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Small Business

Alternative Lending Options: Finding the Top Non-Bank Business Loans

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Starting a business can be difficult. Finding funding for a business can be even harder. If you want to work with the best business financing companies, you’ll have to do some research, but it will be worth it.

Being in business can be stressful enough, so it’s a good idea to find a lender that is flexible, responsive and can offer the best terms and rates for the financial products you’ll need to support your business. Check out these twelve alternative lending options and discover which one best fits your financial situation.

Choosing the right alternative lending company

You’ll want to be very selective when considering alternative lending companies. Understanding the terms they offer is important so you are not locked into a deal that isn’t right for you or your business.

For example, if you are looking for equipment financing, but you are working with a lender that specializes in lines of credit, you may not get the best rates and terms available for your business. A lender that requires you to personally pledge assets is not a great fit for you if you don’t own anything to pledge.

Another consideration is working with a lender that understands your industry. The underwriting process is designed to mitigate risk for lending institutions. If they do not understand your business or industry, they may deem it risky.

Some things to consider when looking for the best alternative lending option:

  • Type of financing offered: This includes lines of credit, equipment financing, etc.
  • Terms: This includes interest rates, application fees, length of loans, etc.
  • Requirements: Personal credit score or amount of time in business
  • Speed: How quickly can a lender fund your loan?

The good news is that there are plenty of players, old and new, in the small business financing space. Once you understand your needs, you can get rates and terms from a few lenders and then choose the one that works best for you and your business.

OnDeck Capital

Loans offered:OnDeck Capital offers offers small business loans to U.S.-based companies. OnDeck Capital’s products include business loans, lines of credit and equipment financing.

Terms: OnDeck Capital’s short-term loans range from 3 to 12 months. Its long-term loans are from 15 to 36 months.

Fees: For the terms loan, there are origination fees based on whether you’ve gotten a loan from OnDeck before.

  • 1st loan: 2.5 to 4 percent of loan amount
  • 2nd loan: 1.25 to 3 percent of loan amount
  • 3rd+ loan: 0 to 3 percent of loan amount

The line of credit has a $20 monthly maintenance fee. The fee is waived for six months if you draw $5,000 or more in the first five days after opening your account.

Requirements: You must be in business at least one year and have over $100,000 in revenue over the last 12 months. A personal credit score of over 600 is required. Your business cannot be in one of the restricted industries OnDeck Capital will not lend to.

Time to funding: Loan funds can be disbursed as fast as one business day.

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CAN Capital

Loans offered:CAN Capital provides term loans and merchant cash advances.

Terms: Loan terms last from 6 to 18 months.

Fees: There is a 0.00% - 3.00% origination fee for term loans. MCAs have a $395 administrative fee.

Requirements: Term loans require a personal guarantee from the owner and more than six months in business. The business should have at least $150,000 in gross revenues. MCAs don’t require any collateral.

Time to funding: Funds can be in your account in as little as two days.

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Credibly

Loans offered:Credibly offers working capital loans, business expansion loans and MCAs.

Terms: Working capital loan terms are from 6 to 18 months. Business expansion loan terms are for 18 or 24 months.

Fees: For all loans, there is a one-time setup amount that is 0.00% - 2.50% percent of the loan or total cash advance.

Requirements: For the working capital loan and MCA, Credibly requires the applicant to have a FICO score of 500 or higher, more than six months in business and $15,000-plus in average monthly bank deposits. The business expansion loan requires applicants to have a FICO score of at least 600, more than three years in business and $15,000-plus in average monthly bank deposits along with $3,000-plus in average daily balances.

Time to funding: You can receive funds in your account as soon as the same day.

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

National Funding

Loans offered:National Funding offers small business loans, along with equipment financing and leasing. For the small business loans, National Funding as a number of options:

Terms: Small business loans are for amounts between $5,000 and $500,000.

Fees: Information not available online.

