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.

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

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

SEE OFFERS Secured

on LendingTree’s secure website

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

LEARN MORE Secured

on Rapid Finance’s secure website

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

SEE OFFERS Secured

on LendingTree’s secure website

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).

SEE OFFERS Secured

on LendingTree’s secure website

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.

SEE OFFERS Secured

on LendingTree’s secure website

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

SEE OFFERS Secured

on LendingTree’s secure website

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)

SEE OFFERS Secured

on LendingTree’s secure website

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

SEE OFFERS Secured

on LendingTree’s secure website

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.

SEE OFFERS Secured

on LendingTree’s secure website

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

SEE OFFERS Secured

on LendingTree’s secure website

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 – $5,000,000
    • Terms up to 25 years
    • Interest rates ranging from 6.25%–8.50%
  • Debt refinance and working capital loans
    • $30,000 to $350,000
    • Terms up to 120 months
    • Interest rates ranging from 6.25% – 8.50%
  • Funding as fast as seven days after application is complete (but it may take longer)

LEARN MORE Secured

on Smartbiz’s secure website

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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on FundingCircle’s secure website

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

SEE OFFERS Secured

on LendingTree’s secure website

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–$500,000
  • 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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on LendingClub’s secure website

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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on Headway Capital’s secure website

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

SEE OFFERS Secured

on LendingTree’s secure website

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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on Street Shares’s secure website

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
Hannah Rounds |

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

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