, a business can draw on the line up to the credit limit. When the business repays the credit line, the credit limit is restored.

General terms offered: Maturities on these lines of credit top out at 10 years. Currently CAPLines have interest rates ranging from 7%-9% APR.

Speed: Speed will vary by lender.

Who should use them: CAPLines are an appealing option for established businesses with short-term or seasonal borrowing needs.

Frequently asked questions

Lenders consider a variety of factors when underwriting business loans. More than nine in 10 start-ups (92%) rely on the owner’s personal credit score to obtain business financing, according to the Federal Reserve.

On top of business and personal credit, lenders also need to evaluate your business’s financial prospects during underwriting. Banks lean heavily on the information in your last two years of tax returns. “Banks need to see that you have revenue in excess of your expenses, or you’re not likely to be approved,” Dutta told MagnifyMoney. “Some business owners show losses year after year to minimize their taxes, but that means they won’t be able to get a loan when they need it.”

Start-up companies may need to submit a business plan and a detailed sales model to show how they will earn the revenues to pay back a loan. The plan will show the bank that you have a plan to fix problems should they arise.

The application process for business loans varies by lender.

Most online lenders have simple applications that take just minutes to complete. You’ll provide basic information about yourself and your company. On top of that, you’ll upload documentation to show the financial state of your company (for example, three months of bank statements or two years of tax returns).

Local banks, some of the biggest providers of loans to small business owners may have a more complicated lending process. It’s common for banks to require a detailed business plan with an application. Dutta recommended, “Before taking out a loan, you’ll want to get help from an industry-specific accountant who can help you make a business plan. Don’t be afraid to spend a little money if you’re taking on a big amount of debt. If you can’t afford [an industry-specific accountant], of course, get free help from SCORE. Just be sure to customize any templates you use to meet your needs.”

Following the 2008 financial crisis, small business lending took a dive, and it hasn’t fully recovered. Finding business funding remains a challenge for many business owners.

Small businesses tend to have the hardest time getting financing. In 2015, just 54% of businesses with less than $100,000 in annual revenue were approved for loans. By comparison, businesses earning between $1 million – $10 million in annual revenue saw an approval rate of 81%.

Approval rates for business funding also depend on your firm’s credit quality and where you apply. Firms with good credit (low credit risk) that applied at small banks were approved for business loans 78% of the time in 2016. Firms with medium or high credit risks had the best odds of being approved by an online lender. However, even with online lenders, just 45% of high-risk businesses managed to gain approval.

As of 2014, the average business owner who needed a loan, spent 33 hours looking for financing options, but the actual time to get a funding depends on the loan you’re considering. For example, SBA-guaranteed loans take up to several months to underwrite. On the other hand, online lenders in the business space can often underwrite and fund loans in a matter of days.

The cost of a loan varies based on the type of loan, the collateral required and who issued the loan. For example, loans from prominent online lender OnDeck had an average interest rate of 42.5% annualized, but borrowers often faced even worse interest rates when they took on financing from online lenders.

On the other hand, some forms of business financing can be very cost effective. Interest rates on most SBA loans are under 10% APR, and some lenders boast rates as low as 4.99% on fixed-term loans.

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Hannah Rounds
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Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

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Small Business

Business Budget Template: What to Include

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Setting a budget for your small business can prevent excessive spending and put you on a path toward profitability.

An effective budget would show you how much you need to generate in sales to cover costs, as well as how much you can afford to reinvest in the business. Additionally, you could use a budget to figure out when you’d have the means to hire employees.

It may seem like a daunting task to comb through your business’s finances but sitting down to create a budget for your small business would be time well-spent. Continue reading to understand what budgeting entails and how to find a business budget template to get started.

Why does your business need a budget?

A business budget puts your monthly expenses in writing, including your office lease payments, travel costs, website hosting fees, marketing expenses and the cost of supplies. Documenting these regular costs would help you set aside money each month to cover the bills and spend only what is left over.

A budget would give you a detailed look at where your money is going. You would be able to see how much you need to earn in sales to not only break even but become profitable.

As your business changes over time, your budget can help you be flexible in your spending. If a big, one-time expense comes up, you could look at line items on your budget to see where you could make cuts to cover the unexpected purchase.

