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Small Business

Where to Find the Best Short-Term Business Loans

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

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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.

OnDeck

OnDeck
  • Website: https://www.ondeck.com/short-term-small-business-loan
  • 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+.

Rapid Finance

Rapid Finance

National Funding

National Funding
  • Website: https://www.nationalfunding.com/solutions/short-term-business-loans
  • 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

Kabbage

Kabbage

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.

LendingTree

LendingTree

Website: https://www.lendingtree.com/business/small/

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

Disclosure: LendingTree.com is the parent company of MagnifyMoney.

SBA Lender Match

Website: https://www.sba.gov/lendermatch

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 annualcreditreport.com. 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 LendingTree.com’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.

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Small Business

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

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

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As of 2018, there was a $5 trillion gap between the funding needs of small and medium business and the traditional, institution-based financing available to them, according to the SME Finance Forum, which works towards expanding financial access for these businesses. This funding misalignment has helped alternative lending become a major new option.

The rise of alternative lending has been a boon for small business owners and other potential borrowers who are not necessarily a good fit for traditional lending and financing. That’s because alternative lending — financing from a non-traditional source — generally has less stringent requirements for borrowers, and it’s available for a wide variety of purposes.

What is alternative lending?

Alternative lending refers to any kind of financing from an external source that is neither a bank nor a stock or bond market. Most often, alternative lenders operate through online platforms, and they can offer a range of products, from term loans to merchant cash advances.

In general, alternative business lending has less stringent requirements than traditional institutions. A bank will generally require good personal and business credit, as well as a certain amount of time in business to extend a small business loan. In contrast, an alternative lender will likely have lower minimum credit score requirements and less strict requirements for time in business.

With fewer qualification requirements come higher approval rates. According to the Biz2Credit Small Business Lending Index, big banks (meaning banking institutions with more than $10 billion in assets) had a small business loan approval percentage of just 28.3% as of February 2020. Alternative lenders, on the other hand, approved 55.9% of small business loans in that same time.

In addition, the average closing period for traditional small business loans is 45 to 60 days. That’s the amount of time you will have to wait between turning in all parts of your initial application and when your funds are released to you. Traditional small business loans typically go through a multi-phase process before releasing the money, which is why they can take as long as 60 days to close. Loans from the Small Business Administration (SBA) can take even longer.

Many alternative lenders, on the other hand, can approve small business loans within one to three business days, or even sooner.

Types of alternative lending

Since small businesses have a variety of financing needs, it’s natural that alternative lending options include a number of different products to meet those needs. You can find the following types of loans through alternative lenders.

Term loans

A term loan is a lump sum that is borrowed all at once, and paid back over a specified term at a fixed interest rate. It’s what most people commonly think of when they refer to a business loan. The repayment term can last anywhere from just a few months to as long as 10 years, and sometimes even longer. The amount available to borrow depends greatly on the borrower’s creditworthiness and business profitability, as well as length of time in business.

Many small businesses seeking term loans will go through a traditional lender, since banks are generally able to offer longer terms and better rates than alternative lenders. However, alternative lenders do provide term loans that may be easier to qualify for.

Business line of credit

Unlike a term loan, which extends the full amount of the loan all at once, a business line of credit allows a small business owner to withdraw money up to an agreed-upon amount within the revolving credit line. Once the borrowed amount is paid back, the full amount is again available to borrow, similar to how a business credit card works.

This kind of product offers business owners a ready source of immediate funds. This can allow a business owner to hire as needed, purchase necessary supplies or even expand the company when an opportunity arises.

Equipment financing

Necessary equipment for running a business can be financially out of reach if you have to rely on making purchases in cash — that’s where equipment financing comes in. This kind of loan will help you purchase the equipment, even if you have a new business or short credit history.

Such loans will often use the equipment itself as collateral, which makes the loan easier to qualify for, though you do risk losing your equipment if you fail to repay the loan. The loan term will often be tied to the expected lifespan of the equipment.

