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Small Business

18 Options for the Best Small Business Loans in 2019

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.

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-$500,000
  • Equipment financing:
    • Two to five years
    • Monthly payments
    • Up to $150,000
  • Funding in under 24 hours

LEARN MORE Secured

on National Funding’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-$500,000 (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

LEARN MORE Secured

on OnDeck’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).

LEARN MORE Secured

on Credibly’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.

LEARN MORE Secured

on Finance Factory ’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

LEARN MORE Secured

on Seek Business Capital’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)

LEARN MORE Secured

on The Business Backer’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

LEARN MORE Secured

on LoanMe’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.

APPLY NOW Secured

on Elevation Capital’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

LEARN MORE Secured

on Reliant Funding’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 – $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)

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%–27.79%
  • No prepayment penalties
  • Funding in five days or less

LEARN MORE Secured

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

LEARN MORE Secured

on Fora Financial’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–$300,000
  • Payback terms from 12 to 60 months
  • Interest rates ranging from 9.77% – 35.71%
  • Funding takes an average of 7 days

LEARN MORE Secured

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

LEARN MORE Secured

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 to qualify for a business line of credit and a 530 credit score 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

LEARN MORE Secured

on BlueVine’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

LEARN MORE Secured

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.

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.

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

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Small Business

Working Capital Loans: The Complete Guide for 2019

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.

working capital
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As a business owner, you know that you need working capital to turn a profit. Without inventory, cash and receivables, you’re unlikely to stay in business long. However, getting the working capital you need can be a challenge.

In an ideal world, your business would generate working capital from cash flow. Unfortunately, over a third of all business owners rank cash flow as a top challenge facing small business owners. Without sufficient working capital, your business could be one of the 50% of businesses that fail within their first five years.

If you’re a company owner looking to boost your bottom line, improving the amount of working capital available may be the key to your success. By managing your company’s financial needs, creating a financial plan and using debt intelligently you will set your company up for long-term success.

What is working capital?

Working capital measures your company’s ability to meet your financial obligations in the short term. Lenders may want to look at your working capital to see how well you manage your company’s cash flow.

Another way to define working capital is the measure of your assets that can easily be converted to cash. To calculate your company’s working capital, add up your company’s current liquid assets (including cash, inventory and accounts receivable) then subtract your current financial obligations (including accounts payable, short-term loans, utilities, payroll, taxes etc.).

For example, an auto repair shop may have $32,000 in cash, $18,000 in accounts receivable (invoices that will be paid in the next month) and $14,000 in inventory.

These are the shop’s current assets:

Current AssetsCurrent Liabilities
Cash $32,000Accounts payable: $10,000
Accounts receivable: $18,000Payroll: $8,000
Inventory: $14,000Credit card payment: $6,000
Long-term loan payments: $3,000
Total current assets: $64,000Total current liabilities: $27,000

Working capital


$64,000 - $27,000


=


$37,000

When your current assets are worth more than you owe, you have positive working capital. On the other hand, when your current bills exceed your liquid assets, you have negative working capital.

Without sufficient working capital, your company could run into a cash crunch. At the very least, companies without much working capital struggle to jump onto new opportunities. In a worst-case scenario, your company’s bills go unpaid (or are paid late).

A few late payments might not seem like that big of a deal, but the problem could have cascading effects. Paying banks and vendors late will negatively affect your commercial (or business) credit score. In a short amount of time, vendors may start to give you less favorable terms. Your business becomes unlikely to get favorable financing rates, and your commercial insurance premiums may start to rise. With all these factors working against you, staying in business and avoiding further liquidity crunches become a huge challenge.

Even with positive working capital, some companies may struggle with their cash flow. Eric Giltner, who heads the North Dakota region of the Small Business Administration, recounted this story: “I counseled the owner of a lawn service who had receivables of over $40,000 and $25,000 in debts. The owner’s problem was there was no ‘teeth’ in his policy on collecting those dollars [from customers]. The business owner had to get aggressive in his collection procedures and was able to recover enough to pay his bills.”

When collecting payments takes too long, staying in business becomes difficult.

