Starting a Small Business is not anything simple especially when you need finances to procure raw material or for renting a space or to purchase machinery for manufacturing items. But not to worry, in this post we will cover everything in detail about Small Business loan, small business financing and all the sources for easily getting Small Business loans in 2020 to start your dream venture. Also, you will find complete step-by-step guide to qualify for a Small Business loan in US in 2020.
The state of Small Business financing in USA in 2017
The data from National Small Business Association suggest that “Financing continues to be a challenge for small firms, particularly at large banks where the number of small firms relying in large-bank financing has hovered at just 15 percent for the last two years.”
Many Small firms forced to lay off employees due to lack of financing is at its lowest point in 10 years.
The data below shows the percentage of Small Businesses that had relied on various financing options in the year 2017.
Credit cards 31%, Large Bank Loan 15%, Community Bank Loan 14%, Private loan (friends or family) 13%, Vendor credit 12%, Leasing 5%, Small Business Administration (SBA) loan 4%, Online or non-bank lender 3%, Venture capital/Angel investors 3%, Private placement of debt 3%, Credit Union Loan 2%, Selling/pledging accounts receivable 2%, State/Regional Loan and Incentive Programs 2%.
According to NSBA data from as far back as 1993, there is a clear correlation to a small business owner’s ability to hire and his/her ability to get financing.
According to data from the U.S. Small Business Administration, the most common source of capital to finance business expansion is personal and family savings (21.9% of small firms), followed by business profits and assets (5.7%), business loans from financial institutions (4.5%), and business credit cards from banks (3.3%).
Small Business loans can be difficult to obtain at times but there are several private lenders, online lenders and government loans available through SBA (Small Business Administration) to help your small business dream come true.
Below are some of the the best ways to get Small Business loan in 2020
We have listed some of the top small business loan companies that take minutes to evaluate your online application and qualify for a small business loan. We have also taken into consideration various factors such as customer service ratings, product availability and loan terms before listing the top online small business loan companies in 2019.
The lenders listed below are very popular and reliable and have been in Small Business Financing for several years now, however it is recommended that you must do your own research to pick up the best lender that suits your financial needs.
Small business loan rates by type of loan
Since some business loans come with fees rather than interest, let’s take a look at how APRs compare for different loan types:
| Type of loan | Typical APR |
|---|---|
Online term loan | 7% to 99.7% |
Bank term loan | 4% to 13% |
Line of credit | 8% to 80% |
SBA 7(a) loan | 6.3% to 10% |
Merchant cash advance | 20% to 250% |
Invoice factoring | 13% to 60% |
Small business loan rates by type of lender
Here’s how interest rates from different types of lenders compare:
| Type of loan | Typical interest rate |
|---|---|
Online lenders | 13% to 71% |
Big national banks | 2.55% to 5.14% |
Small national banks and regional banks | 2.48% to 5.40% |
Foreign banks lending in the US | 1.45% to 5.66% |
List of Top Online Small business Loan 2020
Kabbage
You can apply for quick access to up to $250,000 with a Kabbage line of credit. Kabbage is based in Atlanta and it has extended more than $4 billion in financing to small businesses around the world since 2009. Kabbage has an automated lending platform for a quick application process.
Unique Features of Kabbage Small Business Financing:
There are several advantages of kabbage small business financing solution, some of which are listed below.
- Up to $250kline of credit.
- Qualify in10minutes through an automated online lending platform.
- Choose 6, 12 or 18 month loan repayment terms
- You can decide when to use funds and how much to take. As long as you have available funds, you can withdraw every time you need capital.
- Securely link your business information online to get an automatic financial review. This lets Kabbage evaluate your business right away without requiring you to track down financial statements.
CDC Loans
If you are based in California, Arizona or Nevada then you can check with CDC for small business loan options. It’s a trusted nonprofit with more flexibility than a bank. Getting a loan from CDC loans just takes 3 easy steps and you can apply for a loan online. It has extended more than $18B in funding to over 11,000 borrowers.
Unique Features of CDC Loans:
- Access from $10,000- $500,000
- A monthly payment you can afford
- Fixed and variable rates available to meet your needs
- Credit score as low as 620
- Collateral not needed for approval
- 3-10 year terms
- Ability to improve cash flow
- Available in California,Arizona and Nevada
- Complimentary business advising
Lendio
It is a platform that helps you connect with over 75 nationwide lenders that offer small business loans. All you have to do is complete an online application and lendio’s proprietary algorithm matches you with loan options from a nationwide network of esteemed lenders. There are several types of loan options that you go for such as Line of Credit, Equipment Financing, Term loan, Commercial mortgage, Credit card, startup loan.