Your budget should include all business expenses, even the small ones, so you don’t underestimate your financial needs. In the next section, we’ll discuss how to find a budget template for your business.

Creating your business budget

Before writing your business budget, there are a couple of financial statements you need to understand related to how your business earns and spends money.

Profit and loss statement

A profit and loss statement, or income statement, would illustrate whether your business is making or losing money. You would need to subtract your expenses from your income to determine this. If your revenue exceeds your costs, then your business is profitable. But if costs are higher than revenue, then you’re likely making a loss.

When doing the math, include all recurring income and expected income in your total revenue. Same with expenses – include recurring and fixed costs as well as one-off purchases. Also include payroll, debt repayments and depreciation of business assets in your total expenses.

Once you’ve determined if your business is making a profit or a loss, you could decide how to move forward with your budget. You could set up the budget so you save money to reduce spending, or invest in growing your profits.

Balance sheet

Your balance sheet would show your assets, liabilities and overall worth of your business. To find the difference between what your business owns and owes, you would need to subtract monthly liabilities from monthly assets.

Your total assets should include the value of everything the business owns, such as real estate or equipment, as well as money in your business bank account and outstanding invoices.

Your total liabilities should be comprised of any loans or other business debt, bills that have not yet been paid and taxes due in the near future.

The balance sheet allows you to see all assets and liabilities to figure out the net worth of the business. This information would help shape your budget.

Writing your budget

The information on your financial statements would inform your business budget. Consider creating a spreadsheet separating your costs into two categories to track spending: one-time expenses, like equipment, and recurring costs, like monthly rent and utility bills.

You could create an individual sheet for each month, or combine data from each month on one sheet to track your yearly spending. Your spreadsheet should also include your projected sales, revenue and profit so you can compare your costs to your income.

Once you’ve filled out your spreadsheet, you could adjust the numbers to illustrate various scenarios. For instance, you could evaluate how increasing or adding a certain expense would impact your revenue or profit.

Choosing a business budget template

After becoming familiar with your monthly expenses and income, you would be better prepared to determine what’s essential to your budget. You could create a weekly or monthly budget, or both, to keep your spending on track.

Here’s an example of what your budget may look like:

Various websites offer online templates, often for free. Here are a few available to download:

  • Monthly budget template from QuickBooks – This template works with Microsoft Excel and Google Docs. It tracks monthly expenses and one-time expenses on a single sheet to calculate total monthly costs. This spreadsheet is designed for new businesses looking to estimate initial startup costs.
  • Monthly budget template from Smartsheet – This template works with Microsoft Excel or the Smartsheet platform. It includes sheets for tracking one type of income source and one type of expense as well as cash transactions each month. Smartsheet also provides multiple templates for various needs, such as a 12-month budget, a specific project budget and a first-year budget.
  • Money management template from Vertex – This template works with Microsoft Excel and Google Sheets. It records spending and income to create a yearly budget. Vertex’s template includes worksheets for service-based and product-based businesses.
  • Small business budget from Capterra – This template also works with Microsoft Excel. Capterra’s budget tool allows you to input your yearly spending goals to calculate what your financial activity should look like each month. You can update your spreadsheet with your business’s actual monthly results to see if you’re on track to meet your goals.
  • Small business budget management templates from PDFConverter.com – PDFConverter.com provides links to 15 downloadable Microsoft Excel spreadsheets. The templates are designed with specific budgeting goals in mind, like budgeting for marketing or manufacturing expenses, setting a business travel or event budget or creating a rolling budget to forecast future spending.

When filling out your business budget, most templates would require you to determine the number of months the budget will cover. Then, you would enter your costs and income into their respective fields on the spreadsheet. An embedded formula would automatically populate total amounts based on the information you entered.

Setting a budget and sticking to it

A premade template would take much of the legwork out of making your business budget. But you would still need to interpret those numbers to make changes within your operation.

You could refer to your budget to adjust variable expenses to offset any anticipated changes in your cash flow. You should also check your budget before taking on a major expense, like purchasing equipment or expanding the business, to make sure it fits within your current spending plan.

