Advertiser Disclosure

Small Business

Personal Credit Card vs. Small Business Credit Card for Your Business

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews 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.

Black woman using credit card and laptop

Need a credit card to use for your business, and aren’t sure whether to choose a personal or business credit card? There are quite a few differences you need to be aware of to make an educated decision.

Why? For one, personal credit cards offer certain protections under the Credit CARD Act of 2009 that business cards don’t.

Second, while business credit cards can be used for business expenses, your personal credit is still taken into consideration when applying for one. With most cards, you’re still personally liable for any debt accrued on your business card.

Third, you should know you don’t actually need to be a business owner in the traditional sense to get a business credit card. Freelancers and contractors can apply, too. Most of the time, you only need to supply a Doing Business As (DBA) name. You can use your social security number and name and classify yourself as a sole proprietor when applying.

If you want to know all the pros and cons of using a personal or small business credit card for your business, read on to learn what factors to consider.

Using a Business Credit Card – The Cons

Applying for a business credit card to use for your business might make sense intuitively, but it’s critical you read the fine print before proceeding with one.

We mentioned business cards aren’t treated the same as personal cards due to the Credit CARD Act of 2009. What exactly does that mean?

With personal credit cards, you get a 21-day window for payments. With business credit cards, that doesn’t exist. Your due date can change month to month.

With personal credit cards, you get 45 days notice if your interest rate is increasing. With business credit cards, your rates could go up overnight.

This applies to introductory rates, too. Introductory rates for personal cards need to be offered for at least six months. There’s no mandatory period for business cards – the introductory rate can disappear at any time.

Additionally, payments might be applied differently to business credit cards. While payments are directed to the highest APR balance for personal credit cards, payments made toward balances on business credit cards can be applied toward the balance with the lowest APR. This varies by issuer.

There are also no limits when it comes to fees for business credit cards. For example, late fees can’t exceed $25 on personal credit cards. That’s not true for business credit cards.

Lastly, some companies don’t report your business credit history on your personal credit history. The two tend to be separate, unless you make a mistake with your business card. For example, if you’re late on a payment or default on your business credit card, it will show up on your personal history.

This also means business credit cards aren’t the best choice if you’re looking to improve your credit score, as good history isn’t likely to be reported. However, it can at least help you build your business credit score.

Overall, it’s important to review the details before you apply. Some companies voluntarily give their business credit cards the same protections offered to personal credit cards. Many will give you notice before raising your rates, or changing your due date.

Using a Business Credit Card – The Pros

Now that you know what to look out for when applying for a business credit card, we can talk about the perks.

The most obvious benefit is being able to separate personal and business transactions with ease. As a business owner, you know how hectic tax time can be. If you’re sick of shuffling through statements trying to figure out which transactions were personal or business related, you won’t have to anymore.

Business credit cards often come with tools to organize and categorize your business spending, too. If you want to get multiple cards for employees, this will make streamlining your spending simpler.

You’ll also have a much higher credit limit on a business credit card than you will with a personal credit card. Sometimes larger expenses are needed to get your business off the ground, or you’re going through a period of growth where you want to invest in expanding.

Some business credit cards also come with special repayment terms. If you need help managing your cash flow, you may be able to work out a different payment system with your creditor.

Although business credit cards may not come with the consumer protections we’re used to with personal credit cards, they still offer similar benefits when it comes to specific Visa or MasterCard benefits. Warranties, fraud protection, and price protection are a few everyone has access to.

If you love getting rewards points with credit cards, business credit cards often have the best sign up bonuses. They also have higher spending requirements, but if you time your sign up with a large business expense, it shouldn’t be hard to meet it. Just remember to watch out for annual fees, as these tend to be higher on business rewards cards.

Additionally, you can earn bonus points on business expense categories such as office supplies, travel, and wireless phone plans. This means you can capitalize on getting more points for business expenses, while still using your personal cards for things like gas and groceries. You’re able to get the best of both worlds when it comes to gaining rewards points.

[Look for a Business Credit Card Here.]

Using a Personal Credit Card for Your Business

If using a business credit card sounds a bit too volatile for your tastes, stick with a personal credit card. Owning a business doesn’t mean you need to have a business credit card if it’s something you’re not comfortable managing.

It might be more challenging to separate business expenses from personal expenses, but if you open a personal card solely dedicated to business transactions, you won’t have as much difficulty come tax time.

Plus, if your business is on the small side, or you work alone, then you might not spend enough to make business rewards cards worthwhile.

There’s nothing wrong with either approach, but it can be more beneficial to use a business credit card.

The Bottom Line

Opening a business credit card means your eyes need to be on your account as often as possible. Set reminders to check your due dates, and try not to carry a balance on your card. This will automatically protect you from any rate hikes that may occur, and you won’t have to worry about introductory rates expiring randomly.

As long as you treat your business credit card like you would a personal credit card (that is, responsibly), you’ll be able to take advantage of the many perks offered to business owners. You’ll have an easier time sorting your expenses, your business and personal credit will (for the most part) be kept separate, and you can enjoy gaining rewards points from both your business and personal cards.

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.

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at


Advertiser Disclosure

Small Business

10 Must-Read Email Newsletters for Business Professionals

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews 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.


When business is your life, you’ve got to keep up with the changes. That can be challenging, to say the least, given the fast pace of news and the demands of your career. Emailed newsletters can help you stay on top of the biggest and latest business news.

Going through your email is anything but a drag when you’re subscribed to any of the following must-read business newsletters. They will help you quickly catch up on the news you need to know about finance, technology, business, politics, culture and the economy. And, you might have some fun reading them.

The Hustle

The Hustle is a daily newsletter covering the latest news in business, technology and culture. The briefing conveys what you need to know for the day in clear, relatable and often hilarious prose. On weekdays, The Hustle is packed with information about and analysis of three to five business-related topics you can bring up at the watercooler, and it ends with a Spotify link to the song of the day. The weekend edition takes a deep dive into a single news topic or entrepreneurial story.

Morning Brew

Morning Brew is an easy-to-read daily briefing designed to help young professionals begin the day informed about the most important business news. The lighthearted newsletter recaps the previous day’s stock market performance before summarizing a handful of the day’s most important business and financial news. Each email ends with a brain teaser to help prime you for the workday. Each Monday, Morning Brew reminds readers about important events coming up during the week, like U.S. economic reports, national holidays and must-read company earnings. Pay attention — there’s a quiz on the week’s news every Friday.

Wall Street Breakfast by Seeking Alpha

Wall Street Breakfast is a Seeking Alpha’s daily, rapid-fire summary of important business news. The newsletter summarizes what’s happening in the economy and touches on everything from the financial markets to how governments and other factors contribute to the international financial climate. Wall Street Breakfast is a newsletter investment bankers and fund managers would appreciate. It’s a quick and easy read, but if you’re on the go and can’t look at your phone for a solid five minutes or less, the editors include a link to the daily Wall Street Breakfast podcast, so that you can listen instead.

Market Snacks

Market Snacks is a daily briefing that summarizes Wall Street’s biggest news into fun, snackable content you can digest in about four minutes. Market Snacks gives an overview of the previous day’s market performance, then provides a clear and concise analysis of about four business-related topics. The editors are careful to include a link to the day’s 15-minute Market Snacks podcast, too. Each briefing includes a subscriber-submitted fun fact and concludes with a few bulleted reminders of important events and earnings to watch for throughout the week.

The Plug

The Plug tells the stories of undercovered tech entrepreneurs of color and their companies. The daily newsletter provides coverage of founders and innovators of color from all over the globe who you’re not likely to see mentioned elsewhere. According to its editor, the newsletter aims to “set a standard for the expansion and depth of diverse and inclusive entrepreneurship, start-up environments and technological progress.” If you’re tired of hearing about the same few companies over and over, The Plug may be a welcome change of pace.

She Spends

She Spends is a weekly summary of current events related to women and finance, plus business and personal finance tips. Its mission is to increase financial literacy among women and to inspire more women to invest and shoot for company leadership positions. The Friday morning newsletter offers spotlights on impactful women in business, anonymous money diaries contributed by subscribers and tips for making your money work for you. It’s great material for end-of-week conversations at the office or catching up over brunch with friends.

Benedict’s Newsletter

Benedict Evans, a partner of Silicon Valley venture capital firm Andreessen Horowitz, sends a weekly (mostly) newsletter commenting on the tech news he found interesting during the week. Aside from some industry jargon sprinkled throughout, Benedict’s newsletter is a simple, straightforward and compelling read for those interested in the world’s largest tech companies. Evans follows his analysis with links to a number of interesting reads, tech industry commentary, news about cool new tech stuff and occasionally a statistical piece or two.


Broadsheet is a daily newsletter from Fortune about “the world’s most powerful women.” The curated newsletter shares its analysis of notable stories about women in business, government and technology from all over the world. The articles it shares address topics like the glass ceiling, the #MeToo movement, government policies, deals and acquisitions of women-led companies and business news involving women in company leadership, among others.

Lean Luxe

If you’re curious about upstart luxury brands like Cuyana, Ledbury and MM. LaFleur, Lean Luxe might be the newsletter for you. The newsletter aims to give readers an insight into the affairs of key players in the luxury sector and how the brands are affecting consumer behavior around the globe. Each Lean Luxe briefing — delivered two to three times a week — kicks off with a brief analysis of need-to-know industry news. It then dives into a shorter analysis of about four to five curated articles, then ends each issue with a link to the Lean Luxe Office Radio playlist, curated by a different luxury brand founder each week.


Femstreet delivers a weekly roundup of news concerning women in technology, entrepreneurship and venture capital. The Monday morning newsletter emphasizes on diversity in business and touches on topics like news and insight about women-led start-ups, engineering, technology research and others. Its curators give brief commentary on each piece and provide a link for you to explore further. Femstreet’s Built by Women interview series on its blog shares successes, secrets and stories of failure from women founders and their businesses.

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.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at


Advertiser Disclosure

Small Business

How to Use a Working Capital Loan for Your Business

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews 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.


It takes money to make money, but sometimes it’s difficult to obtain the capital you need to run a profitable business.

Despite business owners’ best efforts to plan monthly expenses around anticipated revenue, unexpected costs can throw off the entire plan. For those struggling to fund their daily operations, working capital loans could provide a quick solution.

What is working capital?

Working capital is the money available to fund a business’ day-to-day operations. To determine working capital, business owners subtract their current liabilities from their current assets. The formula defines whether a company has enough cash on hand to pay its immediate expenses.

A business owner’s personal savings or a loan could supply working capital, which fills the gap between expenses and the amount of income the business is generating, Joel Youngs, regional director of the Eastern Iowa Small Business Development Center, told MagnifyMoney.

“There’s an ebb and flow in the expenses a business owner has to pay in a given month versus the money that’s coming in,” Youngs said. “When life throws a curve at you, you access that money to pay the bills.”

Business owners increasingly need help making ends meet on a short-term basis. Working capital was the main reason 66 percent of U.S. business owners sought financing in the second quarter of 2017, up from 54 percent during the same period in 2016.

“If you’re generating enough cash internally where you don’t have to borrow money, that’s great. That’s the ideal situation,” Leonard Briskman, team leader of advisory services for SCORE’s Washington, D.C., chapter, told MagnifyMoney. “But I would think most businesses would have to borrow money.”

Working capital can be both positive and negative. Positive working capital means a business has enough funds to pay short-term bills and finance their growth. Negative working capital shows a business isn’t using its assets effectively and may not be able to cover unexpected liabilities. This could lead to additional borrowing, late payments and a lower credit rating.

Understanding working capital loans

A working capital loan could fall under the broad umbrella of term loans — lump-sum loans paid back over a fixed amount of time (the term), generally with fixed interest rates and fixed payments. A working capital loan could also come in the form of a line of credit or a merchant cash advance, which both allow you to access capital quickly and pay the lender back at a later time.