Unique Feature of Lendio:
- Apply online in just 15 minutes for a loan.
- Once your loan is approved, you’ll be able to access your capital in as little as 24 hours
- Choose from 75+ leading lenders.
- Several types of Loan options available for unique needs.
Traditional Small Business Financing Options for Entrepreneurs & Small Businesses in the U.S.
Small Businesses are the backbone of US economy and they are also the largest creators of jobs nationwide. But often small businesses struggle with financing and loans to support business operations, fulfill working capital needs and open new locations. If you are a small business then in this post you will find the best small business financing options in the US from various banks and financing companies.
Small Business Financing or Small Business loans are one of the same things and it is the money that you borrow from a bank or a financial company to start, run and grow your small business. Small Business Financing options are designed to cater to the unique needs of small businesses such as working capital needs, equipment purchase, inventory purchase or opening a new location.
At some point during the course of your business journey you may need money to sustain the growth of your business and that’s when most business owners turn to financing companies for business loans or lines of credit. To help you find the best small business financing companies, we’ve listed the three most popular banks in the US and their lending solutions to help you find the best small business lending option.
List of Small Business Financing Banks in the U.S.
Chase Bank – Chase for Business
Chase offers various financing solutions and business loans to the small businesses and startups.
Chase Business Line of Credit
Business Line of Credit offered by Chase for your business gets you easy access to cash for short-term capital, inventory purchase, supplier payment or an emergency fund.
Features & Benefits of Chase Business Line of Credit
- $10,000 to $500,000 Footnote line of credit
- Annual fee is automatically waived when your average line utilization is 40% or more.
- Renewable five-year revolving term.
- You pay interest only on the amount of credit you actually use
- At the end of the five-year revolving term, no further advances are available and the outstanding principal balance is repaid over five years, unless renewed.
- You can choose a monthly payment date that suits your cash flow.
The monthly minimum payment is accrued interest plus 1% of the outstanding balance — OR $100, whichever is greater. - The interest rate is based on such factors as your banking relationship, credit history and collateral.
Chase Commercial Line of Credit
Chase Commercial line of credit is suited for businesses that require access to large working capital.
- More than $500,000 line of credit
- A variable rate (indexed to LIBOR)
- Interest-only monthly payments
Online access for payments and to request an advance. - Initial terms from 12 to 24 months and renewable thereafter
- The interest rate is based on such factors as your banking relationship, credit history and collateral.
Chase Small Business Loans
A Chase Business Term Loan helps your small business purchase capital goods and equipment or consolidate debt.
- Loans from $5,000 and up
- Fixed and adjustable rates
- Flexible terms from 12 to 84 months
- Fixed monthly payments
Features & Benefits of Chase Small Business loans:
- Loan amounts starting as low as $10,000.
- 100% financing plus up to 10% in soft costs
- Terms as long as 7 years or up to 75% of the equipment’s estimated useful life.
- Fixed or variable rates
Wells Fargo Bank – Small Business Credit Solutions from Wells Fargo
Wells Fargo bank is among the top banks for Small Business Banking offering wide rage of options for credit, small business loans and business lines of credit at extremely attractive rate of interests.
Wells Fargo Business Lines of Credit
- New customer offer: $0 annual fee for the first year
- $5,000 to $100,000 revolving credit line
- Rates as low as Prime + 1.75%
- No collateral required
- Automatic enrollment in a free rewards program
Wells Fargo Secured BusinessLine® Line of credit
- $5,000 to $100,000 revolving credit line
- Rates as low as Prime + 1.00%
Wells Fargo Prime Line of Credit
- $100,000 to $500,000 revolving credit line
- Interest-only payments
- Secured by business assets
- Typically businesses with $2-5 million in annual sales
Wells Fargo Unsecured Business Loans
- $150 opening fee waiver
- $10,000 to $100,000 loan amounts
- 1- to 5-year terms
- Fixed rates start at 7.75%
- No specific collateral required
Wells Fargo Advancing Term Loan
- $100,000 to $500,000 working capital loan
- Up to a one-year draw, balance converts to loan
- Secured by business assets
- Typically businesses with $2-5 million in annual sales
Equipment Express® Loan
- $150 documentation fee waiver
- $10,000 to $100,000 loan amounts
- 2- to 6-year terms
- Fixed rates starting at 6.25% for vehicle loans
- Fixed rates starting at 6.75% for equipment
- May provide up to 100% vehicle and equipment financing
BMO Harris Bank Small Business Loans
You can receive receive a .25% rate discount if you make automatic payments from a BMO Harris Business checking account.