Requirements: Small business loans require at least one year in business, $100,000 in annual gross sales and three months of bank statements. Equipment financing and leasing requires at least six months in business, a FICO score over 620 and an equipment quote from a vendor.

Time to funding: Funds can be received in as little as one day.

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Fora Financial

Loans offered:Fora Financial offers small business loans and MCAs.

Terms: The term on Fora Financial’s small business loans is up to 15 months. The MCA doesn’t have a set term.

Fees: Fees are based on individual and/or business credit profiles and determined at the time of approval.

Requirements: The small business loans requirements include: at least six months in business, $12,000 minimum in gross sales and no open bankruptcies.

Time to funding: You can receive funds in as little as 72 hours after your loan approval.

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The Business Backer

Loans offered:The Business Backer offers term loans, MCAs, lines of credit and SBA loans.

Terms: Terms will depend on the type of loan you choose:

  • Term loans for $5,000 to $350,000 have one- to three-year terms
  • MCAs for $5,000 to $200,000 have daily weekly or semi-monthly payments
  • Business lines of credit for $5,000 to $150,000 have one- to two-year terms
  • SBA loans from $3,000 to $350,000 have terms up to 10 years

Fees: Fees vary based on loan product.

Requirements: Businesses must have a minimum of one year in operation and $180,000 in annual gross revenue. Then you can begin the prequalification process for a loan.

Time to funding: Once you accept The Business Backer’s offer of funding, typical closing times are only a few business days.

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BlueVine

Loans offered:BlueVine offers invoice factoring and lines of credit.

Terms: Lines of credit for up to $250,000 can be paid back weekly over six or 12 months. Invoicing factoring limits can go as high as $5 million.

Fees: Fees are based on individual and/or credit profiles and determined at the time of approval.

Requirements: For the BlueVine line of credit, you’ll need a FICO score of 600 or higher, more than six months in business and at least $100,000 in revenue. For invoice factoring, you will need a FICO score of at least 530, more than three months in business and $100,000 in annual revenue. Your business must serve other business customers.

Time to funding: BlueVine responds to applications within 24 hours. For funding, you can choose between ACH electronic transfers or bank wire transfers. ACH transfers usually appear the next business day, but could take up to three days.

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Forward Financing

Loans offered:Forward Financing offers a variety of financing options up to $300,000 based on your business needs. To find out the products you are eligible for along with related rates, terms and fees, you must complete a loan application with Forward Financing.

Terms: Term varies based on business and product.

Fees: Fees vary based on business and product.

Requirements:

  • Owner’s name
  • Owner’s Social Security number
  • Business name
  • Business employer ID or tax ID
  • Recent bank statements for the business

Time to funding: Information not available online.

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Kabbage

Loans offered:Kabbage has several small business financing options of to $250,000. Unsecured loan products include:

  • Business lines of credit
  • Working capital loans
  • Online loans
  • Professional loans
  • Commercial loans
  • Short-term business loans
  • Inventory loans

Secured loan products include:

  • Equipment loans
  • Merchant cash advance
  • Factoring
  • SBA loans

Terms: Kabbage offers 6– and 18-month terms for its loan options.

Fees: Your fee rate will be between 8.00% and 24.00% of the principal loan amount and is determined based on your business performance factors.

Requirements: You must have at least one year in business and have at least $50,000 in annual revenue or $4,200 per month over the last three months.

Time to funding: Approval can take minutes. After that, once the loan agreement is signed, funds are sent to an account of your choosing. Loans deposited via a PayPal account can be in your account in minutes.
Loans deposited to your business checking account can take up to three days to process, depending on your bank. You may also withdraw funds using your Kabbage Card. The loan proceeds are issued immediately in this case.

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Reliant Funding

Loans offered:Reliant Funding offers short-term loans, MCAs and equipment loans.

Terms: Terms and rates depend on the loan type and your business credit profile.

Fees: Information not available online.