  • A working capital loan could be used to cover any business expense for an owner in any industry. You could receive the money in as little as three weeks if your financial details are in order, Youngs said.


  • While working capital loans could quickly cover unexpected expenses, the loans could also get too big, too fast, Youngs said. If you took out a loan to cover six months’ of additional work and that work turned out to last seven or eight months, you would have to borrow more money on a short-term basis. That means you would go into more debt, which could lead to higher interest rates and, ultimately, profit loss.

When to consider a working capital loan

You should apply for a working capital loan long before you plan to use it, Youngs said. You should get an early start on the application with a bank or other loan provider, as it could be a few weeks to several months before you have access to the money.

The following situations indicate you may soon need a working capital loan:

An increase in hiring. If you’ve hired more employees to expand the business, a working capital loan could cover those employees’ salaries until the business becomes profitable enough to sustain the new paychecks.

An upcoming slow season. Some businesses perform better during certain months of the year. A working capital loan could cover expenses to keep the doors open until the busy season rolls around again.

An increase in orders. Oftentimes customers will place orders for products or services before paying, creating a lag between expenses and income. For example, a carpenter could be contracted to build a room extension in a house but would not receive a check until the work is completed in two or three months. A working capital loan would help the carpenter bridge the gap between starting the work and receiving payment from the customer.

Is working capital financing right for you?

Business owners who experience frequent ups and downs in revenue would benefit most from working capital loans, Youngs said. Any business owner could use this type of financing to hold them over until payday, and it isn’t limited to a specific industry or type of business.

“The more time your business has between getting the work done and getting it paid for, the more you should consider a working capital loan,” he said.

If you have the option to tap into personal money to support working capital, then you could avoid getting into debt with a loan, Youngs said.

Business owners should avoid a working capital loan if they’re not generating enough money to stick to a repayment schedule, Briskman said. Typically, a lender would be able to tell if you’re not equipped to handle debt and would not offer financing.

“After a while, if the company starts falling back on the payments, it creates all types of problems,” Briskman said.

Shopping for working capital financing

Business owners can apply for working capital financing from traditional banks and non-bank commercial lenders, many of which operate online. These institutions tend to lend to people who have an established business and a good credit rating, Briskman said. There are several different forms of working capital financing for owners looking for an infusion:

Short-term loans

Short-term business loans allow you to quickly borrow a small amount of money. The funding could be available in as little as 24 hours. However, you must pay off the debt within three to 36 months, and some loans carry a high APR.

Short-term loans could be a good solution for a temporary cash bind, like covering seasonal costs or an expensive project, Briskman said. He recommends keeping these loans within a 12-month repayment period to maintain low debt. Shorter loans do come with more frequent bills, and you could be required to make a daily payment. Short-term loans tend to be capped at $500,000, so you may have to turn to a different form of financing if you need more than that.

Business lines of credit

Rather than borrowing a large amount all at once, you can access money as you need it with a business line of credit. You only pay interest on the amount you borrowed, but interest rates are generally higher for lines of credit than for short-terms loans.

This type of financing would be best for covering an immediate, unexpected expense, Briskman said, and you only have to borrow the exact amount you need. Like a short-term loan, a line of credit should be paid back within 12 months because of high interest rates, he said. Once you’ve paid off the amount you withdrew, the full loan would be available again for future expenses.

Merchant cash advances

A merchant cash advance provides capital in exchange for a percentage of your future debit or credit card payments. This type of lending is available from non-bank lenders, many of which are online, and the repayment schedule is based on your business’ revenue trend. The more card transactions you process, the faster you pay off the debt. This option could be expensive, as you could pay back between 20 percent and 40 percent more than your original advance.

Merchant cash advances are commonly used to finance new equipment purchases, building expansions, remodels and seasonal merchandise. Businesses are required to make a minimum amount in or certain percentage of card transactions each month to secure a merchant cash advance. Repayments are integrated into your business’ credit card processing system, so the lender gets a cut of each transaction before you see any of the money. Some lenders may require you to move to an approved processing system before issuing the advance.

Unlike loans, merchant cash advances are practically unregulated and most are issued without disclosing APR or expected monthly payments. Lenders often target business owners with poor credit who are unlikely to be approved for a loan, but high interest rates and large, frequent repayments make merchant cash advances a risky choice.

SBA loans

An SBA loan is provided through a bank that is backed by the Small Business Administration. These loans typically have competitive terms and require low down payments. But SBA loans have strict eligibility requirements and they don’t allow you to borrow from another lender once you’ve been approved for an SBA loan. That means if the SBA doesn’t loan you as much as you’d hoped, you cannot go to another lender for additional funds.

Banks could charge between 7 percent and 9 percent in interest on SBA loans, Briskman said. SBA loans require a large amount of financial documentation and detailed business projections, and businesses have a better chance of securing this type of financing the longer they’ve been in existence, he said.

Applying for a working capital loan

When reviewing applications for any type of business loan, Youngs said banks look at five factors — the business’ cash flow, creditworthiness, collateral, capacity to repay the loan and the character of the owner. Lenders prefer to work with people who are trustworthy and have enough cash flow to cover the debt.

Applying for a working capital loan could take weeks or months, depending if the business owner has their financial documents ready to go. Small business loan providers need profit and loss statements, current cash flow for established businesses or projected cash flow for new businesses, and a balance sheet.

The application requirements vary by type of financing you’re looking for, as well.

Short-term loans

A traditional bank or a non-bank commercial lender would look at your credit score and cash flow projections before approving you for a short-term loan. Lenders usually prefer borrowers with an average credit score and consistent monthly revenue. They would also expect to review your business plan, balance sheet, tax returns, active accounts and proof of licenses related to your industry. If your documents are in order, you could be approved in as little as one day.

Business lines of credit

Lenders would check your personal credit score, generally preferring a score of 600 or higher. They would also take into consideration how long you’ve been in business, requiring anywhere from six months to two years of operation. Lenders’ revenue requirements would depend on how much money you’re looking to borrow through a business line of credit, but they would also look into your accounts receivables to determine what physical assets your business possesses. Like a short-term loan, you could receive a business line of credit at either a traditional bank or non-bank lender.

Merchant cash advances

You could also find a merchant cash advance through a non-bank lender. You would be required to provide several months’ worth of credit card payment processing data, as well as bank statements, your Social Security number and business tax ID. The lender may require you to switch to a new credit card processor before approving the advance. Once you’re approved, which could be in as little as 24 hours, the payments could start as soon as the next day.

SBA loans

The SBA backs hundreds of banks across the country. Check out this list of the most-active lenders of 7(a) loans, the SBA’s primary loan for small businesses, to find a bank in your area. To apply for a 7(a) loan, you would need to follow a multi-item checklist, which includes submitting business financial statements, the business’ existing debt schedule and documents supporting collateral, such as real estate appraisals or lease agreements. The application process for an SBA loan could take between two and five months.

Businesses become less risky to lenders the longer they’ve been around, so older businesses would be able to apply for larger loans to cover working capital expenses.

But whatever the reason behind your need for working capital or the amount you’re looking for, the best strategy to quickly obtain capital is maintaining a reputation as a trustworthy business owner, according to Youngs. “Not all lenders may want to approve your loan,” he said. “It’s important to get a good banking relationship with your lender so when you come up with some quirky idea they don’t think you’re nuts.”

How to improve your chances of getting a working capital loan

It could take months or years for new businesses to generate positive cash flow, Briskman said. These startups are the most likely to need working capital loans, but they have the lowest likelihood of being approved for traditional financing.

The majority of people starting a business have to rely on their own funds, money from friends and family or alternative solutions like crowdfunding to get the business going, Briskman said. They’ll have a better chance of being approved for working capital financing once they can show the business has made progress.

“They don’t necessarily have to be profitable, but they have to be close to profitable and showing that every month is better than the previous month,” Briskman said.

Financial institutions may also look for a business plan from new entrepreneurs showing how they plan to grow the business and make money in the future, as well as how much they expect operations to cost.

“They want to see projections,” Briskman said. “A business plan really gets you to focus on where you see your business going.”

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

TAGS: , , ,

Advertiser Disclosure

Small Business

18 Options for Small Business Loans in 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews 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.

5 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.

18 options for online small business lenders

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.

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

RapidAdvance 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. RapidAdvance helps business owners get funding fast, but its loans tend to carry very high-interest rates.

  • Financing options: Short-term loans, unsecured lines of credit
  • Must be in business two years, with at least $5,000 per month in revenue
  • $5,000-$1,000,000 (lines of credit up to $500,000)
  • Loan terms up to 18 months
  • Interest rates starting from 12.00%` APR (fixed simple interest rates)
  • Funding in three days or less

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

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 (9.99%-36%*) on 18- and 24-month loans.

  • Financing options: Working capital loans and “business expansion loans” (short-term loans with weekly repayment options)
  • Working capital loans
    • Six to 17 months
    • $5,000-$250,000
    • Interest expressed as interest rates (not expressed as an APR*)
    • Daily repayments
  • Business expansion loans
    • 18 or 24 months
    • $5,000-$250,000
    • 9.99%-36% annualized interest rate.
    • 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

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)
  • Interest rates vary by product from 0%+ on start-up loans, to 6%-8% SBA loans and other rates based on credit and business history
  • 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.

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

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
    • 8%-20% APR
  • Short-term loans
    • Up to $200,000
    • 14%-51% Annualized Interest Rate
    • 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
    • 18%+ interest rate
  • Funding in as little as 48 hours (though this can vary by loan type)

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 24 to 120 months with monthly repayments
  • Interest rates from 24.00% – 149.00%
  • Same-day funding available

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.

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

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

  • Funding options: Commercial real estate loans, SBA-guaranteed working capital loans
  • Commercial real estate loans
    • $500,000 – $5,000,000
    • Terms up to 25 years
    • Interest rates ranging from 7.18%–10.34%
  • Debt refinance and working capital loans
    • $30,000 to $350,000
    • Terms up to 120 months
    • Interest rates ranging from 7.18% – 10.34%
  • Funding as fast as seven days after application is complete (but it may take longer)

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

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

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

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

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
    • 85%-90% advance rates
  • Funding within 24 hours for first advance, and faster afterward

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: 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
Hannah Rounds |

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


Advertiser Disclosure

Small Business

Where to Look for Start-Up Business Loans in 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews 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.

There are many ways to obtain funding for your small business, and they come in many forms — from business loans, personal loans and credit cards, to grants and crowdfunding. The key is to find what’s right for you and your business.

According to the Small Business Association (SBA), 73% of small firms used financing in some form in the past year. These funds could come from loans, other sources or even personal savings.

In reality, most small business owners are going to one primary source to get their business off the ground: their personal wealth.

In the same survey of business owners, the SBA found that more than half (57%) of small business owners used their personal savings as a source of capital.

“There are numerous sources of capital available yet too often we see start-ups, especially those run by women, tapping into their person credit for funding and financing,” said Kathy Warnick, National Association of Women Business Owners National board chair. “Not only is this potentially personally detrimental, but it can also make it difficult to receive funding from an outside source as your business grows.”

In this guide, we’ll explain all the different ways you can fund your start-up — and help you determine which strategy is best for you.

Choosing the best funding source for your business

One of the first steps in looking for funding is asking yourself some questions. Here are a few to figure out what you need and what the best options are for you.

  • What do I need this money for?
  • How much money do I need?
  • What’s my credit score like?
  • Does my product have enough social drive to power a crowdsourcing effort?
  • If I get a loan, how long do I think it will take me to pay it back?
  • How quickly do I need these funds?

Everyone has different needs and their own unique situations, which is why it’s important to take some time to think about them. If you need a smaller amount of money and your personal credit score is in good shape, a credit card for your business might seem like the right choice.

In fact, according to the SBA, more than one-third (39.5%) of non-employer firms needed $5,000 or less in capital. Even among firms with employees, one in five said they needed $5,000 or less.

Finding the right start-up business loan

After answering the questions above, perhaps you think a business loan is the right way to obtain the funds you need. The next step is to figure out which type of start-up business loan is best for you and fits your needs.

