Business Finance - Small Business Loans

Need a small business loan? What is the best small business loan that meets my business needs?

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Which Business Financing Option is right for you?

There’s a wide array of business funding options, and it can be overwhelming to find the right type of small business financing. Tillful knows the options available to you are as unique as your business. We do the work for you and match you with the right financing options for your business, so you can get back to business.
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Understanding Small Business Loans

Many small business owners rely on business funding to start, run, and grow their businesses. Yet, many small business owners don’t know which funding option best suits their needs. We’re here to help and answer your top questions when it comes to choosing the right business funding.

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SBA Loans

SBA loans don’t originate with the U.S. Small Business Administration; instead, the SBA backs the loans to encourage lenders to provide financing to small companies.

The two main SBA programs are for 7(A) and 504 loans. 7(A) loans can finance various types of projects while 504 loans are intended for sizable purchases of fixed assets like equipment.

Express Loans and Small Loans are special categories within the 7(A) program that have lower capital limits but faster turnaround. A separate SBA Microloan program offers up to $50,000 for earlier-stage companies.

Interest rates are determined by the lender but have a cap required by SBA. A proven business track record is needed for an SBA loan, but guarantees from SBA encourage lending to companies that may have been denied other types of financing.

Pros and Cons

SBA backing improves accessibility and terms
Can fund bigger projects for growth and expansion
Limited to established small businesses
Longer and often slower application process

Term Loans

Term loans are a type of traditional bank loan that normally involve amounts under $500,000 and a longer repayment schedule. The loan structure depends on the lender’s evaluation of the company’s financials, including their business credit score, so it’s easier for established firms to get term loans.

Pros and Cons

Ability to fund diverse business needs
Longer repayment timeline
Primarily for established businesses

Merchant Cash Advances

Merchant cash advances provide a quick cash infusion that is repaid with a percentage of daily sales made by credit and debit cards. When sales are higher, a larger portion of the cash advance is paid back.

Merchant cash advances have a high approval rate and quick turnaround time but carry a heavy cost in terms of fees or APRs. They are primarily used when speed and convenience are priorities and when other funding options are not available.

Pros and Cons

Fast application process and turnaround time
High approval rates; available to businesses with limited options
Repayment timeline tied to daily sales
High fees and interest rates

How to Apply for a Business Credit Card so you get Approved

Having a business credit card is a great way to give your company the financial boost it needs to cover day-to-day expenses when cash is short. The benefits of a business credit card include the ease of managing cash flow, earning rewards, and establishing a business credit score for future small business loans. Since information on business credit cards can be vast and inundating, this guide streamlines the how-to process of applying for a business credit card and the benefits it will bring you and your business.

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Business Line of Credit

A business line of credit allows a company to borrow cash as needed up to a maximum amount. This buffer can resolve cash flow shortfalls, which is especially useful in emergencies or when navigating temporary or seasonal fluctuations.

A major benefit of a business line of credit is its flexibility, especially because interest is only accrued on the amount that is withdrawn.

The terms, including the credit maximum, interest rates, and repayment schedule, are negotiated with the lender and are more favorable for companies with good credit scores. Credit risk also affects the required collateral and documentation for the line of credit.

Pros and Cons

Provides flexibility to borrow on an as-needed basis
Boosts available capital without repeat loan applicationsLimited to established small businesses
Application process and loan terms vary and can be costly for businesses with lower credit scores

Business Credit Cards

Similar to a personal card, a business credit card gives immediate access to funds for purchases. This can overcome short-term cash flow problems that might otherwise restrict purchases critical to fulfilling customer orders.

Online or app-based tools to track spending that come with business credit cards are useful for effective budgeting and improving cash flow. Many cards also have perks like rewards points.

Although these cards provide flexibility, their interest rates can be high. It’s important to manage cards carefully to limit costly late fees and interest charges.

Pros and Cons

Immediate access to capital for purchases
Rewards programs provide extra perks
Tools to track and monitor spending
Ability to have multiple cards for employees
High interest rates
Low credit limits
Short repayment schedule

Microloans

Microloans provide limited capital, typically up to $50,000, for initial costs or working capital. Microloans can come from traditional banks, online banks, and non-government organizations focused on community development.

Less strict eligibility requirements make microloans appealing to startups and early-stage companies, but these loans may fall short of the funding needs for many businesses.