Invoice factoring

Prolonged waits on invoiced payments can seriously affect a business’s cash flow. With invoice factoring, a business sells its unpaid invoices in exchange for a cash advance, typically 70% to 90% of the value of the unpaid invoice. The factoring company will then collect payment from your clients and send the remaining balance to you, minus a fee that it collects.

Merchant cash advances

Merchant cash advances are typically extended to businesses that rely on credit and/or debit card payments. This kind of advance provides you with a lump sum loan in exchange for a set percentage of daily or weekly credit card sales. You will continue to pay the daily or weekly percentage until the advance is repaid.

The amount you pay for a merchant cash advances is typically not based on an APR, however, but rather on what’s known as a factor rate. This rate, which can range from 1.2 to 1.5 (meaning 1.2 to 1.5 times the amount you borrow) can quickly get out of hand, however. If you calculate these factor rates as APRs, the APR you pay can range as high as 70% to 200%.

5 top alternative and non-bank lenders

To select the top five alternative and non-bank lenders we looked at a number of lenders. In addition to all being non-bank lenders, the lenders we chose had to meet the following criteria:

  • No more than two years in business required
  • Funding available in one to three business days
  • No prepayment penalties

1. BlueVine

Types of Loans OfferedLoan Amounts OfferedRateTime to Funding
Term loanUp to $250,000Starts at 4.80%Within hours of approval
Business line of creditUp to $250,000Starts at 4.80%Within hours of approval
Invoice factoringUp to $5,000,000Starts at 0.25% per weekAs fast as 24 hours

One of the big benefits of BlueVine is that it has no origination, prepayment, termination or maintenance fees. BlueVine’s term loans are available in 6– or 12-month terms, and you will pay a fixed weekly amount until the loan is paid in full. With the business line of credit, you will have 6 or 12 months to pay back your draw, with fixed weekly or monthly payments. You will pay a 1.6% to 2.5% draw fee every time you draw on your line of credit.

With invoice factoring, BlueVine provides 85% to 90% of the invoice amount upfront. Your customers will continue to make payments in your name, but the outstanding payments will go to the BlueVine account or P.O. Box and you’ll receive the remainder, minus BlueVine’s fees.

Both BlueVine’s term loan and business line of credit are available to any business that meets the following requirements:

  • Been in business for at least six months
  • Annual revenue of $100,000 or more
  • Personal credit score of 600 or higher

Businesses that cannot qualify for these loans may be eligible for invoice factoring, which requires only three months in business, monthly revenue of $10,000 or more and a FICO score of 530 or higher.

The business line of credit is not available in Vermont, and neither the line of credit nor the term loan are available in North Dakota or South Dakota. Invoice factoring is available across all states.

2. OnDeck

Types of Loans OfferedLoan Amounts OfferedRateTime to Funding
Term loan$5,000 to $500,000Starts at 11.89%Same day you are approved
Business line of credit$6,000 to $100,000Starts at 10.99%Same day you are approved

OnDeck has loaned out over $13 billion since 2007, making it one of the largest non-bank lenders. You can qualify for either a term loan or a business line of credit if you have:

  • Been in business for at least three years
  • A personal FICO credit score of 600 or above
  • Annual revenue of $250,000 or more
  • A business bank account

OnDeck promises instant funding as soon as you are approved. There are also no draw fees on the line of credit, unlike with BlueVine. However, you can expect to pay an origination fee for any kind of loan with OnDeck, as well as a $20 monthly maintenance fee for business lines of credit. You can potentially reduce your origination fee to 0% with subsequent loans though, and the monthly maintenance fee will be waived for six months if you make a $5,000 initial draw within five days of opening your line of credit.

3. Funding Circle

Types of Loans OfferedLoan Amounts OfferedRateTime to Funding
Term loans$25,000 to $500,0004.99% to 24.99%Within one business day after approval

Funding Circle has some of the more stringent guidelines for lending. To qualify for one of their term loans, you will need to have:

  • Been in business for at least two years
  • A personal FICO score of 620 or higher
  • No bankruptcies in the previous seven years
  • Located in an eligible state (Funding Circle does not operate in Nevada)

In addition, Funding Circle requires a lien on business assets and a personal guaranty from the business owner. However, there is no revenue requirement to qualify.