Here, we’ll take you through the advantages and disadvantages of certain types of start-up business loans.

SBA Loans

Best for: If you need more money for larger purchases and investments, an SBA loan might be a better option for you, but you’ll have to contend with strict eligibility requirements and more paperwork.

An SBA loan is a loan lended by the Small Business Administration, a government organization that was founded as part of the Small Business Act of 1953. The Small Business Act created the SBA with the purpose of aiding, counseling and protecting the interests of small business concerns. The SBA helps all sorts of businesses and now specializes women, minorities and armed forces veterans.

How SBA loans work: Although it might sound like an SBA loan is receiving money from the SBA, that is not actually the case. The SBA doesn’t lend money. The money is loaned from a bank and that loan is backed by the SBA.

The process for acquiring an SBA loan varies from person to person and business to business. This timeline can be longer or shorter depending on how prepared you are. The SBA offers a guide to help you through this process called the Build Your Business Plan tool. If you already have a business plan, this puts you a step ahead and can accelerate the process for you. According to the SBA’s application timeline, the loan amount you are requesting can also affect the time period. They suggest expecting to wait at least two to five months from start to finish.

The repayment period also varies and depends on several factors, which include the type of loan, the amount of down payment and the amount requested. For example, according to the SBA, an SBA microloan would have a maximum loan term of six years. An SBA microloan of more than $10,000 could not be charged more than 7.75% interest, while a microloan of $10,000 or less could not be charged more than 8.50%.


SBA loans have several advantages:

  • They typically have competitive terms with rates and fees similar to non-guaranteed loans.
  • SBA loans also offer counseling and educational opportunities to help you as you take the first steps (or the next steps) in starting your own business.
  • SBA loans generally require lower down payments, which is a huge bonus if you don’t already have a lot of cash at hand.
  • Requirements for overhead (expenses such as run, repairs, utilities) are flexible, and, in some cases, no collateral is required.
  • Depending on several factors, including your needs, you could receive anywhere from $500 to $5.5 million in funding for your business.


  • Strict eligibility requirements (see below)
  • They can require a lot of paperwork. See the SBA Loan Submission checklist.
  • You won’t be allowed to receive funds from another lender.

Let’s expand on some of the “catches” that come with SBA loans that could be a disadvantage for you, starting with those eligibility requirements.

According to, “eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates.”

Here are some of the requirements for an SBA loan:

  • Your business must be for-profit and operate legally in the U.S.
  • You (as the business owner or loan applicant) must have invested equity which can come in the form of time or money.
  • They can require a lot of paperwork. See the SBA Loan Submission checklist.
  • But perhaps the biggest disadvantage is that you will not be allowed to receive funds from another financial lender. Meaning, if you were hoping to get an SBA loan for $50,000, you can’t go get another loan for the bank for $20,000.

Another disadvantage is having to wait. Depending on your business needs, you might not be able to wait 60 to 90 days. “Be aware and prepared,” Warnick told LendingTree. “Waiting for funding to kick in can be a challenge and requires patience.”

If you are eligible, then an SBA loan is certainly something to consider. Although they might be hard to qualify for, if you do qualify, the advantages are aplenty.


Best for: If you’re not seeking a whole lot of funds for your business, just enough to get your started — or keep you going — a microloan could be the best option for you. But it is important to consider factors, such as your credit score, your needs and of course, other options before making a final decision.

If the amount of capital you’re seeking is, well, micro in nature, a microloan might be your best option. Microloans are loans for small amounts and are given to small businesses with either one or few employees.

Microloans can come from several sources, including but not limited to the SBA lenders; Accion, a global nonprofit organization; Kiva, a nonprofit lender; and others.

These are some pros and cons of microloans:


  • Good for people who don’t have a good business credit score.
  • Microloans may help your business establish credit.
  • Microlenders can assist you through the process.
  • Because the amounts are smaller, you have less to lose in the event that things don’t pan out the way you expected.
  • The interest rates can be low or even nothing. For example, Kiva offers some microloans with zero percent interest.


  • The amount of funds received might not be as much as you would have hoped for. According to the SBA, “Intermediary lenders must use the funds loaned to them by SBA to capitalize a revolving loan fund from which they must make loans to small businesses in need of $50,000 or less.”
  • Depending from which microlender you are borrowing, you might not get the funding at all. On Kiva, for example, your loan might not be crowdfunded by enough lenders.

Start-up equipment financing

Best for: If you have good credit, and are in need of equipment for your business this might be the best option for you. But it’s always best to consider all of your choices before making your final decision.

One reason it’s important to ask yourself what exactly you need your funds for is because it can help you decide what kind of loan to get. For example, if you plan to open your own restaurant, and you need funds to secure equipment for your kitchen, then start-up equipment financing might be the best option for you. Start-up equipment financing is a loan which uses the equipment you buy as collateral, and it can be obtained through various lenders.

Here are some pros and and cons of start-up equipment financing.


  • You can pay off the equipment while making revenue at the same time. Ernie Quilantan, president of the Greater Dallas Restaurant Association, says this is a huge benefit because you’re not stuck waiting. “If you’re a restaurant owner, you can’t do much if you’re saving to buy a fryer and other kitchen equipment,” Quilantan said. “But when you finance your equipment, you can get started and pay it off as you go.”
  • The depreciation of the equipment could be used as a tax benefit in the future.


  • You’ll need a solid credit score. (This is only a con if you have a low credit score.) If your credit score is low, Warnick advises you not to get discouraged. “Don’t take ‘no’ personally or let that stop you from pursuing another financing option,” she said. “We believe that by increasing awareness of the financing resources available and being better prepared to demonstrate a pattern of responsible borrowing, start-ups can be better positioned to grow and scale their businesses.”
  • By the time you have paid off your equipment, it might be outdated. “This is a problem because it creates a cycle,” Quilantan said. “On the upside, you’ve improved your credit. On the downside, you’re stuck with old equipment. Then it becomes tempting to your improved credit to finance newer equipment. It can be hard to get out of this cycle, especially if you’re not bringing in enough profit.”

Personal loans for business

A personal loan is simply an agreement to receive a certain amount of funds to be paid off in a certain about of time with a fixed interest rate. These funds come directly to you, deposited straight into your bank account. Unlike start-up equipment financing where the funds must be used for equipment, these funds can typically be used for anything. So you can use this money for equipment, marketing, consulting or whatever else you might need.

These are some of benefits and disadvantages of personal loans.


  • There has been a rise in online lenders over the past few years, which has made the application process much easier.
  • Depending on the lender, the terms of personal loans can range from 24 to 84 months, like financing a car, which means you would pay it off faster.
  • So long as you make on-time payments, you can improve your credit score.


  • Most fees are non-refundable.
  • If you have poor credit, your interest rates could be pretty high.
  • You will be required to provide verification of your income. If you are in the beginning stages of building your business, this could be a challenge.
Best for: If your credit score is in good shape, this could be a good option for you. What is probably most appealing about personal loans is the benefit of being able to do what you want with the funds. But make sure you weigh the pros and cons of this and other options first.

Pro tip: Develop a relationship with a lender early.

“Perhaps the most important tip for start-up businesses is to develop a relationship with a lender early,” Warnick said. “It is important if at all possible to develop a relationship with your lender early so they can grow into the business with you and the funding you need can more easily increase as you scale.”

Other sources of funding

Sometimes loans aren’t the best moves for your business. If that’s the case, consider three other options to obtain the funds you need for your business. While this guide focuses on start-up business loans, here are a few quick tips about three options that might be more suitable for you.

Credit cards: The pro and cons depend on your credit score (read: interest rates). If this is the option you choose, an advantage is that you can use the money for any business needs once you have it. When it comes to credit cards, Warnick says it’s important to get one early, regardless of whether you need it. “Once you need it you won’t be able to get one — even a small one,” she said. “Use it and pay it down to zero at least once a year. Show a pattern of responsible borrowing. It will go a long way as you grow and will make it easier for the bank to increase the borrowing limit.”

Check out thebest small business credit cards here.

Grants: Grants can come from many shapes and sizes such as, the SBA Women’s Business Center, the Economic Development Administration, the National Association for the Self-Employed and many more. The hard part is determining your eligibility, but if you qualify, grants are great because usually you don’t have to pay them back.

Crowdfunding: As mentioned at the beginning of this guide, crowdfunding is a great option because it combines marketing and funding. This usually works best for a new product, so it might not be your best option if you’re a restaurant owner. But you never know. Places like Kickstarter are great places to begin if it’s something you want to consider.

Next steps: How to use start-up business loans

So you made your decision on which start-up loan to get or where to get your funds from. Now what? Take some time to re-evaluate what your needs are and be sure to prioritize them. Your priorities will differ. You might prioritize in order of more expensive needs to least, or in terms of what you need first.

Here are some things to consider:

How much do I need to borrow?

It might be less than you think. The amount of capital differs for everyone based on your needs, which can be difficult to estimate when you’re just starting out.

According to the SBA, 39.5% of non-employer firms needed less than $5,000 in capital. For firms with employees, 22.5% of those firms also needed less than $5,000, while 7.3% of firms with employees needed anywhere from $250,000 to $999,999.

Where will I work?
Do you plan to work from home or rent an office? Think about whether a co-working office space would make sense for your business. If you plan to open up a brick-and-mortar shop, will you be building a new location entirely or renting a space? How much will that cost?

What do I need?
Then think about all of the equipment you will need for this location, from computers to furniture and everything else. Will you need a warehouse to store merchandise?

How will this grow?
What steps do you plan to take to ensure the growth and success of your business? Will you advertise? And what kind of marketing efforts should you make?

While these questions may seem overwhelming, it’s important to remember that you’re not racing anyone. Take your time to make the best decision for your business. You can’t sprint a marathon!

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.

Jesus Jiminez
Jesus Jiminez |

Jesus Jiminez is a writer at MagnifyMoney. You can email Jesus here


Advertiser Disclosure

Small Business

What Small Businesses Need to Know About Tax Reform

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews 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.

If a portion of your income comes to you via a side project, freelance work or start-up business, you’re likely to see a tax cut in 2018. The new tax bill went into effect Jan. 1. And it offers an attractive 20% deduction for small-business owners, independent contract workers and entrepreneurs.

“Anybody who owns a business should be happy to see this [deduction] because it’s going to likely reduce their taxes,” said St. Louis-based financial planner David Zaegel.

Over 90% of U.S. businesses are “pass-through” companies like LLCs, sole proprietorships and S-corporations, the Tax Foundation reported. They are called pass-through entities because they are taxed differently than normal businesses. Instead of being subject to corporate income tax, business income is “passed through” to the owner’s individual tax return and taxed at the owner’s individual tax rate.

Corporations, on the other hand — which make up 8.1% of U.S. businesses — are technically taxed at the corporate rate, which fell from a maximum rate of 35% to 21% under the new tax plan. Then, when profits are paid out to shareholders as dividends, the income is taxed on the shareholder’s individual tax return, too.

“They were lowering the corporate tax rate and they had to do something for the small-business owners or else everyone would run and organize themselves as a C-corp,” said Zaegel. Under the act, the deduction is set to expire Dec. 31, 2025.

Who is eligible for the new small-business tax deduction?

A business must first operate as a pass-through entity to qualify for the deduction, but that still doesn’t guarantee the deduction. In order to qualify for at least some of the deduction, the business must also:

  1. Operate a qualified trade or business AND
  2. Fall under the maximum income threshold amount — $207,000 for single filers and at $415,000 for those filing jointly.

C-corporations don’t count. Of course, new rules accompany the pass-through deduction to limit abuse, so not all pass-throughs count, either.

To understand the rules, one must first understand the following tax jargon:

Any trade or business conducted by a pass-through entity that is not a specified service trade or business.

The taxpayer’s share of the qualified trade or business’s net income excluding any amount paid to the taxpayer that is treated as reasonable compensation or guaranteed payment for services rendered.