If you have negative working capital, or your company regularly struggles with cash flow issues, you will need to start making some changes. Giltner recommends meeting with a local Small Business Development Center that can help you develop a cash flow projection for free. If you’re more interested in the DIY approach, you can use some of the financial projection templates from SCORE, a nonprofit organization that helps entrepreneurs and small business owners.

“Too many small businesses fail to do a cash plan,” Giltner said. “It’s the biggest reason that small companies run into cash flow problems.” Working on a cash flow projection not only helps you shore up your business model, it may actually help you get funding for a working capital loan.

Understanding working capital loans

If your company is low on working capital, you may want to look into a working capital loan to help you boost profitability. Working capital loans are short-term loans that aren’t secured by equipment, land or inventory. We’ve rounded up some of the best options for small business loans, including working capital loans with interest rates starting around 6.75%.

You can use a working capital loan to pay for almost any business need. Whether you need to expand your marketing efforts, pay for additional inventory or consolidate debt, you can use the funds from a working capital loan to meet your business objectives. Some business owners even use working capital loans to cover everyday operating expenses during a low profitability season.

Most working capital loans are issued by nonbank lenders. With typical bank financing, business owners spend an average of 33 hours per year seeking financing. Working capital loans are underwritten quickly.

Although the speed and flexibility of working capital loans make them appealing to many business owners, they have drawbacks. Most working capital loans have extremely short terms ranging from three months to three years in length. The loans often have weekly or even daily repayment requirements.

They also may carry high interest rates. A typical rate for a working capital loan is 1%-3% per month, plus a 2.5% origination fee. This works out to at least a 15%-45% APR based on a 1-year repayment schedule.

How to use a working capital loan

The interest rates on working capital loans are much higher than rates on business lines of credit from traditional banks. Business owners shouldn’t think of working capital loans as long-term solutions. Instead, business owners should use the loans as a quick source of capital while they work toward lower-cost, more sustainable borrowing options.

However, even high-interest loans may have their place in your business. These are just a few reasons you might consider the loans:

To cover seasonal hiring needs: If you work in construction or other seasonal businesses, you may need to pay seasonal workers before you get paid. A working capital loan can help you bridge the gap that your savings won’t cover.

To pay bills: If you don’t have the money to cover rent, utilities or vendor accounts, you can use the proceeds from a working capital loan to pay the bills while you work on boosting the bottom line.

To purchase inventory: Restaurants, food trucks and stores often have to pay for several days (or weeks) worth of materials before they can make money from the inventory. A working capital loan can help you cover a big upfront expense, so you can earn a profit over time.

To fund unexpected opportunities: If a low cash balance is keeping you from taking on a bigger, more profitable project, a working capital loan could help you take your business to the next level.

To fill a financing gap: Your business may have qualified for a loan from a traditional bank, but not for the amount you needed. A working capital loan can cover the gap, so that you can develop your business further.

Debt consolidation: If you owe multiple lenders or vendors money, and your company is at risk of missing a payment, a working capital loan could help you consolidate your payments into a single loan at a manageable interest rate.

Is working capital financing right for your business?

Depending on the opportunities and risks facing your business, a working capital loan may make sense. It’s important to understand the advantages and disadvantages of working capital loans. Business owners should also consider whether they have alternative financing options (including using cash savings).

Advantages of working capital loans

Speed: The most important reason to consider a working capital loan is the speed of funding. Entrepreneurs know that time is money. If you have to spend weeks applying for a loan, a business opportunity may pass you by.

Cash flow: Despite their high interest rates, working capital loans are designed to be easier on cash flow than traditional loans. With daily or weekly payment requirements, business owners don’t have to worry about making a big payment at the end of the month.

No collateral: Working capital loans are typically a form of unsecured credit. That means that you don’t need to put up land, equipment or other assets as collateral for the loan.

Flexible use: Finally, working capital loans are more flexible than traditional business loans. You can use the proceeds from a working capital loan for almost anything related to your business. For example, you can use loan funds to meet payroll, cover an inventory expense or create a new marketing campaign.

Available for subprime borrowers: Borrowers with personal credit scores as low as 500 can qualify for a working capital loan.

What type of business should use working capital financing?

Working capital financing is generally best for companies that have to complete a long project before their client pays them. For example, a construction company may obtain a working capital loan to purchase materials or pay employees while completing a building project that will take several months to build.