Loan terms can range from six months to five years, and your payment will be a fixed monthly amount. There are no prepayment penalties or maintenance fees, but you can expect to pay an origination fee of between 3.49% and 6.99% of the total amount borrowed. Additionally, there is a late payment fee of 5% of the missed payment.

4. National Funding

Types of Loans OfferedLoan Amounts OfferedRateTime to Funding
Term loan$5,000 to $500,000Not provided by lenderWithin 24 hours of approval
Equipment financingUp to $150,000Not provided by lenderWithin 24 hours of approval
Merchant cash advanceUp to $250,000Not provided by lenderWithin 24 hours of approval

National Funding has been in business since 1999, making it one of the oldest alternative lenders for small business. The lender does not specify its requirements for a term loan, but instead invites potential borrowers to fill out its application to connect with a loan specialist so that the lender can find the right loan for you. You won’t need collateral or a business plan to qualify, but you will have to sign a personal guarantee.

For the equipment financing loan, however, you will need to have been in business for at least six months, have a FICO score of over 575 and get a quote from a vendor for the needed equipment. Finally, any business that has been in business for at least a year and takes in at least $3,000 per month in credit card sales is prequalified for the merchant cash advance.

Though it is unclear how much you will pay in interest, National Funding focuses on offering a high approval rate, even to businesses with less-than-stellar credit. You can also receive early payoff discounts, as well as a variety of payment terms and options.

5. Kabbage

Types of Loans OfferedLoan Amounts OfferedRateTime to Funding
Line of creditUp to $250,0001.25% to 10.00% fee per monthWithin one to three business days

To qualify for a Kabbage line of credit, you only need to have been in business for at least one year, and take in $50,000 per year or $4,200 per month in revenue. There is no collateral requirement.

You may borrow from your line of credit in amounts as low as $500, all the way up to your limit. When you make a withdrawal, the money will show up in your bank account within one to three business days, or instantly in your Paypal business account. Each withdrawal is considered a separate loan, with a repayment term of 6, 12 or 18 months.

Kabbage’s interest rate is calculated monthly, which can mask how high an APR you are actually paying — according to ValuePenguin, the APR can range between 20% and 80%. The monthly fee ranges from 1.25% to 10.00%; however, there is no origination fee.

Pros and cons of alternative lending

Pros

There are a number of reasons why small business owners might choose to borrow with an alternative or non-bank lender. Benefits of alternative lending include:

  • Easier to qualify: With fewer and less stringent qualification requirements, alternative lending opens up funding opportunities for small business owners who may not otherwise be able to get the financing they need, especially if their credit is not excellent.
  • Rapid approval and funding: Alternative lenders approach the underwriting process differently from traditional lenders, which means they can both approve loans and release funds more quickly. This means small business owners can get the money they need when they need it.
  • Available to new businesses: Though traditional funding sources generally require a long history of profitability before extending a small business loan, alternative lending options will consider newer businesses for loans.

Cons

However, even though there are a number of excellent reasons to consider an alternative lender for small business financing needs, there are still some alternative lending hazards to beware of. This includes:

  • Confusing interest rates and fees: It can be difficult to compare apples-to-apples when it comes to alternative lending rates, since each lender uses its own methodology for calculating rates rather than clearly stating APRs. In addition, it can be difficult to determine exactly what and how much you will be paying due to additional fees, such as origination fees and draw fees, depending on the alternative lender you choose.
  • Shorter repayment terms: Alternative lenders often offer shorter repayment terms than traditional lenders. This helps to mitigate the risk to the lender, but it also means higher monthly payments for the borrower.
  • Less flexible payment options: Many alternative lenders require daily or weekly repayment, fixed repayment amounts or automatic ACH payments toward your loan. If your business has any cash-flow difficulties, this could cause some further financial problems.

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.

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Small Business

Guide to Small Business Funding for Women

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

Written By

Source: iStock

As the number of women-owned businesses grows across the U.S., women entrepreneurs are increasingly in need of funding for their businesses. While there aren’t specific small business loans for women, there are many lenders and organizations that offer small business help for women entrepreneurs, including SBA loans, term loans and business lines of credit, among other resources.