Tangible property — anything you can touch — used to produce qualified business income, that depreciates over time and will still be available for use at the end of the tax year.

Any business that involves performing services in the fields of health, law, consulting, athletics, financial services, brokerage services or “any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners.”

When a taxpayer reaches the income threshold — $157,500 for single filers and $315,000 for those filing jointly— restrictions on service businesses and wage limits apply. The benefit is phased out as income rises. Eligibility caps out at incomes of $207,000 for single filers and at $415,000 for joint filers.

How to calculate the deduction:

As long as pass-through business owners fall under the income threshold amount — $157,500 for single filers and $315,000 for those filing jointly— they are in the clear to deduct 20% from the company’s qualified business income and the remaining amount of taxable income would be taxed at the individual’s tax rate.

If they exceed the income threshold but fall under the limit, then new limits start to apply. The deduction would then be limited to the lesser of :

  1. 20% of qualified business income, or

    The greater of:

  2. 50% of the total W-2 wages paid by the business
  3. 25% of the total W-2 wages + 2.5% of unadjusted basis of all qualified property


  • 20% of qualified REIT dividends
  • Qualified publicly-traded partnership income

For the sake of length, time and complexity, we will focus on the part before “plus.”

What if there’s more than one business owner?

Business owners who have business partners sometimes mistakenly believe the income threshold refers to all owners collectively. But it doesn’t.

“One thing to be clear on in this situation is that the income limits they are talking about are for each person,” said Zaegel.

Let’s say there are three equal owners of a qualified trade or business, for example, and the pass-through income is $450,000, divvied up equally among the partners. Each owner (earning $150,000) would fall just under the income threshold for the new small-business tax deduction.

What if the business partners are married or single?

Let’s say the first owner is unmarried, so they avoid the phaseout. The second is married but his or her spouse doesn’t work, so they too avoid the phaseout. They can both deduct $30,000 from their taxable income and are left with taxable income of $120,000 each.

The third owner is married, and his or her spouse is a W-2 employee with a different company and brings home an annual salary of $100,000. They file taxes jointly, so at a combined $250,000, the pair also falls under the phase out limit ($315,000 for married filing jointly) and get the full pass-through deduction.

They would calculate their deduction as the lesser of:

  1. QBI* 20% = ($150,000) *0.2 = $30,000
  2. 50%*W-2 wages paid by the business =$100,000*0.5 = $50,000

So, the couple would be able to deduct $30,000 (see: the lesser) and their taxable income is reduced to $220,000 by the pass-through deduction. That being said, the ultimate amount of their taxable income will depend on any other allowable deductions they might qualify for.

For a visual explanation of the pass-through deduction, check out the flow chart below, provided by Leon LaBrecque, a Troy, Mich.- based lawyer and certified financial planner.

Should you take advantage of the new small-business tax break?

If you’ve been planning to monetize your talents into a side hustle, or switch to a contractor role with your current employer, seeing this deduction may motivate you to get on that, stat.

Gig workers like Uber drivers, who average $30,000/year according to Glassdoor, will likely be able to take full advantage of the deduction as they are generally considered independent contractors.

Intuit estimates there were about 3.2 million American workers in the 2017 gig economy, a number that could rise to 7.6 million and comprise about 43% of the total U.S. workforce by 2020.

Before you decide to start your own business in the hopes of earning a tax break, you should do your due diligence, experts warn.

“The 20% shouldn’t be the tax tail that wags the dog,” said Cartersville, Ga.-based certified financial planner Lane Mullinax. He says what’s important isn’t necessarily getting a deduction, but the overall potential of the business itself.

If you’re thinking of ditching your 9-to-5 to make more money working on your side hustle, you should make sure the switch is worth it for your budget as much as it may be worth it for your lifestyle or career.

Mullinax advises figuring out if the cash flows make sense first. He says aspiring entrepreneurs should add up all of the estimated income and expenses to see if the business is worth getting into.

How to set up a pass-through business

If you want to set up a pass-through business to take advantage of the deduction, you have several options. The main three forms of pass-through companies are sole proprietorship, partnership and LLC, which offers more protection and can be taxed as either the aforementioned structures or as an S-corporation.

There is no formal action you need to take to be taxed as an unincorporated sole proprietorship or partnership, as the IRS considers them disregarded entities. All you need to do is operate your business and take care to file the correct form, and you should be able to pass the appropriate amount of business income to your individual tax return, according to Mullinax.

You may elect instead to incorporate as an LLC, as it provides protection and limited liability to its owners. For example, if the business can’t pay its debts, the creditor can’t come after your personal assets and all you stand to lose is the money you put into the LLC.

You can choose to incorporate your company in any state. Taxes are not the same all around, so you may want to think about the pros and cons of incorporating in your home state, and check other states’ corporate statutes.

Think about things like how corporations are taxed, if there is an income tax, minimum tax or franchise tax. If you have time, compare what you project to earn in revenue with the taxes you should expect to pay, too. You can fill out a form to incorporate in any state online.

“There is more interest with the new tax law, but people also need to be aware that they will incur both pieces of the self-employment tax unless they go the S-corp route,” said Zaegel.

Know what you’re giving up as well.

As a full-time W-2 employee, you only have to pay half of the required Social Security and Medicare taxes out of your paycheck. Your employer picks up the other half. That’s no longer the case if you start your own business.

If your net earnings were $400 or more, you will be required to pay the entire self-employment tax. The 15.3% tax is comprised of Social Security (12.4%) and Medicare (2.9%) taxes due to the IRS.

Here’s a chart breaking down each pass-through option and the pros and cons of each.

Choosing your business entity






Sole Proprietorship

No formal action

An unincorporated business owned by one person.

  • Simplest and easiest to set up

  • Complete control of your business as a sole owner

  • Good for testing out a business

  • Personally liable for all business debts

  • Creditors can go after your personal assets if your business assets are no enough to cover your business debts.

  • Cannot pay yourself W-2 wages

  • Generally more difficult to raise money and get bank loans


No formal action

An unincorporated business owned by two or more individuals.

  • Simple and easy to set up for two or more partners

  • Liability for business debts is spread out among partners

  • Cannot pay yourself W-2 wages

  • Each owner is liable for debts and losses


Submit to IRS form 2553 by a Small Business Corporation signed by all shareholders

A corporation that elects to pass corporate income, losses, deductions and credits through to their shareholders for federal tax purposes.

  • Can pay yourself a “reasonable wage”

  • Potential self employment tax savings

  • Provides protection for personal assets

  • Not subject to corporate tax rates

  • Must file with the IRS to get S-corp status

  • May be required to file for foreign qualification in other states where business is active.

  • More administrative overhead (payroll, paperwork, etc.)

  • Allowed no more than 100 shareholders

  • All shareholders must be U.S. citizens

LLC or Single Member LLC

Register online with state agency — declare if the business will be taxed as a sole proprietorship, partnership, C-Corp or S-corp

A limited liability company. A single member LLC has only one owner.

  • Benefits of both a corporation and partnership

  • Flexibility of taxation

  • Provides protection and limited liability to owners

  • Unlimited number of members

  • Annual renewal fees $300 or less in most cases

  • May be required to file for foreign qualification in other states where business is active.

  • Members must pay self-employment tax

  • Some states require you to dissolve and form the LLC again if one member leaves

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.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at

TAGS: , , ,

Advertiser Disclosure

Small Business

Guide to Small Business Funding for Women

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews 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.

Source: iStock

Over the last decade, women-owned firms grew by 45 percent to 11 million businesses, according to the 2016 State of Women-Owned Businesses Report commissioned by American Express. That’s five times faster than the national average, and now, more than one in three private businesses are owned by women.

Pain points for women-owned businesses

But not everything is looking rosy for women-owned businesses. Average revenue for a woman-owned business is just $143,000 per firm, about 80 percent less than the average revenue earned by businesses owned by men. When it comes to using financing to expand businesses, men are far more aggressive. According to the SBA Office of Advocacy, 34.3 percent of female business owners didn’t use any form of financing to start their business compared to 21.9 percent of male owners.

Whether it’s due to lower revenues or other issues, many women struggle to find financing to grow their businesses. For the most part, financing options for small businesses are the same no matter who the owner is. But there are some sources specifically for female entrepreneurs, and in this guide we explain how female business owners can maximize opportunities for financing success.

Small Business Loan Options for Women

Small Business Administration-backed loans

The Small Business Administration (SBA) has a department dedicated to growing women-owned businesses, and part of what the SBA does is provide financial assistance to small businesses. The SBA has several loan programs, but the most common one is the 7(a) loan program. The 7(a) loan is a general loan, which means it can be used for anything from real estate purchases to working capital. However, the bank underwriting your SBA loan may limit how you can use the proceeds of the loan.

With the 7(a) loan, the SBA pays lenders up to 85 percent of the loan value if a borrower defaults. This encourages banks to issue business loans to businesses that might otherwise be considered too risky. As a business owner, you may have to put up collateral for 15 to 50 percent of the loan that the SBA doesn’t guarantee. Business owners can apply for SBA 7(a) loans up to $5 million.

Not only does the SBA guarantee part of the loan, the interest rates on these loans are limited by the SBA. Lenders cannot charge origination fees or burdensome packaging fees on their SBA loans. However, you should expect to pay a guarantee fee. The guarantee fee is a percentage of the total principal value of the loan paid to the Small Business Administration in exchange for guaranteeing the loan. The SBA only assesses fees on the portion of the loan they guarantee.

The table below shows the maximum interest rates and guarantee fees on SBA loans.

Loan Size

Maximum Interest Rate

Guarantee Fee

< $25,000

8.5% for loan terms less than 7 years

9% for loan terms more than 7 years



7.5% Less than 7 years

8% More than 7 years



6.5% Less than 7 years

7% More than 7 years



6.5% Less than 7 years

7% More than 7 years

3% of guaranteed portion

$700,001- $1,000,000

6.5% Less than 7 years

7% More than 7 years

3.5% of guaranteed portion


6.5% Less than 7 years

7% More than 7 years

3.5% of guaranteed portion up to $1 million,
plus 3.75% of guaranteed portion over $1 million

With ceilings as low as 6.5%, SBA-backed loans can be great deals, but they are hard to get. Lenders will consider your personal and business credit history, your business assets and your ability to make money. Despite giving women-owned businesses special consideration for SBA financing, just 15 percent of 7(a) loans issued in 2017 went to female owners.

Shannon McLay, founder of the Financial Gym in New York City, tried to take out an SBA-backed loan to expand her business to a second location. She applied for a $1.5 million loan, and she put up her personal residence as collateral. However, several banks turned her down. She explained, “Even though the government guarantees a big part of the loan, you still have to go through a bank’s underwriting process. I thought the [Financial Gym] had sufficient revenues to get a loan, but I was turned down. The bank explained that they usually issue loans to franchises, restaurants and retail shops rather than service industries.”

These are some of the best companies to work with if you want to apply for an SBA 7(a) loan. They offer strong lending programs, and they each fill unique niches. However, if you prefer to work with local lenders, you can consider working with one of the top SBA lenders in your region.


Loan Size

Personal Credit

Best for

Wells Fargo

Up to $5 million


Businesses with strong cash flow


Up to $5 million


Businesses looking for smaller loans

Bank of America

$350,000-$3.5 million


Higher revenue businesses open for
at least two years looking to expand


$5,000-$5 million


New business owners with
excellent personal credit

TD Bank

Up to $5 million*


Health care professionals with
two to three years of business history




Business owners with fair
credit and at least two years
of business history

Business lines of credit

A business line of credit allows you to borrow money whenever you need it, up to your specified credit limit. A common credit limit is one to two months of gross revenue, though newer businesses may receive less. Credit limits vary by lender.

Annual fees on lines of credit can be a few hundred dollars per year, but the interest rates can be lower than credit card interest rates (they can also be much higher). Plus, you’ll only pay interest when you’re borrowing money, and you’ll build credit.