For startups, a business budget can be crucial. New business owners often underestimate startup costs and setting a budget can help you stay on track. You also may have to submit a budget as part of your business plan when applying for loans or investor funding.

Any business can benefit from budgeting, as it would help you make strategic decisions about the future of your company. You could use your budget to explore different scenarios, plugging in expenses to see what your business can afford.

Your business budget is a flexible document and can change as your business evolves. Maintaining a budget as you grow would help you understand your spending habits and revenue patterns, so you can feel comfortable making purchases that benefit the business.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Wylie
Melissa Wylie |

Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at [email protected]

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Small Business

How to Start a Food Truck

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Food trucks are the focus of festivals, neighborhood events, movies and TV shows. And their trendy appeal doesn’t seem to be diminishing anytime soon, which means there’s room for growth if business owners are willing to do the work it takes to stand out in a crowd.

The food truck industry in the U.S. is expected to reach $1 billion in revenue in 2019, according to IBISWorld, an industry researcher. Nearly 24,000 food trucks and their owners can benefit from increased consumer spending, but also must deal with increased competition.

“Probably a large misconception most people have is, first of all, that this is going to be easy,” said David Stuck, co-founder of The Tin Kitchen food truck in Charlotte, N.C.

Stuck is also the chief operating officer of Tin Partners, a food-services group that Stuck and his partner Nick Lischerong launched following the success of the food truck. Tin Partners offers catering and event planning services, as well as culinary consulting.

When Stuck and Licheron opened The Tin Kitchen in 2010 they had trouble finding places to park, as the food truck scene hadn’t yet taken off in the city and businesses didn’t want trucks on their property. Now, there are three Tin Kitchen trucks among the dozens of trucks driving around Charlotte, similar to cities across the country.

“Just be aware that there is a tremendous amount of competition at the moment,” Stuck said. “You better be able to cook good food and you better have a good plan or you’re going to flounder.”

7 steps to start a food truck

To get your food truck up and running, there are several steps to follow. Here’s how to get the process started.

How to Start a Food Truck

1. Set up your business entity.

When starting a food truck business, you would need to choose a structure, or entity, for your operation. The structure you choose would impact how much you pay in business taxes and whether you would be personally liable for the business.

A limited liability company, or LLC, is a common entity choice for food truck owners, said Zana Tomich, a business attorney and founding partner of Detroit-based law firm Dalton and Tomich. According to Tomich, an LLC isn’t as formal as other entities, like a corporation, but it would protect you from personal liability.

2. Check your state and city regulations.

As a mobile food establishment, a food truck may need to follow state and local rules, Tomich said. In her home state of Michigan, food truck owners not only need permits to operate in the state, but also local approval to set up shop in a specific city. Focusing on a single city, at least at first, might make the most sense for new food truck owners who may not have the resources to juggle multiple municipalities with different sets of rules.

“Usually food truck operators will focus on one place to make sure they’re within the bounds of the rules,” she said.

On average, food truck owners in the U.S. must complete 45 separate government-mandated procedures to start and maintain the business for one year. In that year, owners spend more than $28,000 on permits, licenses and ongoing legal compliance, such as regular safety and health inspections and vehicle registration, according to research from the U.S. Chamber of Commerce Foundation.

To obtain operational licenses, you would likely need to start with your state agency, which varies by state, Tomich said. In Michigan, food truck owners must first go to the state department of agriculture, but owners in other areas may need to start with their state’s secretary of state office, she said.

Next, your local health department would need to approve your food truck. Then, you’d need to make a visit to your city planning and permitting offices to get additional approval to park in certain areas of the city or on private property, Tomich said.

“Once the state permits are obtained, which are a little more cumbersome, going through the local permitting process is pretty straightforward,” Tomich said.

3. Purchase a truck.

Purchasing a used food truck is often an economical option for new business owners. You could find a truck for as low as $15,000 to $20,000, though it may not have the layout and equipment needed for the type of food you plan to prepare, Stuck noted. For instance, Stuck initially purchased a former barbecue truck, which wasn’t outfitted to make tacos, The Tin Kitchen’s primary offering.

“If you’re doing scoop-and-serve barbecue, that’s different than cooking things to order,” he said. “We sort of forced it to work.”