Requirements: Must be in business with current owner for at least one year and have at least $100,000 per year in revenue with no open bankruptcies.

Time to funding: Loans can be disbursed as soon as one day.

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Expansion Capital

Loans offered:Expansion Capital offers various small business loan products from $5,000 to $500,000. Amount and terms will vary based on individual business qualifications.

Terms: Loans are offered for 4 to 12 months.

Fees: Terms, fees and rates may vary by application. To find out the amount you qualify for, along with related terms, complete an application.

Requirements: Must be in business for more than six months, have a personal credit score of at least 500 and annual sales of at least $100,000. The business must not operate in any restricted categories set forth by Expansion Capital.

Time to funding: You can receive a quote on your loan within 24 hours. Money can be deposited in your account as little as two business days.

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Rapid Finance

Loans offered:Rapid Finance has lending products that cover: small business loans, SBA bridge loans, MCAs and lines of credit.

Terms: Small business loan terms are up to 60 months and funding amounts range from $5,000 to $1,000,000.

Fees: Fees will vary based on the product and your business credit profile.

Requirements: For small business loans and MCAs, you must be in business for two years or longer and have monthly revenue of at $5,000 or more.

Time to funding: You can receive funds in as little as one day.

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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.

Aja McClanahan
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Aja McClanahan is a writer at MagnifyMoney. You can email Aja here

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Small Business

Brick-and-Mortar vs. Online Banks: Which is Better for Small Businesses?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Separating your personal and professional finances is crucial when starting a business, and changes in technology are making it more convenient to do so. Not only could you turn to traditional brick-and-mortar banks, but you could take advantage of the resources that digital banks offer.

Opening a business bank account would allow you to clearly track your income and expenses without putting your personal spending in the mix. Managing a business bank account would also help you build your credit profile — you could become eligible to open a business line of credit or credit cards connected to your account.

Whether you choose an online bank or a brick-and-mortar bank would depend on which type fits your needs as a business owner. Keep reading to find out what kind of bank would be best suited for you.

Small business banking: Brick-and-mortar vs. online banks

A key difference between traditional and online banking is the flexibility that digital banks provide, said Barry Coleman, vice president of counseling and education programs at the National Foundation for Credit Counseling. Small business owners could have around-the-clock access to online banking services as long as they have a device and an internet connection.

“This can certainly help busy business owners who are strapped for time by allowing them the option to bank on their schedules,” he said.

Brick-and-mortar banks

Although most brick-and-mortar banks now offer online banking features, consumers still must make some transactions in person, Coleman said, such as cash transactions that require personal identification. When opening a business checking account with Chase, for example, customers must meet with a business banker before enrolling in online and mobile programs. Still, this could be a draw for some business owners.

“Some consumers are simply more comfortable having a physical banking location where they can perform transactions and speak to banking associates in person,” Coleman said.

New business owners could also benefit from the guidance that bankers provide, said Grier Melick, business consultant at the Maryland Small Business Development Center. Establishing a personal relationship with a banker could also be beneficial if you plan to apply for a small business loan. You may have a better chance of being approved for funding if the bank already knows and trusts you.

“Oftentimes, small business owners do not know everything that they need to from a business banking perspective,” Melick said. “Having some direct human involvement can help with that.”

Online banks

Online banks have lower overhead costs than traditional banks, and those lower costs typically result in higher interest rate yields on deposits for digital banks than branch-based banks, he said. For instance, a high-yield business savings account could have an APY as high as 2% and no minimum account balance.

However, brick-and-mortar banks have the advantage of allowing customers to make cash deposits or withdrawals; an online bank typically wouldn’t offer that feature, Coleman said. However, online banks sometimes belong to free ATM networks, like Allpoint, which would allow you to avoid the withdrawal fees that you’d incur at other ATMs.