Some banks offer SBA-guaranteed lines of credit called CAPLines. Because the SBA has a goal of funding more women-owned businesses, a CAPLine may be a good fit for female business owners. CAPLines are small business lines of credit where the SBA backs 75 to 85 percent of the credit line up to $5 million. The CAPLines have specific use requirements that include fulfilling customer contracts, meeting seasonal needs, or consolidating short-term debt. They are not as flexible as typical business lines of credit. The interest rate on a CAPLine could be up to 8.25%.

You can also use Lender Match from the SBA to find local lenders that offer the CAPLine program.

Short-term loans

Short-term business loans allow business owners to borrow a small amount of money and pay it back within three to 36 months. Such loans allow businesses to cover seasonal inventory costs or to take on costly projects with high payoff. As convenient as these loans can be, they can also be very expensive, with some loans carrying APRs up to 99%. You can compare short-term business loan offers (as well as a variety of other small business loans) with LendingTree, our parent company.

Before resorting to lenders that require extortionary interest rates or difficult terms, look into SBA Express Loans. These loans have a maximum interest rate of 10.00% (for loans less than $50,000) and offer terms up to seven years. The SBA backs these at 50 percent, so you’ll only need to come up with collateral for the remaining 50 percent of the loan. You can use Lender Match from the SBA to find local lenders that may help you qualify for a loan.

Additionally, the companies below offer short-term loans, and they have specific programs that help female business owners qualify for the loans. We’ve listed their criteria for all business loans, not just short-term loans.


Term Lengths

Loan Size


Credit Score

Minimum Business Age

Best for


6-60 months,
though loan options
vary geographically

though loan options vary



6 months
for most loans

Fair credit,
owners who are just
starting out


Up to 25 years


6.5% and up



Established businesses

Equity Financing Opportunities for Women

Equity financing means that you’ll sell shares of your company in exchange for cash. Generally, privately held companies will look to angel investors for their first rounds of equity financing and venture capital firms for large-scale financing.

Angel investors and venture capital firms want to invest in firms with high revenue, potential to scale, and a strong balance sheet.

The process for getting venture capital is not easy, especially for women. According to an analysis by TechCrunch, just 10 percent of all venture capital dollars went to businesses with at least one female founder. On top of that, only 7 percent of partners at the top 100 venture capital firms were women.

McLay, of the Financial Gym, explains her journey to getting venture capital money: “I used my own money for the first two years of my company, but by 2015 I ran out of my own money and started looking for outside investors. I tried working with some of the women-only venture capital firms, but I got the feedback that my brand wasn’t sexy enough. Ironically, even though 95 percent of the traffic at the gym is women, my first angel investor was actually a man.”

Below are some firms that focus on funding companies with at least one female founder.

Angel investors

Angel investors are typically the first equity investors to fund a company. Angel investors invest their own money into startups. Since it’s their money on the line, angel investors tend to be highly motivated to see a business succeed, though they expect many of their investments to fail.

These are a few prominent angel investing groups that focus on funding women-owned businesses:

37 Angels: 37 Angels allows eight companies to pitch to them every two months. Founders receive $50,000 to $150,000 in seed money. The majority of companies funded by 37 Angels are technology or consumer packaged goods companies. Apply for the pitch through Gust.

Women’s Capital Connection: Women’s Capital Connection works with female founders in the Midwest region. The company has invested in 14 companies since 2008. Many of the companies receiving funding have a health and wellness focus. Learn more about their funding process here.

Pipeline Angels: Pipeline Angels is a coalition of women and nonbinary femme investors looking to change the world through business. They host annual pitch summits around the United States. Applying for the pitch summit costs $40. You can learn more about the schedule and opportunities to pitch through Pipeline Angels’ pitch summit schedule.

Built by Girls Ventures:Built by Girls Ventures (BBG) backs early stage consumer tech and consumer internet products.Your company needs at least one female founder to be considered by BBG. They back companies that already have some market traction, and their investment is generally between $100,000 and $250,000. Most BBG investments come through personal introductions, but you can pitch to BBG via their email

Venture capital firms

Venture capital firms invest in established companies with room for profitable scaling. These firms invest in many startups and generally provide larger investments than angel investors.

These are a few venture capital firms that focus on funding businesses with at least one female founder.

Women’s Venture Capital Fund: The Women’s Venture Capital Fund invests in digital media companies and companies with a focus on sustainability. The fund focuses on women-owned businesses in the Pacific Northwest and California.

Female Founders Fund: The Female Founders Fund invests in e-commerce and web-enabled services. They look for women-run businesses with a proven track record and an opportunity to scale. You can pitch to them by sending a deck with relevant materials to

Aspect Ventures: Aspect Ventures funds early-stage tech companies and helps founders fundraise in later-stage funding rounds. Aspect isn’t entirely focused on female founders, but they have a track record of funding businesses founded by women.

Alternative Business Financing Options to Consider

Small business grants for women

When it comes to funding, business grants sound like a great way for women to get a venture off the ground. However, business grants tend to be competitive and offer relatively small sums. A few grants offer recipients more than $100,000, but those are the exception. Most offer less than $5,000 per recipient.

Despite the small sums, grants offer other advantages. Business owners who win grants can use them for publicity or to gain credibility in the local business community.

These are a few national grants that female business owners can consider.

The Eileen Fisher Women-Owned Business Grant Program: Women-owned and -led companies with revenues less than $1 million may qualify for a grant of at least $10,000. Companies must have founding principles of social consciousness and innovation. Grants are awarded to the companies that have a clear development path and need for the funds.

Check the website in spring 2018 to start applying for the next round of grants.

WomensNet Amber Grants for Women: Women with business ideas can receive a $500 grant to move their idea forward. You don’t need a formal business plan to win, you just need to share your idea with WomensNet.

WomensNet issues a grant every month. Among the 12 grant winners each year, one woman will be awarded an additional $1,000 for her business. You must pay a $7 fee to apply.

InnovateHER: The SBA Office of Women’s Business Ownership sponsors this challenge. The competition gives entrepreneurs the opportunity to pitch products that will help the lives of millions of women. The top three competitors win grants between $10,000 and $40,000. In previous challenges, applications were open from January through early June.

Cartier Women’s Initiative Awards: The Cartier Women’s Initiative Awards is a worldwide business plan competition designed to support female entrepreneurs. Applicants’ businesses should be in their second or third year, and leaders must have a plan to take their company to the next level. Each year, a panel selects three finalists from six global regions. One finalist from each region will win a grant of $100,000, and the remaining 12 finalists will win a $30,000 grant.

Female business owners can apply every year from January through August.

Additional resources for female entrepreneurs

This is merely a collection of financing opportunities that give female business owners special consideration. There are many more types of small-business financing available to all kinds of entrepreneurs, not just women, like non-SBA-backed loans of various terms, working capital loans, receivable financing, and equipment loans.

When it comes to starting and growing a business, the best resources aren’t always financial. Female business owners should look into some of the programs offered by their local Women’s Business Center, which are organizations sponsored by the Small Business Administration. Women’s Business Centers connect female entrepreneurs with the people and resources they need to grow their businesses.

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


Advertiser Disclosure

Small Business

Where to Find the Best Short-Term Business Loans in 2017

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews 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.

This guide will help you decide whether a short-term business loan is the right move for your company and how to get one that meets your needs.

You’ll learn:

Part I: Explaining Short-Term Business Loans

Whether you’re running your own business or you have a small team of employees, at the end of the day everything falls on your shoulders as a business owner. Every opportunity is yours to take. Every problem is yours to solve.

And the truth is that both opportunities and problems often require cash. Cash to buy more inventory. Cash to market your services. Cash to get you through a rough patch.

But sometimes the cash isn’t there when you need it. And that’s where a short-term business loan can be helpful.

Short-term business loans give you access to money quickly so that you can address your immediate need and pay the loan back with the revenue you earn over the next several months.

They essentially act as a bridge, allowing you to get from Point A to Point B even if you don’t have the cash on hand to do it yourself.

Recommended short-term business loan options

You have a lot of lenders to choose from when looking for a short-term business loan, and you should expect to spend some time sorting through them to find the best option for your personal needs.

Here are a few good options to get you started, and you can refer to the following guide for even more: 17 Options for Small Business Loans.


  • Website:
  • Max loan amount = $500,000
  • Loan terms from 3 to 36 months
  • Annual interest rates start at 9.99%, with an average annual rate of 42.5%
  • 2.5 percent to 4 percent origination fee
  • Eligibility requirements
    • 1+ years in business. The average customer has been in business for 7 years.
    • $100,000+ annual gross revenue. The typical customer has $450,000+ annual gross revenue.
    • 500+ credit score. The majority of customers are at 660+.



National Funding

National Funding
  • Website:
  • Max loan amount = $500,000
  • Loan terms from 6 to 12 months
  • Fees from 24 percent to 80 percent
  • Eligibility requirements
    • 1+ years in business
    • $100,000+ annual gross revenue
    • No defined minimum credit score, but representatives indicated that 465-480 was the lowest they have previously seen qualified
    • 3 months’ of bank statements



Compare small business loans online

These sites are great tools for small business owners looking to compare offers from several small business lenders all at once. They typically ask for some key info about your business and the type of loan you are looking for, then match you with lenders that fit your needs.




  • Eligibility requirements:
  • 1+ years in business
  • Credit score, revenue and other factors will be evaluated independently by each lender

Disclosure: is the parent company of MagnifyMoney.

SBA Lender Match


4 smart ways to use a short-term business loan

Source: iStock

Taking on debt should almost never be your first option, but there are a few situations in which a short-term business loan can make a lot of sense.

1. Buying More Inventory

Maybe you’re just starting out and you need to buy the inventory you’ll eventually sell. Or maybe you’re gearing up for a heavier sales period than usual.

Whatever the case, there are times where you need to buy more inventory and you don’t have the cash on hand to cover it. And as long as the expected revenue exceeds the amount you’re borrowing, plus interest, paying the loan off quickly shouldn’t be an issue.

2. Opening a new location

Opening a new store or a new office has the potential to grow your business by leaps and bounds. More locations means more opportunities to serve more people.

But it can cost a lot of money to open a new location. A loan can help you get it up and running, with the revenue produced by that new location being used to pay off the loan.

3. Hiring employees for the busy season

A lot of businesses need extra workers at certain points in the year. Think vacation destination restaurants in the summer or retail stores during the holidays.

A short-term business loan could help you hire those extra employees ahead of time, ensuring that you have all the help you need to take full advantage of the busy season.

4. Getting through a financial emergency

Unfortunately, business isn’t always booming. Sometimes you hit a rough patch, business is slow, and there isn’t enough revenue to cover all your expenses.

Taking on debt to address financial difficulties is risky. A loan is an additional financial burden that could make your problems worse.

But if you have good reason to expect a turnaround in the near future, a short-term loan could help you keep the lights on in the meantime.

Pros of Short-Term Business Loans

While a short-term business loan isn’t always the right solution, these loans do have a few advantages over other forms of financing:

  • Fast approval process – Certain online lenders will issue approval in just a few hours and deposit the money in your account in as little as 24 hours. If you need money fast, that could be the way to go.
  • Build your business credit – Short-term business loans are often available to businesses with little to no credit history. This both allows you to borrow money when other avenues are unavailable to you and to build a credit history that makes it easier to qualify for bigger loans down the line.
  • Take advantage of business opportunities – Because of the fast approval process and less stringent credit requirements, short-term business loans often allow you to take advantage of business opportunities that otherwise wouldn’t be available to you. This can sometimes make the difference between a business that fails and one that succeeds.
  • Match your borrowing needs – It doesn’t make sense to take out a 10-year loan if you just need help buying inventory you’ll sell in the next few months. Getting a short-term loan allows you to get the money you need and pay it back quickly so that it isn’t a burden any longer than it needs to be.