If you have a bigger budget, you could buy a custom truck from a food truck manufacturer. A brand-new truck could cost between $50,000 and $150,000, but you’d be able to design the kitchen layout and install equipment that works best for your business, Stuck said. You may be eligible for financing to ease the purchasing process — we’ll discuss financing options for food truck owners in a later section.

Your kitchen equipment would depend on the type of dishes you plan to sell. Common food truck appliances include:

  • Ovens
  • Fryers
  • Grills
  • Refrigerators
  • Pots and pans
  • Storage containers
  • Knives and other utensils

How you arrange your equipment is also crucial, said Stuck. Work stations should be organized in a way that allows you to quickly prepare and serve food to waiting customers. In addition to kitchen equipment, you would also need a point-of-sale system to take orders and a generator to power the truck with electricity.

4. Buy insurance.

Several types of business insurance policies exist to protect certain assets, like your equipment, inventory and personal property. According to Tomich, as a food truck owner, you should at least consider purchasing general liability insurance. General liability insurance protects business owners from property damage and bodily injury claims, and also covers costs involving claims of false advertising, libel and slander.

Business vehicle insurance or a commercial auto policy would also be a necessary purchase, as you would be required to provide collision and comprehensive coverage for the food truck. It could also cover any equipment that is permanently attached to the truck. If you have employees, you’ll likely be required to buy a workers’ compensation policy as well, to protect them if they are injured at work. Unemployment and disability insurance would also be required.

“When it comes down to it, it’s a vehicle,” Tomich said. “Accidents happen.”

5. Hire employees.

Unless you’re able to take orders, cook food and drive the truck yourself, you’re likely going to have to hire employees to help operate the business. According to Tomich, you would need to classify workers correctly in the eyes of the Internal Revenue Service or risk facing penalties. You can classify workers either as independent contractors or employees of the business, the latter of which would result in federal and state employment taxes.

But while it may be tempting to classify workers as contractors to avoid paying taxes on their earnings, you may end up owing back taxes if you misclassify your staff, Tomich said. If workers earn a regular wage at an hourly or weekly rate or have access to benefits like health insurance, they should be classified as an employee and not a contractor.

6. Develop your menu.

Your menu should include dishes that can be prepared in a tight space. You may want to consider items that can be made in advance or cooked quickly to prevent your customers from waiting outside your truck too long.

A new food truck owner could initially spend upwards of $1,000 or $2,000 on cooking supplies, including menu ingredients, cooking oil, spices, napkins, plates, cups and other serveware.

Wholesale food retailers like Restaurant Depot or Chef’Store are typical choices for food truck owners, Stuck said. You would likely need to stock up on supplies each day or every other day. Determining how much inventory to buy can be tricky, and you don’t want to make the wrong calculation, he said.

“That’s a very delicate line to walk,” he said. “If you buy too much, a lot of it can perish before you sell it. If you don’t buy enough, you’ll sell out of food.”

You could rent space in a shared commercial kitchen or commissary kitchen to store supplies and prepare food if you don’t have room on the truck. Most kitchens are fully equipped, and some are even specifically designed for food truck owners.

Propane is also necessary inventory for food truck owners to power gas stoves, water heaters or other kitchen equipment in the truck. Filling up once or twice a week is common practice, and you may want to plan around your busy days, said Stuck; for example, he noted that the Tin Kitchen trucks fill up on Mondays and Fridays, bookending the weekends. Businesses like U-Haul have propane refill stations onsite that food truck owners can use.

7. Find a place to park.

Once you have your truck, supplies and employees ready to roll, you would be ready to open your windows and start serving customers. Where you can park your truck would depend on local regulations and permits you’ve acquired, Tomich said. Be wary of private property, as some locations may require food trucks to get permission to operate on the premises, she said.

There may be rules about how close a food truck can park to schools, parks, restaurants, crosswalks, building entrances or another food truck. Some may even limit street parking or how many days in a row you can park in the same spot.

Community events can be valuable, according to Stuck. However, the growing number of food trucks has upped the competition for spots at large gatherings, he said. In some cases, you may have to pay a fee for entrance into the event. For instance, the International Night Market in Atlanta requires food truck owners to pay $1,000 for a space at the three-day event.

