There are various types of loans today that were nonexistent some decades back. While some are nearly identical, others have very different repayment structures. How do you choose the most appropriate lender for your business? Check out the options which you qualify for, then choose the one with the most friendly payback terms for you.
List the most popular small business loans available
• Business Term Loan-The set amount is given upfront. You pay it back over certain duration with fees. Fixed installments are paid every month
• SBA loan- The structure resembles the term loan except for the terms and requirements.
• Business Line of Credit- Revolving credit limit is given and can be borrowed anytime. You only pay when you borrow
• Equipment Financing- You are financed to buy certain equipment. Equal Instalments are made monthly
• Merchant Cash Advance- A lump sum is given, and should be paid back through a fixed rate of daily credit and debit sales
• Revenue-based Loan- A lump sum is given, and should be paid back through a fixed monthly percentage of your total revenue
• Invoice Receivable factoring- Your lender buys your outstanding invoice at a discounted price which they pay for right away.
Ensure you qualify for the program you set on. Different lenders have different requirements This guide will focus on the business funding program requirements availed by OnDeck, Kabbage, United Capital Source, Square Capital and Commercial banks.
• OnDeck- A minimum of one year operating for lines of credit and business term loans. For term loans annual revenue of $100,000 and above 600 credit score for the lines of credit are require. You should have no bankruptcies in the past two years and should have a personal guarantee for a term loan
• Kabbage- It only offers a business line of credit. A minimum credit score of 500 is preferred. Borrowers should have minimum annual revenue of $50000 and above and in business for one year and more.
• Square Capital- It only offers the flex loan similar to a merchant cash advance. Annual revenue -$100,000 and above with a transaction history that indicates your capability to pay the loan within 18 months
• Commercial Bank- Banks mostly offer SBA loans, business term loans, and lines of credit. A minimum of six months in business with more than 700credit score is required. Annual revenues should exceed $100,000.
• United Capital Source- It offers all the programs listed in step 1. All business must have annual revenue of $100 and be in business for a minimum of 6 months. Low credit scores may be approved for the short term loans.
Interest rates and the terms of payment are the deciding factors for most borrowers. Here are the different terms and rates for various programs:
• Business Term Loan- Between 4% to 10% interest. Duration ranges from 3 months up to 10 years.
• SBA Loan- 5-10% interest with the terms ranging from 3to 25 years.
• A line of Credit- depends on the lender
• Equipment Financing- 5% and above interest for 1to 5 years
• Invoice Receivable Factoring- depends on the lender. United Capital Source start at 5.8% for a maximum of 2 years
• Merchant Cash Advance- Depends on the lender
• Revenue Based Business Loan- Factor rate begins at 9% for 3 to 10 years
Consider any other factors impacting your decision.
What do you intend to do with the loan? Start with the primary goal; paying bills, increasing staff or buying equipment. How will your investment affect your revenue? Will it pay off the debt?
See if it will be easier to pay the debt after your investment. Is your industry heading into the low season? Do you need to make significant payments soon? This will help you make a wiser decision
• Business Lender
There are pros and cons to every lending agency. While banks avail the cheapest loans, they are not easy to qualify for. How convenient is your potential lender? Think about your ideal business lender. This will help you choose a lender with a program that best suits your business model. Ensure you take your time to avoid rushed decisions that could end up frustrating your business.