Working capital loans also makes sense when the loan will allow a company to take on bigger or longer projects than they could do with their current cash on hand. For example, a parts manufacturer can use a working capital loan to pay for materials and direct costs while they fulfill an order that is much bigger than usual.

Due to the fast underwriting and funding time, working capital loans may make sense for entrepreneurs who need funding now but can obtain a lower cost loan (such as an SBA loan) within a few months.

It’s important to remember that working capital loans require daily or weekly payments, so you must generate sufficient cash to cover payments while your business works to make a profit.

Disadvantages of working capital loans

High cost: The biggest drawback to working capital loans is the cost of borrowing. Although the interest you pay will depend on a variety of factors, borrowing money is always more expensive than using cash. In some cases, a business credit card may be a less expensive alternative.

Frequent payments: Although the daily or weekly payment schedule may be easier for cash planning, the frequent payments could make it tough to grow your savings.

Short payback: Working capital loans have terms ranging from three months to three years, but a common payback period is less than one year.

May not help you build business credit: Not all lenders of working capital loans report timely payments to Dun & Bradstreet, the primary creator of business credit reports.

Who should avoid a working capital loan?

Many business owners seeking a working capital loan need money fast, but Giltner recommends that business owners should create a cash flow projection before seeking funding.

Entrepreneurs can get free help creating cash flow plans through their local small business development center. In addition to projecting cash flow, Giltner urges businesses to taking steps to boost their bottom line. In particular collecting overdue receivables, selling excess inventory and seeking out better terms with vendors can help business owners gain working capital without taking on loans.

Even when you need cash quickly, a working capital loan may not be the right answer. Some business owners can get better interest rates and terms using a small business credit card. An unsecured line of credit from a local bank could serve a similar function to a working capital loan, but at a lower interest rate (in some cases).

Shopping for working capital loans

When shopping for a working capital loan, it’s important to understand that working capital loans can be quite different than other forms of loans. The first major difference between traditional financing and working capital financing is how interest rates are expressed.

The typical term for interest rate is “Cents on” as in you’ll borrow $10,000 for 25 cents on the dollar. That means you’ll pay $12,500 to borrow $10,000. This cost includes $10,000 in principal balance repayment, and $2,500 in interest and fees. Some contracts allow borrowers to defray the interest cost by paying early, but other borrowers must pay the full amount whether they pay early or not. If you prefer to think in annualized interest rates, you can ask your lender to convert the fees to an annualized percentage rate (APR).

No matter how the loan interest rate is expressed, you must take the time to understand the terms. Are you paying an origination fee? You can see the cost of the fee in your loan funding documents. It’s common for working capital loans to carry a 2.5% origination fee. You should also understand whether the loan has late payment fees, prepayment penalties or other hidden costs. Before signing any loan documents, take the time to understand the loan contract. A loan officer should be able to explain all the fees in the loan documents.

Business owners also need to prepare to get loan offers for a smaller amount than they need. Under certain circumstances, lenders will fund a business owner’s full request for a loan, but sometimes they lend as little as half the requested funds. The total amount your business receives may depend on your business’s profitability, your credit history and other factors.

The loan offer experience will vary by lender, but approved borrowers can typically choose from a range of loan amounts and repayment periods. You’ll need to weigh the total cost of borrowing and the daily or weekly payments to determine which loan works best for your business.

Consider starting your small business loan search on LendingTree, our parent company. You simply fill out a short form and can potentially receive up to five offers from lenders.

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Minimum requirements for a working capital loan

Although working capital loans are more accessible than other forms of business financing, you must still meet some baseline requirements to qualify.

These are the other things you may need to qualify for a working capital loan:

A reason for seeking financing: Before applying for a business loan, you need a solid explanation for why you want the funds. Business owners who can’t explain how they will use the loan, may struggle to find a lender willing to work with them. Lenders want to be repaid, so they need to see that the loan is part of your financial plan. Even if you need the loan to catch up on bills, you need to explain how you’ll use your new financial position to boost your profits.

A business checking account: To qualify for a working capital loan, you may need a separate business checking account. This is the account where you pay most of your businesses expenses, and where you deposit income.

Business bank statements: Recent bank statements (from your business bank account) can show your historic spending. They will also prove whether you meet gross revenue requirements.