Financing a food truck business

From food to permits to propane to maintenance and repairs, the costs of running a food truck can quickly add up. Securing financing for your business could help you cover major expenses and allow you to reserve your daily operating capital, Stuck said.

If you need funding to keep your food truck on the road, consider these types of food truck financing that you could obtain from traditional banks or alternative business lenders.

Food truck equipment loan

Equipment financing can be used to buy tools like ovens and refrigerators, as well as the food truck itself. Many lenders categorize food trucks as equipment and you can secure a loan with the vehicle. Because the truck or other asset would act as collateral, an equipment loan is less risky for the lender and more accessible for you as the business owner. But you may need to make a 10% to 20% down payment when obtaining an equipment loan. If you need to finance equipment that you plan to replace often, an equipment lease may be a better choice. You would make payments to use the equipment for the length of the lease, then return the asset or purchase it for a discounted priced when the term ends.

Microloan

Microloans are available in small amounts up to $50,000 and are usually reserved for community development efforts or certain types of business owners, such as women, minority, veteran or low-income entrepreneurs. Microloans can be used to cover working capital expenses like inventory, supplies or machinery, and you may need to offer collateral to secure funding. Microloans are also a useful tool to build your business credit profile so you could apply for a larger amount of financing in the future. The U.S. Small Business Administration has a well-known microloan program.

Short-term loan

Short-term business loans also typically come in smaller amounts with repayment terms between three and 18 months. Interest rates could be high depending on the length of your term, your business’s cash flow, your credit profile and collateral. If approved, you could use a short-term loan to cover any business expense. The repayment schedule could be quick, so be prepared to make daily, weekly or monthly payments.

Business line of credit

A revolving business line of credit would help you pay for ongoing food truck expenses. You could draw funds from your credit line on an as-needed basis and only pay interest on what you borrow. However, you could be required to pay a maintenance fee to keep the line open. To qualify, you may need to offer collateral, and your interest rate would depend on your credit profile. Low-credit applicants typically have a higher likelihood of securing a line of credit than a traditional business loan, so it could be an attractive option if your credit is less than perfect.

Crowdfunding

Online crowdfunding platforms like GoFundMe, Kickstarter and Indiegogo would allow you to raise funds for your food truck from the general public. Some platforms simply let you accept donations, while others would require you to offer a product or stake in the business in exchange for funding. Compared with other types of financing, it may take a long time to raise enough money to cover substantial business costs. However, exposure on a crowdfunding site could help you build a fan following before opening your food truck.

Is the food truck industry right for you?

If you have experience in food service or have dreamt of owning your own dining establishment, a food truck may seem like a relatively affordable way to start your entrepreneurial journey. Food trucks have cheaper average startup costs than brick-and-mortar restaurants — less than $200,000 compared to $1 million or more. Full-time food trucks typically generate $100,000 to $150,000 in annual gross revenue, according to a survey from Food Truck Enterprise.

However, the expenses of running a food truck aren’t limited to startup costs. Ongoing maintenance could cost $40,000 to $50,000 a year, Stuck said. Older, used trucks need near-constant repairs as machinery like water pumps, propane tanks, coolers and generators wear down, he said.

“Stuff breaks all the time,” Stuck said. “I knew there would be some of that, but I don’t think I anticipated how substantial that workload was at first.”

Owning a food truck instead of a restaurant also wouldn’t allow you to escape the scrutiny of regulatory industries, as food trucks and restaurants must comply with strict food safety policies, Tomich said.

“They both have to go through health department approval,” she said. “But with brick and mortar, you’re dealing with a larger space and a larger menu.”

Competition within the industry adds increased pressure to make your food truck stand out. Social media can be a valuable asset when building your brand if you make a consistent effort across all your platforms, Stuck said. You should take time to post crisp, clear photos along with captions and content that establish a brand personality.

Market saturation could make it difficult to build a following and regular customer base, but the crowded industry shouldn’t deter newcomers, Stuck said, as long as you’re prepared to put in the work.

“I would do extra diligence at this time,” he said. “You really need to think through it and prepare.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Wylie
Melissa Wylie |

Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at [email protected]

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