Pros and Cons

More accessible for early-stage companies
Less stringent lending requirements
Limited capital
Higher potential interest rates

What Factors do Lenders look for?

How To Get a Small Business Loan

Did you know that more than half of small businesses that seek new business funding experience a financing shortfall, meaning they obtain less funding than they seek? Learn how to maximize your success by understanding the key factors that determine the outcome of a business loan application, so you can maximize your success.

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Equipment Financing

Equipment loans provide financing for machinery, vehicles, computers, or other fixed assets. A longer repayment schedule allows companies to invest in growth without an oversized up-front investment.

The equipment serves as collateral, reducing the need to secure the loan. Specific terms are negotiated with the lender and depend on the equipment being purchased and the company’s creditworthiness.

Pros and Cons

Facilitates longer-term repayment on investments in fixed assets
Equipment itself acts as collatera
Narrow scope

Invoice Financing

Invoice financing offers a cash advance based on outstanding invoices, creating short-term liquidity to cover expenses until customers meet their payment obligations. This type of loan usually comes with a weekly fee paid to the lender.

Another version is invoice factoring, in which the cash advance is equal to a percentage of the pending invoices. When the invoices are paid, the business receives the total minus the lender’s charges.

The fees for invoice financing can be substantial, and the business takes on added risk if customers delay or default on payments.

Pros and Cons

Provides short-term capital while invoices are pending payment
Only available to companies with pending invoices
High weekly fees and/or interest rates

Cash Flow Loan

A cash flow loan extends capital based on the lender’s estimation of a company’s projected revenue. For businesses, it can mean rapid access to funds, but getting this type of loan requires strong evidence of sales performance. In addition, high interest rates can make cash flow loans costly.

Pros and Cons

Offers immediate working capital based on projected revenue
Requires established track record of revenue generation
High interest rates

Commercial Real Estate Loans

With parallels to a home mortgage, a commercial real estate loan is used to finance properties like offices, factories, or storefronts.

The term and interest rate depend on the property and the company’s financials. The real estate itself is the primary securitization for the loan. As with home loans, refinancing is an option, and businesses can often use the equity in the property to obtain credit.

Pros and Cons

Serves as long-term financing tool for major investments
Property value helps secure the loan
Narrow scope

What are the Key Risks to Consider When Getting Business Financing?

Why Can’t I Get A Small Business Loan?

You may have had the unfortunate but all too common experience of being denied a loan. Lenders may consider the following as red flags when evaluating your loan application. Learn more so you can correct them before applying for small business credit and improve your chances of success.
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What are the Alternatives to Business Finance?

Alternative Funding Options for Small Businesses

Alternative funding, simply put, is any type of funding you obtain for your business outside of traditional loans from banks. Some business owners may consider alternative funding options to finance their business if they’ve been turned down for loans in the past, have yet to build their business credit, have poor credit, or are unsure of how much funding they really need for their business. Some alternative funding options include:

  1. Grants

    As a small business owner, you may be eligible for a grant - financial assistance awarded by your federal, state, or local government.Tillful COVID-19 funding relief tracker

  2. Venture Capital and Angel Investment

    Angel investors are wealthy individuals (or groups of wealthy individuals) who invest their own money into companies. Venture capital firms invest other people’s money (which they hold in a fund) into companies. You don’t have to be a typical tech company to consider this alternative source of funding.

  3. Pitch competitions

    This alternative form of funding is particularly beneficial for business owners with an established business looking to expand. You don’t have to be a typical technology or medical startup to consider this route of financing. Depending on where your business is located, there are often regional or community-driven pitch contests that occur from time-to-time.

  4. Bootstrapping

    Chances are you may have found yourself doing some form of bootstrapping in the early stages of your business as a small business owner. There is no shame in bootstrapping! It often encourages lean operations and can help prevent you from over-leveraging and taking on financing beyond your capacity. No matter which funding option you choose, be it traditional or non-traditional, it’s important to have a solid business plan to back up your business and work on building a good business credit score to better your chances of obtaining when and as needed.Learn more on how you can Improve Your Business Credit Score here.

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Which Small Business Loan is Right for Me?

Small businesses have more funding options today than ever before, so we understand what a challenge it can be to choose the right small business loan and the right lender for your business. Evaluating your loan options, including loan amount, term length, and interest rates can be complex and confusing. Tillful is here to help.
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