Best of both worlds

It’s possible to have accounts at both types of banks, Melick said. For example, the owners of a brick-and-mortar store may start with an account at a local bank branch, then open a digital account when they decide to start selling online.

“Instead of severing ties with the bank, they could open an online account as well to handle their other revenue streams,” he said.

You could be subject to banking fees at both traditional and online banks, Coleman said. However, online banks generally charge considerably fewer fees and you may be able to avoid overdraft, monthly maintenance and ATM fees that come with a traditional bank account.

Here’s a quick look at how the two types of banks stack up.

Online banksBrick-and-mortar banks
24/7 access to accounts and banking features.Online banking features typically offered, but some transactions may have to be completed in-person during bank hours.
High-yield accounts available.Lower interest rates because of overhead costs.
Customers cannot complete in-person cash transactions or meet with bank representatives.Customers can make cash transactions, and bank representatives are available for meetings.

Digital services on the horizon for traditional banks

Online banks are growing in numbers and popularity, Coleman said. Traditional banks have taken this trend as a cue to bolster digital offerings for consumers.

“As a result, we are seeing traditional banking introduce more digital options for providing services,” he said.

The presence of digital financial technology is expanding within the financial services industry, comprising 7% of the total equity of U.S. banks, according to research from consulting firm McKinsey. To keep up, traditional banks must consider ramping up digital efforts in areas such as design, innovation, personalization, digital marketing, data and analytics to provide value to customers.

A few traditional banks rolling out expanded digital services include:

Bank of America

Earlier this year, Bank of America created Business Advantage 360 for customers who have business deposit accounts with the bank. The free tool provides a digital dashboard showing business owners their major expenses and transactions, as well as automated cash flow projections that can be adjusted to account for new sales or other data. Users can also connect with small business bankers through the dashboard.

PNC Bank

PNC Bank rolled out a digital business lending platform this year in partnership with OnDeck, an online small business lender. Leveraging OnDeck’s digital loan origination process, PNC aims to provide customers with business financing in as few as three days, a significantly faster timeline than how long it would take to process a conventional bank loan.

Popular Bank

Similarly, New York-based Popular Bank announced a partnership last year with Biz2Credit, an online lender serving small businesses. Popular Bank leans on Biz2Credit’s technology to digitally process loan applications outside of regular bank hours, effectively speeding up time to funding.

As the lines begin to blur between online and brick-and-mortar banks, business owners may find themselves with an increasing amount of digital opportunities. However, a demand for brick-and-mortar banking will likely remain. Small business owners who borrowed from an online lender reported feeling less satisfied than those who borrowed from a community bank — 49% vs. 79% — according to a Federal Reserve survey.

“Whether consumers turn to online only banks, or traditional banks that offer online products and services, the availability of online options will more than likely continue to grow,” Coleman said.

Which bank is best for your small business?

Whether you choose an online bank or a brick-and-mortar bank to house your business funds would depend on your personal preference, Coleman said.

No matter which you pick, make sure the Federal Deposits Insurance Corporation insures your bank of choice, he said. Single consumer accounts, joint accounts and business accounts, among others, would be protected at FDIC-insured banks in the event of bank failure. Deposits up to $250,000 should be safe and covered.

If you like having the ability to sit down with a banking professional to discuss your business needs, a branch-based bank could be the better choice, Coleman said. The physical presence that traditional banks provide could add a level of trust and reassurance. Keep in mind, though, that most locations have standard business hours that may not be conducive to your schedule as a business owner, he said.

A digital bank would allow you to complete your banking activities on your own time, said Coleman, though traditional banks oftentimes provide online services as well. He also noted that you may want to avoid using a public WiFi network to make business transactions, as those networks may not be secure and your information could be vulnerable.

A digital bank wouldn’t offer the same in-person service as a traditional bank, Coleman said, but you may not feel like you’re missing out.

“If the business owner already knows what they are looking for in a bank, and the online bank meets their needs, then they may prefer the online bank for its convenience, potential lower fees and higher interest on deposits,” he said.