Cons of Short-Term Business Loans

While short-term business loans can be helpful in the right situations, they have a few characteristics that should make you think twice before taking them out:

  • Typically smaller loan amounts – Many short-term business loans are capped at $500,000 or less. If you’re in need of more than that, you may need to find a different form of financing.
  • Higher APR – Short-term loans typically have higher interest rates than longer term loans that come with longer application processes and stricter eligibility requirements. You’re paying the interest over a shorter time period, but it can still be an expensive way to access money.
  • Could be subject to daily/weekly payments – Shorter loans also come with more frequent payments. Many lenders require daily repayment, and even weekly repayment could be difficult if you won’t get the revenue right away.
  • Can lead to spending beyond your means – Due to the ease and speed with which you can obtain these loans, there’s a risk of developing a dependency upon debt that leads you to spending more than your business can truly afford. While debt can be helpful on occasion, it is not a sustainable way to run a business.

Short-term loan vs. line of credit

A line of credit is a popular alternative to taking out a short-term business loan, and there are situations in which it can be the better option.

A line of credit is an amount of money that a lender makes available to you to borrow. But unlike a loan, you don’t receive the entire amount right away. Instead, you are allowed to borrow money as you need it, up to the maximum amount, and you only pay interest on the amount you have actually borrowed.

According to Cathy Derus, CPA, a financial planner and the founder of Brightwater Financial in Chicago, the main advantage of a line of credit is the flexibility it provides. You borrow only what you need when you need it, allowing you to more precisely match your debt with your expenses.

The flip side, Derus says, is that a line of credit typically comes with a higher interest rate. If you are fairly certain of the amount of money you need, a short-term loan often allows you to borrow it at a lower cost.

Interest rates always depend on the lender you use and the specifics of the situation, so these aren’t hard and fast rules. But generally you can approach this decision like this:

  • If you’re unsure of the amount of money you need, or if you don’t need it all at once, the flexibility a line of credit provides may be worth the extra cost.
  • If you have a specific amount of money you need right now, a short-term loan may be the cheaper option.

PART II: Qualifying for a Short-Term Business Loan

Source: iStock

What it takes to qualify for a short-term business loan

Every lender has a different set of standards and will evaluate your business a little differently. But Derus says that there are three main factors that almost all lenders consider when deciding whether to offer you a loan, and on what terms:

  1. Time in business – Businesses that have been around for a longer period of time are less likely to fail and are therefore considered less risky. Older businesses are therefore generally able to qualify for larger loans at preferable rates.
  2. Credit history – Just like applying for a personal loan, lenders prefer long credit histories that show consistent, on-time payments. One of the benefits of short-term business loans is that you can often qualify without an extensive business credit history, but in that situation your personal credit will be scrutinized more closely and you may be held personally liable for the loan if the business can’t pay it back.
  3. Financial health of your business – The lender will look at bank statements and financial reports like profit and loss statements and your balance sheet to make sure that your company has the financial resources to pay back the loan. Most lenders specify a minimum gross revenue in order to qualify.

Lenders may also look at things like the industry you’re in, the amount of equity you personally have in the company, other debts or liens against the company, and even your business plan so they can feel confident you’ll use the money well.

Questions to ask before shopping for a short-term loan

Given those criteria, how can you put yourself in the best position possible to qualify for a favorable short-term business loan? Here a few questions you can ask yourself:

  • How long have you owned your business? The longer you’ve been in business, the more likely it is that you’ll be able to borrow the money you need at a reasonable cost.
  • Do you have organized and consistent financial reports? You’ll need to provide these to the lender during the application process, so you’ll want to make sure you have them ready and that they are accurate.
  • Do you have the revenue needed to pay back the loan? In addition to the lender’s evaluation of your revenue, you need to be confident yourself that you’ll have the money to pay back the loan quickly.
  • What is your company’s credit history? A strong and extensive credit history will make it easier to qualify for a loan. Minimal credit history means your personal credit will be more important. A negative credit history will make it harder to qualify.
  • What is your personal credit history? Even with minimal business credit history, you can often qualify for a short-term business loan if your personal credit history is strong.
  • Do you have other loans or obligations? Your credit utilization is the amount of debt you currently have compared to the amount of credit you have available to you, and a low credit utilization rate is one of the big keys to a good credit score. Loans and other financial obligations can not only hurt your credit score, but they can make you more risky in the lender’s eyes because you have multiple debts to pay back.
  • Do you have a relationship with any particular bank? A strong and extensive history with a particular bank might make it easier to borrow money on preferable terms.
  • Do you qualify for any government loans? The government offers lending programs to companies in specific situations. If you qualify, you may be able to borrow on more favorable terms than you would through private lenders.

How to determine what type of business loan you need

Finding the right short-term business loan for your needs requires some work on your part. Your job is first to understand your need, and second to find the loan that matches that need at the lowest cost possible.

Here’s a step-by-step process you can follow:

  1. Figure out how much money you need – You don’t want to borrow more than you need, but you also don’t want to come up short. In addition, the amount of money you need will affect the lender you choose, as different lenders have different maximum loan amounts.
  2. Determine when you need the money – Do you need it right away or can you afford to wait? The more time you have, the more options you’ll have available to you, as some of the loans with better terms require a longer application process.
  3. Determine when you’ll be able to pay back the loan – When will you have the revenue to pay back the loan? This will help determine how long your loan term needs to be.
  4. Can you afford to make daily or weekly payments? Short-term loans often require daily or weekly payments, so you need to make sure you’ll be able to make them.
  5. Check your business credit history – Business credit scores range from 0 to 100, with the SBA noting that 75 or above is the ideal range. You can research your business’s credit history through Experian and Dun & Bradstreet.
  6. Check your personal credit history – You can pull your credit history for free once per year from And you can use this guide to get a sense for your credit score. A stronger credit history and higher credit score will lead to better loans.
  7. Prepare your financial reports – You should have well-organized bank statements, a profit and loss statement, and a balance sheet ready to provide during the application process. If you haven’t been keeping your books up to date, you might want to obtain the help of a CPA to make sure everything is done correctly.
  8. Evaluate alternatives to a short-term loan – There are alternatives to taking out a short-term loan, such as taking out a line of credit or utilizing a small business credit card. Make sure that a loan is truly the best option before proceeding.
  9. Reach out to the bank you already do business with – The bank you already work with may be your best bet for favorable terms, especially if you’ve had a long and positive relationship. Reach out to them first to see what they’re able to offer.
  10. Research local credit unions – Credit unions are member-owned and therefore often offer better deals than the big banks. Search for credit unions in your area and reach out to see what types of loans they offer and whether you qualify for membership.
  11. Apply with online lenders – Online lenders often offer shorter applications, quicker approvals, and better user experiences, but those benefits often come at the cost of higher interest rates. If you need money quickly, or if your credit isn’t ideal, these may be your best option. Either way, it’s worth applying to see what you qualify for. To compare offers for small business loans from various lenders, check out MagnifyMoney parent company’s small business offer tool. 
  12. Compare the offers you received – Once you’ve shopped around, you can compare the loan offers you’ve received both to each other and to your borrowing needs. You should compare them along variables like the amount of money being offered, the interest rate, the frequency and amount of payments required, and the overall length of the loan, along with any other terms and conditions each loan comes with.
  13. Make a final decision – At this point you should be ready to make a final decision. And remember, not taking out a loan is still an option at this point, especially if none of the offers were exactly what you were looking for.

Alternatives to a short-term business loan

While a short-term business loan can be invaluable in the right situations, it isn’t your only option when it comes to financing your needs. Here are a few more to consider:

  • Future revenue – If you can afford to wait and you expect revenue to be coming in soon, you may be better using that future revenue to finance your project yourself. There’s no application process and no interest to pay.
  • Line of credit – As discussed above, a line of credit is a good option when you’re unsure how much money you’ll need and when you need it. You can secure the line of credit and simply borrow the money as needed, with the likely trade-off of borrowing at a higher interest rate.
  • Business credit card – There are a number of small business credit cards available, some of which provide a promotional period with 0% interest. If your borrowing needs are relatively small and you can qualify for these cards, you may be able to borrow the money cost-free.
  • Personal line of credit – If you can’t qualify for a business line of credit, you still may be able to qualify for a personal line of credit. Derus warns against this option, though, since it blurs the line between you and your business, which can lead to you being personally liable for your business’s obligations. And she warns about following all relevant tax laws, such as calculating imputed interest, when using personal money in your business that you plan to pay back to yourself.

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.

Matt Becker
Matt Becker |

Matt Becker is a writer at MagnifyMoney. You can email Matt here


Advertiser Disclosure

Small Business

The Ultimate Guide to Secured Business Loans

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews 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.

Opening or expanding a small business usually involves a significant financial investment, whether it’s paying for building renovations, computers or additional inventory. For new business owners with ambitious plans, this type of investment often requires more capital than they have on hand, and existing businesses may not have enough cash available to grow while continuing to pay regular operating expenses.

One common solution is a business loan, which can be secured from banks or other private lenders for more favorable terms and lower interest rates than unsecured loans.

In this guide, we’ll cover:

Part I: Understanding Secured Business Loans

USBL Table

Business loans typically are secured or unsecured, and the type of loan that you can qualify for will depend on market conditions, your credit score, your assets and your business’s profitability and outlook.

Secured business loans require collateral – as much as 80 percent or more of the loan’s value, which shows that the borrowers can repay the loan if the business fails or the loan goes into default. That means that business owners need to show the lender that they are willing to take on significant risk, including the possibility of losing their house or business assets, to secure financing for their business venture.

Unsecured loans do not require collateral and typically are easier to qualify for. For secured business loans, on the other hand, lenders look for applicants who are in a position to pay the loan back regardless of the business’s success and are willing to risk their own assets for the business. Applicants also need to have good credit and businesses that are feasible in the current market.

“That’s why [lenders] want people to have a proven track record of doing things responsibly,” says Roman Starns, a business consultant with the Louisiana Small Business Development Center. “[Borrowers are saying,] ‘look, I’m willing to put my home equity in, I’m willing to pledge some real estate, I’m willing to put 20 percent down in cash to make this business work.’

“That’s going to mean they are more likely to run that business well and do well at it. If someone puts nothing into it, they have nothing to lose but their credit.”

Lenders also will investigate whether the business is viable in the current market. An entrepreneur who wants to open, for example, a VHS repair shop could have a solid business plan and financial backing, but lenders likely will reject the application.

“They are going to look at the market conditions for this loan as well,” says Starns, who has 20 years’ experience as an entrepreneur and small business owner. “No one has VHS anymore. They want to see that this is a workable business and the financial projections on it show that, within reason, you’re going to be able to pay back everything and the business is going to make it. It’s not as easy as, ‘Oh, I have a great idea that’s going to work,’ and you go get a loan for the money.”

Part II: Types of Business Loans

Traditional lending institutions, such as banks, offer standard secure business loans through a simple application process. Borrowers can apply in person or online, and bank professionals will work with the borrower on the terms and amount of the loan. For applicants and businesses in good financial shape, this process can be quick and easy.

The type of business loan a borrower applies for will depend on their need for cash, financial situation and availability of collateral. Here are some options for business owners considering secured business loans.

Term loans

Term loans are best for business owners who have a specific, one-time need for cash, such as buying an expensive piece of equipment or financing a major building renovation. A term loan will provide the money up front in a lump sum, and the borrower pays it back over time. These loans typically are approved for established businesses that need extra cash to expand or enhance their services.

The length of the repayment period will depend on the purpose of the loan and the amount of collateral the borrower can offer. Until recently, term loans were offered between two and five years, but now they can be repaid in as little time as six months or as long as 25 years.

Deciding which type of term loan you need depends a lot on how soon are prepared to repay the loan.

Up to 2 years: Short-term loans

Short-term loans, which are best for paying for a pressing business need, must be paid back quickly. Terms might require daily or weekly payments, which allow the borrower to pay back the money quickly and minimize financing costs.