Annual revenue: Different lenders have different revenue requirements for business borrowers.

Time in business: To prove your business’s track record, you may be asked for a copy of your articles of incorporation, a business tax return or older business bank statements.

Personal credit score: The business owner may need to show their personal and/or business credit score(s).

If you qualify for a loan, you may need to submit further documentation before the loan becomes funded.

How to apply for a working capital loan

Thanks to internet marketplaces, applying for a working capital loan is now easier than ever. Many online applications will ask about the following areas:

Your industry: Some lenders specialize in working with borrowers from specific industries, so lenders may ask about your company’s industry.

Annual revenue: You need to provide an estimate of current and projected revenue for the upcoming year.

Personal credit score: To help with underwriting the loan, you need to provide an estimate of your personal credit score. Many credit cards provide estimates of your credit score. You can also get a free credit score from LendingTree, MagnifyMoney’s parent company.

Date of incorporation: This is the date your business was founded. If you have articles of incorporation, the date will be on those documents. If you’re a sole proprietor, give the date you started doing business.

Entity type: Is your business an LLC, a partnership or a sole proprietorship? Maybe it operates as an S or C Corporation. Although the entity type won’t affect your profitability, it will affect how your lender writes the funding contract.

Employer Identification Number (EIN): The EIN is a nine-digit business tax identification number assigned by the IRS. You will need this number to apply for credit. If you don’t have an EIN, you can use your Social Security number.

Social Security Number (SSN): Your SSN helps validate your personal credit score.

In addition to the information above, you may need to upload a few documents to the lender’s secure website.

Once you complete your application, you should keep your phone handy. A representative may call to clarify some details in your application. You may also be asked to submit more documentation.

For example, some businesses may need to provide include month-to-date bank statements, older bank statements, proof of payoff letters or other documents explaining your company’s financial health. You may also need to submit your company’s articles of incorporation, a business tax return or a copy of your driver’s license.

Some lenders provide fast funding as quickly as 24 hours.

Do I need a business credit score to qualify for a working capital loan?

Your business does not need a business credit score to qualify for a working capital loan. That’s good news for businesses that don’t have any existing credit. A lack of business credit score won’t hurt you when applying for a working capital loan through most online lenders.

If your business has a credit score, lenders may consider it during underwriting. Businesses with good business credit scores may be able to qualify for better terms and rates on working capital loans. On the other hand, a business with a bad business credit score may not qualify for a working capital loan.

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.

Hannah Rounds
Hannah Rounds |

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

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Reviews, Small Business

Kabbage Small Business Loan Review

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.

Kabbage business loans
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Kabbage is an Atlanta-based online lender serving small businesses. Since launching in 2008, Kabbage has loaned more than $5.6 billion to more than 150,000 businesses.

For qualifying borrowers, Kabbage offers financing to cover business expenses from marketing costs to equipment purchases.

Loans come as a revolving line of credit, which means you can pull funds from your credit line at any point. You can borrow as much as you need as long as you don’t exceed the maximum amount, and you only pay back what you borrow.

It’s free to apply for Kabbage financing, and there’s no cost until you start using your funds. But before filling out the online application, find out if Kabbage is the right lender for your small business.

Kabbage financing details

Kabbage provides a line of credit from $2,000 to $250,000 for eligible businesses. You can access your line of credit whenever you need it and take out as much as you want. Repayment terms range from 6 to 12 months.

Each time you draw from your line of credit, Kabbage treats that amount as an individual term loan. Rather than charging interest, a fee is added to your loan amount. You must pay back the loan amount plus the fee in either 6 or 12 months.

Fee rates range from 1.5% to 10% of your principal. Kabbage requires you to pay back part of your total loan amount each month, plus the monthly fee. For a six-month loan, you’d owe one-sixth of your total amount each month. For a 12-month loan, you would pay one-twelfth of your full loan amount each month.

For the first two months of a six-month loan term, your full fee rate would apply. But for the remaining months, your rate drops down to 1.25%.

Here’s an example of the fee you’d pay for a $10,000 six-month loan with a 4% fee rate:

Based on this example, a $10,000 loan would ultimately cost $11,300, as the monthly fees add up to $1,300.