All business owners should at least consider opening a high-yield savings account for cash that isn’t needed for daily operations, Melick said.

“Small businesses need to make sure that every penny they make works for them,” Melick said. “Oftentimes, the best way it can is through online banking accounts.”

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

Melissa Wylie
Melissa Wylie |

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

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Small Business

Business Acquisition Loans: What They Are and Where to Find Them

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Buying an existing business can be an effective strategy to grow your operation. But if you don’t have enough cash to make the purchase, a business acquisition loan could help you finance the deal.

There were more than 17,500 mergers and acquisitions in North America in 2018, according to the Institute of Mergers, Acquisitions and Alliances.

Continue reading to find out where you could find a loan to buy a business — and how to boost your approval chances.

Types of business acquisition loans

There are several ways to finance a business acquisition. In some cases, the seller may loan you the money and accept payments taken from your business profits. Or, you could assume the business’ existing debt by purchasing both its assets and liabilities.

You could also pursue a leveraged buyout, which involves using business assets to fund the purchase. However, a leveraged buyout typically requires additional financing, such as a business acquisition loan.

Business purchase loans come in a variety of forms. Here are a few for which you could apply.

Term loans

A long-term business loan can finance a wide range of purchases — generally between $25,000 and $200,000. Long-term loans have fixed monthly payments and fixed interest rates, which allow you to plan for regular payments. You could be required to provide a 10% to 30% down payment. These loans typically must be paid back in three to 10 years and often have lower interest rates than financing products with shorter repayment terms, such as short-term business loans that must be paid back between three and 18 months.

Lenders may require substantial paperwork from applicants, which could slow down how long it takes to get funding. Some businesses could have trouble qualifying since borrowers usually need two years in business, a strong credit profile and collateral to be eligible for long-term loans.

SBA loans

The U.S. Small Business Administration guarantees a portion of loans made to small businesses through partner lending institutions. SBA loans range from $500 to $5.5 million for qualifying small businesses. You may be required to make a 10% to 20% down payment. The 7(a) loan program is the SBA’s primary financing option and may be best suited to fund business acquisitions. The standard 7(a) loan is available for up to $5 million. The SBA guarantees 85% of loans that are $150,000 or less, and up to 75% of loans exceeding $150,000.

Repayment terms for 7(a) loans could be up to 25 years for real estate purchases and up to 10 years for equipment purchases or working capital. Interest rates can be fixed or variable and would be based on the prime market rate, plus a markup rate. The SBA caps the percentage that lenders can add to the prime rate to limit how much interest borrowers must pay.

Equipment financing

Equipment loans are designed to finance the purchase of business assets, which could be useful if you’re buying a business based on the value of its equipment. The equipment would act as collateral on the loan, which could lower the interest rate and make payments manageable. Interest rates could range between 6% and 12% depending on factors such as your terms and down payment. Borrowers typically have to make a 10% to 20% down payment and need good credit to qualify for financing.

Repayment terms for equipment financing generally range from six months to 10 years. In some cases, the terms of an equipment loan could exceed the useful life of the asset.

Where to find a loan to buy a business

Business acquisition loans are available from traditional banks and alternative online lenders. To give you a starting point, we’ve rounded up a few lenders that specialize in business acquisition financing or SBA lending.

Live Oak Bank

Live Oak Bank is an SBA lender offering acquisition loans to veterinarians, pharmacists and investment advisors. Live Oak Bank is headquartered in Wilmington, N.C., but it lends to businesses nationwide.

Live Oak Bank issues SBA 7(a) loans up to $5,000,000 to buyers of companies with $250,000 to $1.25 million in EBITDA, or earnings before interest, taxes, depreciation and amortization. Those loans have 120 month repayment terms, and interest rates are subject to the SBA cap. If you’re acquiring a business with more than $1 million in EBITDA, you could be eligible for a companion acquisition loan up to $2.5 million from Live Oak Bank. Companion loans have repayment terms between five and seven years. The interest rates, according to Live Oak Bank, may be higher than rates for SBA-backed loans.