Small business loans for women: 3 options to consider

SBA loans

Best for: Businesses looking for long-term financing and businesses struggling to get loan approval.

The Small Business Administration (SBA) offers small business help for women that includes business training, counseling and assistance in accessing financing. The SBA can also help you if other lenders have deemed your business too risky. Since SBA loans are guaranteed by the Small Business Administration, lenders may be more likely to approve your application and even offer lower interest rates and longer repayment terms.

The SBA offers multiple loan types, with amounts ranging from $500 to $5.5 million. Requirements to qualify for each loan type are unique, and eligibility varies depending on the lender and the loan program. However, SBA loans are available for most business purposes.

Term loans

Best for: Businesses that can clearly project how much cash they’ll need or for startup capital when a business doesn’t want to forfeit any ownership to an investor.

A term loan is a typical loan arrangement that allows you to borrow a lump sum of money and pay it back in installments, with interest. Interest rates and other fees can vary greatly from one lender to the next, but you’ll likely need to present your business plan, expense sheet and financial projections in order to apply for a term loan at any bank or credit union.

Some lenders are committed to offering small business term loans to women. Learn more about these lenders and their loan product options below.

Business lines of credit

Best for: Businesses that need ongoing access to capital or that have an open-ended project.

A business line of credit is an account that allows you to draw money up to a set limit. Similar to a credit card, each time you pay down your balance you can draw up to the limit again, and fees and interest payments are based on your account balance. Unlike business credit cards, which generally have higher interest rates, business lines of credit tend to have lower interest rates and allow you to make cash withdrawals without any limitations and write checks from your account.

You can take out a business line of credit through a bank, credit union or online lender. Qualification is based on your personal credit.

5 best small business loans for women

To select the top five small business loans for women, we looked at a number of lenders and chose a mix of online and traditional bank lenders. While traditional lenders may be more difficult to qualify for, the two we have listed are among the most active SBA lenders, making them a potentially compelling option for women business owners.

Additionally, the lenders we selected had to meet the following criteria:

  • Transparent websites. These lenders clearly list necessary information on their websites so small business owners can easily find what they need.
  • Wide range of amounts and term lengths. Many of these lenders offer a range of loan products as well as amounts and term lengths, which means they can cater to a range of small business owners’ needs.
  • Lender credibility. These lenders have all been in business for at least a decade and have established themselves in the space through things like positive customer reviews and high approval counts.

1. Kabbage

Type of financing

Rate

Amount

Min. credit score

Best for...

Business line of credit

Monthly fee is 1.25% to 10.00% of principal

Up to $250,000

None

Ongoing access to capital

Although Kabbage often refers to its financing product as a loan, it is technically a line of credit, one the company says is commonly used by women business owners for inventory purchases, office expansion, marketing campaigns, equipment purchase and hiring employees. Kabbage’s monthly fees for business lines of credit start at 1.25% and are only charged based on the amount you draw.

Kabbage offers a simple online application process, and you can manage your line of credit account from a mobile device.

2. Smartbiz

Type of financing

Rate

Amount

Min. credit score

Best for...

SBA loans

5.04% to 10.29% APR

$30,000 to $5,000,000

650 for a $30,00 to $350,000 loan

675 for a $500,000 to $5 million loan

Faster processing on SBA loans

According to Smartbiz, 30% of its 7(a) SBA loans are granted to women-owned businesses. The national average is only 14% for SBA lenders.

Smartbiz helps expedite the application process by submitting your application to an online marketplace of multiple SBA lenders at once. Prequalification is available within five minutes, and funding is available in as few as seven days upon approval.

3. Wells Fargo Bank

Type of financing

Rate

Amount

Min. credit score

Best for...

Equipment Express Loan

5.50% to 9.50% APR for vehicle loans

6.00% to 12.25% for equipment loans

$10,000 to $100,000

Not disclosed

Purchasing vehicles or equipment

In 2013, Wells Fargo Bank committed to lending $55 billion to women-owned businesses by the year 2020. The bank offers several small business loan products, including its Equipment Express Loan. The interest rate on the bank’s secured vehicle loans starts as low as 5.50%.