2 to 5 years: Medium-term loans

Medium-term loans are ideal for companies that are growing and are optimistic about their future. These loans, which usually are repaid in two to five years, allow business owners to put plans for expansion into action immediately rather than waiting to save enough money to buy equipment or other assets that will allow the business to grow. Medium-term loans can be unsecured or secured, and approval is based on the applicant’s credit score and collateral, if required.

10-25 years: Long-term loans

Long-term loans are designed for businesses that can project growth years. The amount of these loans, which have repayment terms ranging from 10 to 25 years, is dependent on the need, and they can range from several thousand dollars for a small equipment purchase up to $1 million for buying a building or property.

SBA-guaranteed loans

It is a common misconception that the Small Business Administration, a government agency that provides assistance to small businesses, loans money to businesses. Instead of making loans directly, the SBA creates guidelines for loans and then guarantees to its lending partners that their loans will be repaid.

The SBA works with several different kinds of institutions, including traditional lenders, microlending institutions and community development organizations. When a business applies for an SBA loan through one of these partners, the partner provides a loan that is structured according to SBA rules and is guaranteed by the SBA.

Because the SBA is a government organization, its rules and practices can change as government fiscal policies adapt to the current economy. It’s important to always check with the SBA for its most current policies and loan programs.

The SBA typically will not offer loans to businesses that can secure financing on their own, and it does not offer grants to new or expanding businesses. It does provide several programs to help borrowers finance different aspects of a business.

  • General small business loans: These loans, called 7(a), are the SBA’s most common loan program and can be approved for up to $5 million, although the SBA states that the average 7(a) loan for fiscal year 2015 was about $371,000. These loans are assigned low interest rates, and the SBA will guarantee as much as 85 percent of the loan up to $150,000. Seventy-five percent of loans over $150,000 are guaranteed. The loans are generally available to small businesses that do business in the United States and have already used alternative funding sources, such as personal savings.
  • Microloans: Available for startups and business expansions, SBA microloans are provided through intermediary nonprofit community organizations for up to $50,000. The average microloan is $13,000, according to the SBA, and interest rates are between 8% and 13%. Business owners usually are required to pledge collateral and a personal guarantee.
  • Real estate and equipment loans: The CDC/504 program offers loans for buying land, improving property, constructing and improving buildings, and purchasing equipment and machinery. Successful applicants will have a feasible business plan, no available funding from other sources, good character, and business projections that show an ability to pay back the loan. Loan amounts are based on how the business will use the money and how closely the business’s plan meets the program’s goals.
  • Disaster loans: When businesses suffer losses due to a declared disaster and are in a declared disaster area, SBA low-interest disaster loans are available to replace or repair real estate, personal property, inventory, business assets, and equipment and machinery damaged in the disaster. Owners of businesses of all sizes can apply online, at designated disaster recovery centers, or by mail, and the loan can be repaid in monthly payments or a lump sum. Loans can be approved for up to $2 million.

Business line of credit

A business line of credit works much like a business credit card, allowing the business to access funds as needed and make minimum monthly payments to repay the borrowed money. Through this type of lending, business owners can set their own borrowing and repayment schedules, depending on their cash flow.

Lines of credit are appealing to businesses because they are easier to obtain than standard secured loans, and the business owner does not pay interest until they withdraw money from the credit line. This type of borrowing is best for established businesses with optimistic outlooks, as struggling businesses in danger of failing may leave the owner personally responsible for unpaid debt.

Chris Kline, co-owner of a pillow manufacturing business in Bucks County, Pa., says his business recently took out a $50,000 line of credit to buy more manufacturing equipment to meet increasing demand for their products. Kline and artist Eric Fausnacht opened the business manufacturing pillows printed with Fausnacht’s artwork five years ago, and Kline helped move the business from arts and crafts shows into the wholesale market.

The application process for a line of credit included a meeting with a bank official, who visited the company on-site and talked at length with the business owners about their company and business projections.

Kline, 45, says that he prefers to borrow conservatively, and he and Fausnacht pledged business assets rather than personal assets to secure the line of credit. While unsecured lines of credit are available for maximums under $100,000, secured lines of credit typically have lower interest rates and higher credit lines.

“I’m not looking to borrow more than 10 or 15 percent of annual sales,” Kline says. “And I’m confident we will be able to pay that back if something unforeseen happens.”

The new equipment purchased with the line of credit already increased production and revenues enough that Eric & Christopher now has eight or nine full-time employees and additional part-time staff.

Equipment loans

Many businesses require expensive equipment, such as an X-ray machine or a tractor, to get started. Without revenues from the business, a business owner may not have the capital to pay for the equipment. An equipment loan, which several types of lenders offer, can help a business buy the equipment it needs to begin or expand operations.

Unlike many other types of business loans, the equipment can serve as collateral for the loan and makes the loan easier to obtain. If the borrower can’t make the payments, the lender will repossess the equipment and sell it to recoup some of its losses. Applicants for equipment loans should have good credit and cash available for as much as a 20 percent down payment.

Equipment loans typically come with low interest rates and manageable payments, making them good tools to help businesses afford expensive purchases. Business owners must pay off the entire loan, even if the loan repayment term is longer than the life of the equipment.

Invoice financing (factoring)

Invoice financing, also called invoice factoring, is an easier way for an established business owner to raise capital than with a standard secured loan. This process allows business owners to sell their outstanding invoices at a discount to a third party, which then collects on them to repay a single-payment loan issued to the business owner.

These types of loans are beneficial for business owners who need cash faster than the repayment deadline on the invoices. Invoice financing can cover cash flow gaps and payroll, for example, and it is low risk because the money comes from completed sales rather than sales projections. The downside is that invoice financing requires substantial fees.

Inventory financing

Businesses that depend on a steady flow of inventory can use inventory financing to keep their shelves stocked or to buy more inventory for seasonal sales increases. Inventory financing also can help small businesses with cash flow during periods of slow sales.

Inventory financing provides a revolving line of credit that business owners can draw on as needed. The business owner pledges existing inventory as collateral for the loan.

Part III: How to Secure Your Business Loan

There are several ways to secure a business loan. You can use hard assets for collateral, like a house or a boat; paper assets, like investments and savings accounts; or your own inventory and invoices. We’ll dig into types of ways to secure your business loan here.

Securing your business loan with collateral

If you or your business has significant assets, you likely are a good candidate for a secured business loan. Lenders will consider the amount of collateral you have when deciding on your loan application, as they want to reduce their risk in case you can’t repay your loan. If you default, lenders will take possession of collateral and sell it to regain at least some of the money they lent you.

This is where risk can come in. While your business may be secure when you apply for the loan, downturns in the market or other unexpected events may push a business into hard times. For example, if an unsavory business moves in next door, your customer traffic may slow significantly. If a machine breaks down or needs to be replaced, production could be slowed and orders unfulfilled. Theft and natural disasters that destroy your business’s property also can severely reduce revenues and lead to unexpected expenses.

If unforeseen circumstances result in a business owner being unable to make loan payments, the lender can seize collateral. As a result, a business owner can lose their house, their car or their savings. If the collateral is property belonging to the business, seizure can be just as devastating, and losing significant business assets can cause the business to close.

The payoff for a secured loan, though, will be more flexible loan terms and significant financial savings over time. Borrowers with secured loans will pay lower interest rates and fewer fees, and they may not be penalized for paying off the loan early.

Hard vs. paper assets

Lenders typically will accept personal and business assets, which a business owner can pledge as collateral if they want to protect their personal property. Either way, borrowers must promise the lender something valuable that can easily convert to cash in the case of default to recoup losses.

Borrowers can pledge two types of collateral: hard assets and paper assets. Hard assets include houses, vehicles, boats and land, while paper assets include stocks, savings, investments, insurance policies and bonds. Lenders also will happily accept cash accounts as collateral, but they will not consider retirement accounts, such as 401(k) plans.

Business assets that qualify as collateral include inventory, insurance policies, accounts receivable, machinery and equipment, and unpaid invoices.

Some lenders may attach a blanket lien to a loan as collateral, and borrowers should be aware of the sweeping consequences this can have if the loan goes into default. Blanket liens give lenders a legal claim to all of your assets, business or personal, if you stop making loan payments.

Securing your business with a personal guarantee

In many cases, borrowers will be asked to provide a personal guarantee for a secured business loan. This requires the signatures of all principal owners, ensuring that they have assets they can put up as collateral. While the signatures are on unsecured promises, a personal guarantee does allow the lender to take signers’ assets if the loan is not paid. If you don’t have enough assets to personally guarantee a loan, business consultant Starns recommends finding a business partner who does.

Personal guarantees are different from collateral in that they give lenders access to a wide range of assets, while collateral typically specifies assets the lender can seize in case of nonpayment.

It’s important to know what you’re signing when offering a personal guarantee. If you do default on the loan, the lender may release you from the personal guarantee if you ask, and you also could try to arrange with the lender to first sell business assets to satisfy the outstanding debt before they seize your personal assets.

Part IV: Shopping for a Secured Business Loan

Borrowers can apply for secured business loans at several types of financial institutions. Banks and credit unions offer standard application procedures that include filling out an application in person or over the phone, discussing terms and the loan amount with a loan officer, and working with a business specialist to access funds if the loan is approved.

Business owners can apply for SBA loan programs through partner lenders, which can include banks and community organizations that work within SBA guidelines. Borrowers will need to download and complete an SBA loan application and be prepared to submit documents such as personal background and financial statements, business financial statements, and income tax returns. A list of SBA lenders is available on the agency’s website.

Online lenders typically have faster application processes and can get money to borrowers quickly, but they often come with higher interest rates than traditional lenders. Some online lenders often charge origination and monthly maintenance fees as well.

To compare offers from multiple business loan lenders, check out MagnifyMoney parent company

Do your research

Before business owners begin shopping for a secured business loan, financial advisers recommend realistically assessing their business’s economic situation. Secured business loans come with great personal risk, as a failed business and inability to pay off a secured loan can cost a business owner significant personal or business assets. Online calculators can help borrowers estimate potential monthly payments and make good decisions about what amount of loan they can afford.

Bob Burton, a retired businessman who now volunteers as a mentor for the Charlotte, N.C., office of SCORE, a national organization that provides mentoring and education to small business owners, says he makes sure that clients understand the economics of their idea for a business.

“They have to make the call whether they want to put their money in it,” Burton says. “A lot of people don’t understand what’s involved in starting a business. It sometimes can look very simple, but it can be quite complex.”

Starns advises borrowers to think through how realistic their plan is, including whether they are truly committed to the endeavor and have enough experience to execute it, before taking on a secured loan.

“You’re risking a lot of things,” he says. “Owning your own business is rewarding, but it’s also risky and takes a special mentality to be able to do it.”

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.

Marty Minchin
Marty Minchin |

Marty Minchin is a writer at MagnifyMoney. You can email Marty here


Advertiser Disclosure

Small Business

How to Find Your Best VA Business Loan Options in 2017

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews 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.

Source: iStock

Veteran-owned businesses make up just under 10 percent of all businesses in the U.S., according to a 2017 report by the Small Business Administration. Despite veterans’ propensity toward entrepreneurship, funding options for veteran-owned business can be difficult to find. According to the same report, nearly 60 percent of veterans’ startup or acquisition capital comes from personal or family savings, while less than 10 percent comes from loans from federal, state, or local government, government-backed business loans from banks, or business loans from banks or other financial institutions.

Obtaining startup financing is always a challenge, but veterans may have an especially difficult time. Because their housing, transportation, and many other daily necessities are handled by the military, they may not have built credit while actively serving.

Fortunately, many organizations, including the U.S. Department of Veterans Affairs (VA) and the U.S. Small Business Administration (SBA) have stepped up to provide resources for veteran entrepreneurs. In this guide, we’ll take a look at the options available for current veteran business owners and veterans looking to start their own business.

Traditional bank loans

Borrowers who bank with a financial institution that caters to military members should talk to a loan officer at their bank first.