Ameris Bank

Ameris Bank, with locations across the South, offers financing for business acquisitions. Businesses of all sizes can apply for funding. Repayment plans can be set up on an annual, semiannual or monthly schedule. Rates and terms are competitive, according to Ameris Bank, and would depend on your profile as a borrower.

It is also an SBA preferred lender and issues SBA loans to finance business acquisitions. Applicants would be required to provide at least 10% equity to qualify for an SBA loan. Repayment terms could be as long as 300 months, and rates would be subject to the SBA cap.

Smartbiz

Smartbiz is an online marketplace specifically for preferred SBA lenders. Smartbiz matches lenders to applicants who may have trouble qualifying for loans from their local bank. Loans are available for up to $5,000,000 with interest rates between 6.50% and 8.75% and terms between 120 and 300 months.

Borrowers must have at least two years in business, good credit, no recent bankruptcies and sufficient cash flow to repay debt. Smartbiz can process an application and disburse funding in as few as seven days.

Banner Bank

Banner Bank, which has locations in California, Idaho, Oregon and Washington, offers merger and acquisition financing to business owners looking to grow through acquisition or to buy out a business partner. Loans come with fixed or variable interest rates and terms up to 84 months. Applicants would need to set up a meeting with a relationship manager at their local bank branch to find out if they qualify.

How to get a business acquisition loan

When applying for an acquisition loan, the lender would likely dig into details about your business, as well as the business you plan to buy.

Be prepared to share the following information about your company with lenders:

  • Personal credit history: Having a strong personal credit profile and a FICO Score exceeding 680 would make you appear more attractive as a borrower and could help you get a lower interest rate.
  • Professional experience: Your success as a business owner would impact whether a lender would issue you a loan to acquire and manage another business. If you do not own a business, relevant industry or career experience could be valuable.
  • Business plan: A lender would review yours to make sure you have a strategy to grow your existing business and the acquired business.
  • Financial documents: To illustrate your record of operating profitably, you would need to submit financial statements such as your balance sheet, income statement and cash flow statement. A lender would want to see if your business will generate enough cash flow to repay an acquisition loan.
  • Industry: Lenders view some industries as riskier than others. Professional service providers tend to be safer borrowers, while volatile businesses such as restaurants, retailers or vice-related companies could be considered risky.

The industrial sector has seen the highest percentage of business transactions since 1985. Behind industrials is the technology and financial sectors. On the other hand, mergers and acquisitions are less frequent in the telecommunications, retail and real estate industries.

Regarding the business you plan to acquire, a lender would likely evaluate:

  • Business credit profile: The business should have a strong credit profile that shows a history of making on-time payments to vendors and suppliers.
  • Financial statements: The company’s balance sheet, profit and loss statements, tax returns, current debt liabilities and cash flow analysis would give the lender a look at the viability of the business.
  • Projections: Revenue and sales projections for the next few years would also help a lender understand the potential value of the acquisition.
  • Valuation: The valuation of the business would show how much the deal is worth, which would affect your loan amount.

Before giving you the green light, a lender would want to make sure you’re buying an established business that would generate enough revenue to allow you to repay your debt. With this information, you could make sure the loan application process goes smoothly and increase your chances of approval.

The bottom line

Business acquisition loans can fill the gap when you want to purchase a company but don’t have enough funds to do so. Term loans, equipment loans and SBA loans could be used to cover a business acquisition. You could apply for financing from a traditional bank or online business lender to obtain the necessary money to finance the deal.

Be sure to shop around before accepting an offer. Wait for a loan that not only provides the amount of funding you need but comes with repayment terms and interest rates that work best with your small business.

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

Melissa Wylie
Melissa Wylie |

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