Here’s what you would pay for the same loan amount and fee rate on a 12-month repayment schedule:

On this schedule, the monthly fees add up to $3,150, so you would ultimately pay back $13,150.

Kabbage’s reasoning for the fee schedule is that it gives you simple, proportional monthly payments. Every month, you would pay back an equal portion of your loan principal plus a monthly fee. Kabbage doesn’t charge prepayment penalties, so you could pay off your loan early to save on monthly fees.

Six-month terms require a minimum loan of $500, while 12-months terms require a minimum loan amount of $10,000. Utah-based Celtic Bank funds Kabbage’s financing.

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What businesses are eligible?

Kabbage provides small business loans to business owners with a bit of experience under their belt. To be eligible, you should be in business for at least a year.

You also need to have a minimum of $50,000 in annual revenue or $4,200 in monthly revenue in the last three months. Kabbage analyzes your business performance as a whole when reviewing your application, so there is no minimum credit score requirement.

Because of the minimal requirements, nearly any business could qualify for financing from Kabbage. But Kabbage does not work with nonprofits.

A line of credit can be used to cover a variety of business costs, including payroll, inventory, cash-flow needs or new equipment or staff members. Kabbage tries to make approval decisions quickly, which would be helpful if you need money fast.

This would also be a good option for business owners with minimal funding needs since a loan amount can be as low as $500. If you need a bit of cash to get you through a financial pinch, Kabbage may provide an ideal solution.

The pros and cons

Pros

  • Revolving line of credit allows for flexibility in how you use the funds
  • Credit score not a determining factor in whether you’re approved
  • Fast time to funding

Cons

  • Repayment process and fee structure may be confusing for new borrowers
  • Short repayment terms could be difficult for some
  • Product offering limited to lines of credit

Application process and requirements

Kabbage’s application process is simple and can be completed from a phone or a computer. You would need to submit your revenue data as well as basic personal and business information. Kabbage could review your application immediately and let you know how much funding you qualify for based on your business performance.

Here’s what Kabbage needs:

  • Business checking account
  • Your name
  • Business name
  • Home and business address
  • Business tax ID
  • Social Security number

If your line of credit is smaller than $150,000, Kabbage may be able to automatically verify your business data and bank account and approve you in minutes. But applications for lines of credit exceeding $150,000 need to be manually reviewed and could take longer to be approved, meaning it could be several days before you receive your funding.

Upon approval, Kabbage would reveal your fee rate and loan terms. But you don’t have to start repaying until you borrow funds from your line of credit.

You can access your funds through the Kabbage mobile app or online dashboard page. To withdraw funds, you would input the amount you need and review the repayment schedule. Kabbage would then deposit the funds in your bank account in one to three business days. If Kabbage has a link to your PayPal business account, you could receive your funds in minutes.

The account where you choose to deposit your funds is also the account from which Kabbage will withdraw your payments. Kabbage automatically withdraws payments each month, unless you manually make a payment from your Kabbage dashboard.

You could also get a Kabbage Card, which allows you to access your line of credit like you would with a regular credit card. However, rather than having minimum payments as you would with a traditional credit card, using the Kabbage Card would create a structured repayment period.

Kabbage would need to mail the card to you to be activated before you can begin using it. The Kabbage Card is accepted anywhere Visa is accepted.

The fine print

Funding may not always be fast. Although Kabbage advertises fast time to funding, there are instances when it could take several days to receive funding. If there are errors during the sign-up process, funding may be delayed. Additionally, Kabbage may need to send you micro-deposits as a security precaution to confirm your bank account.

Be prepared for changes. The financing is subject to review and change. This could include reductions or increases in your line of credit or pricing, or the elimination of your credit line altogether.

Check your loan agreement. Each time you draw from your credit line, a separate loan is issued for the individual amounts. Each amount will have a separate loan agreement spelling out the repayment schedule for that particular withdrawal. Be sure to check the agreement each time you take out funds.

The bottom line

All types of small businesses can apply for Kabbage financing. And because Kabbage doesn’t have strict credit requirements, business owners with less-than-perfect financial history could be approved for funding. Kabbage’s application and approval process are also fast. If your business has immediate cash needs, this may be the right solution for you.

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 melissa@magnifymoney.com

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