However, you’ll need to be an existing customer of the bank to apply. Wells Fargo small business loans are only available to customers who have had a checking or savings account with the bank for a minimum of one year.

4. Celtic Bank

Type of financing

Rate

Amount

Min. credit score

Best for...

Express Loan

Variable

$20,000-$150,000

Not disclosed

Wide variety of loans

Celtic Bank is perhaps best known as an SBA lender, but the Utah-based lender offers a variety of loans well-suited to all types of businesses, small to large. The Celtic Express loan offers loans between $20,000 and $150,000 for up to 120 months.

To be eligible, the business must be a for-profit, owner-operated enterprise. Loan proceeds may not be used for construction or tenant improvements. Newer businesses are considered, but you must have a location identified and be able to start operations at funding.

5. OnDeck

Type of loan

Rate

Amount

Min. credit score

Best for...

Short-term loan

11.89% APR and up

$5,000 to $500,000

600

Business owners with lower personal credit scores

OnDeck is an online lender that has funded over $6 billion in small business loans for women. The lender offers business loans for women with bad credit, with a minimum credit score requirement of just 600. However, its APRs start relatively high, at 11.89% and up.

In order to qualify for a loan with OnDeck, your business must be at least a year old and earn at least $100,000 a year in revenue. Those who qualify may receive funding within as little time as 24 hours.

Alternative financing options for women-owned businesses

Grants for female business owners

Small business grants can provide you with funds to start or expand your business — and, unlike loans, they don’t have to be repaid. Grantors who fund women-owned businesses include the federal government, local governments and private funds. The amount of money available and the requirements to qualify will vary depending on the source of the funds.

Here are a variety of women-owned business grants to consider:

  • Amber Foundation Grant. Grants of $4,000 are awarded on a monthly basis to women-owned businesses of all kinds. Monthly grant winners are eligible for an additional $25,000 grant at the end of the year.
  • Cartier Women’s Initiative. This grant is for women-owned, women-run businesses focused on sustainable social and/or environmental impact. Applicants in a select group receive one-on-one business training and cash awards of $30,000 or $100,000.
  • Girlboss Foundation Grant. Grants are available up to $15,000 for women entrepreneurs working in the areas of design, fashion, music or the arts.
  • NASE Growth Grants. The National Association for the Self-Employed (NASE) offers $4,000 grants for female business owners. You must become a NASE member to apply.
  • SBA. Though there technically are not Small Business Administration grants for women (or anyone else), the SBA does facilitate federal grants for all types of business owners through the Small Business Innovation Research and the Small Business Technology Transfer programs.

Equity financing opportunities

Venture capital firms and individual investors, sometimes known as “angel investors,” differ from lenders. Instead of offering debt, these venture capitalists offer to make a long-term investment in your company in exchange for equity. They may also require some form of ownership and/or a seat on your company’s board of directors.

Here are some investing groups and firms that cater to women-owned businesses:

Additional resources for women-owned businesses

  • SBA Women’s Business Centers: The SBA offers over 100 office locations throughout the U.S. where women can receive free training, workshops, mentorship and more. Use the SBA directory to find your nearest location.
  • Women-Owned Small Businesses (WOSB) Federal Contracting Program: This federal program sets aside contracting opportunities for women applicants in industries where women’s businesses are underrepresented or disadvantaged. Those industries include construction, manufacturing, publishing and more.
  • National Women’s Business Council (NWBC): This federal advisory committee advises the president, the U.S. Congress and the SBA on matters affecting women entrepreneurs and women-owned businesses. The NWBC hosts round-table events around the country to gather input and promote women’s STEM-focused and rural-owned businesses.
  • DreamBuilder: This free online program offers interactive courses for women on how to start, build and finance your business. Courses are available in Spanish and English.
  • National Association of Women Business Owners (NAWBO): NAWBO is an advocacy organization that promotes networking events for women entrepreneurs, provides online resources and has local chapters throughout the U.S.

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