Navy Federal Credit Union provides small business financing of up to $50,000 through a combination of term loans, business credit cards, vehicle loans, and business checking lines of credit. A four-page application is available on their website and can be submitted online.

Fort Knox Federal Credit Union, which is available to active duty military, reserve, National Guard, and civil service employees and retired military or civil service members, provides SBA-backed commercial real estate loans. You can request more information by filling out a Commercial Loan Request Form online.

Tammy Everts, a certified business adviser with the Spokane Small Business Development Center, says borrowers with a good credit score seeking a loan of less than $150,000 may be able to qualify for a loan based on their credit score alone. “Talk to your commercial banker where you already have a relationship,” Everts says. “If you’re denied there, then you can expand your search.”

SBA-guaranteed loans

Neither the VA nor the SBA loan money directly to veteran entrepreneurs, but the SBA does guarantee small business loans for veterans. This means that should the business default on the loan, the government will pay a portion of the remaining balance back to the lender. This guarantee encourages banks to lend to applicants that might otherwise be considered too great a risk.

Everts says veterans, unfortunately, have fewer options than they did a few years ago. Prior to 2013, the SBA offered the Patriot Express Loan targeted at helping veterans and active duty military with loans up to $500,000. That program ended, but Everts says it was rolled into the SBA Express Program under the name SBA Veterans Advantage

To qualify, the business must be owned and controlled (51 percent or greater) by a veteran.

The SBA defines a veteran as:

  • Veterans (not those dishonorably discharged)
  • Active-duty military participating in the Transition Assistance Program (TAP)
  • Reservists and National Guard members
  • Current spouses of any veterans, active duty service members, reservists, or National Guard members and widowed spouses of any service members who die while in service or of a service-connected disability.

To document eligibility, the borrower must provide a copy of Form DD 214 or other documentation as outlined in SBA Information Notice 5000-1390. Eligible veterans have four options under the Veterans Advantage Program:

SBA Express loans of $150,001 to $350,000

  • No upfront fees
  • Two-page application and response within 36 hours
  • The SBA guarantees 50 percent of the amount borrowed

SBA 7(a) loans $150,000 and under

  • No upfront fees through 9/30/17 (typically 1.5 percent of the guaranteed portion)
  • Terms up to 10 years for equipment and up to 25 years for real estate
  • The SBA guarantees 85 percent of the amount borrowed

Non-SBA Express loans $150,001 to $500,000

  • The upfront fee is 50 percent less than the fee charged to non-veteran owned small businesses as follows:
    • Loans with terms greater than 12 months: fee is 1.5 percent of the guaranteed portion
    • Loans with terms of 12 months or less: fee is 0.125 percent of the guaranteed portion

Loans of $500,001 to $5 million

  • For loans of $500,001 to $700,000, upfront fee is 3 percent of the guaranteed portion
  • For loans of $700,001 to $5 million, upfront fee is 3.5 percent of the guaranteed portion up to $1 million, plus 3.75 percent of the guaranteed portion over $1 million

Note that for all but the Express Loan, the reduced fees are applicable only for loans made until September 30, 2017. The fee waiver has been extended in the past, but there is no guarantee it will be extended again.

Interest rates on all SBA loans are negotiated between the lender and the borrower.

How to apply

To apply for an SBA-backed loan, borrowers can use the Lender Match tool available on the SBA’s website. Everts says qualifying for an SBA Veterans Advantage loan isn’t really different from other bank loans. “The bank will expect a 15 percent cash contribution from the business owner and a good credit score,” Everts says. “With a credit score over 700, the borrower may be able to get a loan with very little paperwork.

Nonprofit lenders

Nonprofit lenders can often provide small business funding when traditional banks won’t.

CDC Small Business Financing VetLoan Advantage

CDC Small Business Financing’s VetLoan Advantage Program is available to veterans looking to purchase commercial or industrial buildings and equipment.

The VetLoan Advantage loans are backed by the SBA, but they offer lower down payments (typically 10 percent). Mike Owen, Chief Credit Officer and Director of Business Development for CDC Small Business Finance, says CDC provides a cash rebate of up to $3,000 to help veterans offset loan expenses. Borrowers can prequalify for a loan online.

The Jonas Project

The Jonas Project provides startup funding, training, and mentorship for veteran women. To qualify, applicants must be a U.S. military veteran with honorable discharge verification, demonstrate knowledge or skill in their desired field of business, and pass an extensive interview and qualification process. Applications are available online.

Veterans Business Fund

Veterans Business Fund (VBF) was established to assist veterans by providing them with the supplemental capital required to satisfy the equity requirements for a small business loan. VBF loans are non-interest bearing.

Currently, the VBF is not accepting applications until their necessary fundraising is complete, but borrowers should check back in the future to find out more about the application process and requirements.


If your borrowing needs are modest, a microloan may be the way to go. Microloans typically range from $500 to $100,000, although the definition of a microloan varies by lender.

Kabbage, a microlender that has provided over $3 billion in funding to more than 100,000 businesses, has a microloan program designed specifically for veteran-owned businesses. Borrowers can apply online or through the Kabbage mobile app for a line of credit up to $150,000.

Angel investment groups

Angel investors are affluent individuals who provide capital for a business startup, usually in exchange for ownership equity in the business. Some angel investors organize themselves into angel investment groups to share research, pool their investment capital, and provide advice to their portfolio companies.

Hivers and Strivers is a Great Falls, Va.-based angel investment group that focuses on investing and supporting startups founded and run by graduates of U.S. military academies. The group concentrates on investing $250,000 to $1 million in a single round, although they can work with other investment groups when larger financing rounds are needed.

Their investors, most of whom have also served in the military and have a broad range of experience in different industries and business models, will also serve as board members and advisers to the businesses they finance. Borrowers can submit their idea for consideration online.

Online lenders

Online lending platforms (sometimes referred to as peer-to-peer lending) are online services that match lenders with borrowers. Because they typically run with lower overhead, they often provide loans with better terms than traditional financial institutions.

StreetShares is an online lending platform that focuses on connecting veteran-owned and -run businesses with investors. They offer three different funding solutions:

Term loans

  • Loan amounts from $2,000 to $100,000
  • Terms of three to 36 months

Patriot Express line of credit

  • Lines of credit from $5,000 to $100,000
  • Terms of three to 36 months

Contract financing

  • Based on future earnings
  • No limit on contract amount

StreetShares only loans to borrowers who have been in business for at least one year and have “reasonable” credit. Borrowers can get pre-approved in minutes, and there is no application fee.


Grants are attractive to entrepreneurs without a lot of cash available to start or grow a business because, unlike a loan, the funds do not have to be repaid.

StreetShares Foundation

The StreetShares Foundation awards $10,000 in business grants to veterans and military spouses each month. Applicants must be a veteran, reserve, or active duty member of the U.S. armed forces or a spouse of a military member or veteran. Selection criteria are based on the business idea, use of funds and potential impact, product-market fit, team and company history, and influence of the business on the military and veterans community.

Applicants must qualify for the award by downloading or viewing educational materials, then complete an online application that includes writing a 300-word summary of the business and submitting a short video about the project or company.

USDA Outreach and Assistance for Socially Disadvantaged Farmers and Ranchers and Veteran Farmers and Ranchers Program (a.k.a The 2501 Program)

The U.S. Department of Agriculture provides small business grants, education, training, outreach, and other forms of support to veterans and minorities looking to begin or expand agricultural operations. Funding opportunities are closed for 2017.

Veterans can also search for additional grant opportunities through; however, Everts says her office typically counsels people to bootstrap their business because the process of searching and applying for grants can take a significant amount of time.

Other small business financing options for veterans

While funding is important, it’s often not the only resource veterans need to successfully start or grow a business. Here’s a look at some other great resources:

Boots to business

The Boots to Business entrepreneurial program is offered by the SBA. The curriculum includes a two-day classroom course on entrepreneurship as well as an eight-week online course with in-depth instruction on preparing a business plan and starting a business.

At the end of the eight-week online course, participants will have the tools and knowledge they need to identify business opportunities, draft a business plan, and launch a small business.

Veteran’s Business Outreach Center

Also funded by the SBA, Veteran’s Business Outreach Centers are a resource for service members, veterans, and military spouses looking to start, purchase, or grow a business. Centers are located in 17 states.

Business counselors at the outreach centers provide mentorship and work with veteran entrepreneurs on business plans, feasibility analysis, and provide training on franchising, marketing, accounting, and more.

Syracuse University Institute for Veterans and Military Families

The Institute for Veterans and Military Families hosts conferences and provides training for veterans transitioning to civilian life. Their initiatives include:

Entrepreneurship Bootcamp for Veterans with Disabilities

Available to post-9/11 veterans with a service-connected disability. The boot camps feature a 30-day online program, nine days of live training, and 12 months of post-program support.

Bootcamp for Veterans Families

Available to military families who serve in a caregiver role to a veteran with a service-connected disability. The boot camps feature a 30-day online program, nine days of live training, and 12 months of post-program support.

Veteran Women Igniting the Spirit of Entrepreneurship

Women veterans and female military spouses can receive entrepreneurship and small business management training through Veteran Women Igniting the Spirit of Entrepreneurship. This three-phase program includes a 15-day online course, a three-day entrepreneurship training event, ongoing mentorship, training, and support opportunities for graduates launching or growing a business.

There is a one-time $75 registration fee for the program, but the SBA covers a two-night hotel stay for event attendees and all meals and educational materials during the conference. Veterans can view the program calendar and apply online.


The International Franchise Association created VetFran, a strategic initiative to teach veterans about becoming a franchise business owner. Veterans and their spouses can get help figuring out whether franchising is right for them and search a directory of franchises, many of which offer discounts or grant free franchises to veterans.

American Corporate Partners

American Corporate Partners connects post-9/11 veterans to corporate mentors from companies such as Deloitte, Morgan Stanley, AT&T, Coca-Cola, and Intel for year-long, one-on-one corporate mentoring. Mentors help veterans with small business development, professional communication and leadership skills, and career development.The program is open to service members, veterans, and spouses who meet the following eligibility criteria:

  • Currently serving and recently separated veterans who have served on active duty orders for at least 180 days since 9/11.
  • Surviving spouses and spouses of severely wounded post-9/11 veterans.
  • Service members who served less than 180 days of active duty since 9/11, but who were injured while serving or training.

Applications can be completed online.

SCORE Veteran Fast Launch Initiative

SCORE (previously known as the Service Corps of Retired Executives) is a nonprofit association of thousands of volunteer business counselors throughout the U.S. Their Veteran Fast Launch Initiative provides mentoring and training to veterans transitioning to entrepreneurs. The program is a package of free software combined with mentoring aimed at helping veterans and their families start and succeed as small business owners.

In addition to templates and tools to help veterans plan and operate their businesses, veterans also receive five hours of free financial advice from a CPA.

National Veteran-Owned Business Association

The National Veteran-Owned Business Association (NaVOBA) doesn’t provide funding for veteran-owned small businesses, but it does provide networking opportunities for veteran entrepreneurs, encourages the federal government to spend their contract dollars with veteran-owned businesses, and advocates with state governments to pass laws creating opportunities for veteran-owned businesses.

The Bunker

The Bunker is an incubator for veteran-owned technology startups. They have local chapters throughout the U.S. that provide educational programming, resources, and networking for military veterans and their spouses interested in starting and growing a business. Their EPIC Entrepreneurial Program is a 12-week course designed to help participants launch a business.

The exact information you’ll need and qualifications to be approved for a loan depends on the funding option you’re interest in and the bank you’re working with. Some have simple applications and quick approval processes. Others will want to see collateral, business plans, personal financial statements, bank statements, and credit scores. Whatever funding opportunity you pursue, Everts recommends taking some time to prepare before applying. “Get your numbers in a row and know how much you can contribute to the business,” she says.

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.

Janet Berry-Johnson
Janet Berry-Johnson |

Janet Berry-Johnson is a writer at MagnifyMoney. You can email Janet here

TAGS: , ,