Benefits & features of BMO Harris Bank Business Loans
Key Benefits
- Available for loans of $10,000 to $1,000,000
- Simple application process makes it quick and easy to apply and get approved
- Use cash to refinance existing business debt, purchase inventory or whatever else your business needs
- Multiple/mixed collateral options available
BMO Harris Business Lines of Credit
- Access cash only when your business needs it.
- Available for loans of $10,000 to $1,000,000.
- Use cash to refinance existing business debt, purchase inventory or whatever else your business needs.
- Simple application process makes it quick and easy to apply and get approved.
- Use multiple assets as collateral, and ensure you qualify for all the cash you need.
Business loan fees
While rates are an easy way to compare, they can be misleading. Even if you’re comparing a loan’s APR. That’s because it doesn’t tell you when you’ll have to pay that fee. These are some common fees you might run into when you’re taking out a business loan.
| Fee | Typical range | When it applies |
|---|---|---|
Origination fee | 1% to 6% of the loan amount | When your lender disburses your funds, either added to your loan amount or deducted from your funds before you receive them. |
Referral fee | Varies | If you take out a loan by using a connection service. |
SBA guarantee fee | 0.25% to 3.75% of the guaranteed portion of the loan | When your lender disburses your funds, either added to your loan amount or deducted from your funds before you receive them. Some borrowers qualify for a waived guarantee fee. |
Late fee | Either between $10 to $35 or 2% to 5% of your loan amount | After you’ve missed a payment. Many lenders have a grace period of around 15 days before the late fee applies. |
Non sufficient funds fee | $15 to $35 | Whenever your business’s bank account doesn’t have enough funds to cover the payment. |
How to qualify for a Small Business Loan?
It doesn’t matter how confident you are about your business idea or plan, lenders look at your business from completely different perspective and determine whether your business is worth the risk or not.
Don’t feel discouraged but in order to qualify for a small business loan you’ll need to have a clear idea about how much money you need to borrow, and have good credit and a solid business plan.
Here are the steps that you can follow in order to prepare before you apply for a loan and you can increase your chances to get approved for a loan:
- The first step is to determine how much money you need – Figure out your business expenses to find out how much of a loan payment you can afford. You can find out how large of a loan your business can afford by calculating your Debt Service Coverage Ratio.
Lenders will routinely assess a borrower’s DSCR before making a loan. A DSCR of less than 1 means negative cash flow, which means that the borrower will be unable to cover or pay current debt obligations without drawing on outside sources – without, in essence, borrowing more.
Do not borrow money just for the sake of borrowing as you may not be able to repay in the long run if you have no clear picture about your business’s performance and income.
There have been a number of cases in the past where businesses were able to borrow large amount of funds, believing they were building a great capital reserve cushion, only to find that the ongoing borrowing costs and interest payments had a crushing impact on their bottom line.
As a Small business owners you should be mindful of exactly what terms are really needed and not try to exceed them simply for the sake of having excess cash reserve in the bank. It can impact your bottom line due to accumulating interest on borrowed funds that you need to repay.
To minimize risk and ensure you net a positive return on your investment, you can perform a small business loan performance analysis before you commit to taking out a loan. A loan performance analysis will forecast how the small business loan will financially impact your business.
- Find out your credit score – Having a healthy credit score increases your chances of loan approvals within the due time frame and it is also a crucial part of small business loan application process. Every Lender looks at your personal credit score and takes it into consideration when going through your loan application. Remember, the higher your credit score, the better terms and lower interest rates you’ll get on a small business loan.
If you have a sole proprietorship firm then your personal credit may be considered in the business loan application if you are using your personal credit to secure a business loan.
Remember, that if you are able to secure small business loan based on your personal credit score, failing to repay it may affect your personal credit history and your ability to qualify for new loan in the future.
It is recommended that you carefully review your credit report so that it’s free of errors, identify and resolve any issues with the report.
As mentioned above a credit report is crucial part of a loan application and any inaccuracies in your credit report can lower your chances of getting a loan approved and may negatively impact your score.
It’s important to have a clear and error free credit report before beginning the application process.
You can follow the link to official website of the United States government to find credit reports and all necessary information about credit reports.
People who are already in business should check their business credit score. Your personal credit is linked to your Social Security number, your business credit is tied to your Employer Identification Number or taxpayer ID. There are credit reporting agencies that deal only with business credit, such as Dun & Bradstreet.
However, a personal credit score on the FICO scoring system ranges from 300 to 850, the range for a business credit score is from 0 to 100. The latest US version, FICO Score 9 is the most current and predictive FICO Score.
Like personal credit scores, your payment history, credit utilization and credit accounts affect your business credit score. Public records such as judgments, liens and bankruptcies will be reflected on your report. Other variables, such as the size of your business and how long it has been around, may also be considered.
- Create a solid business plan –The first step for any business idea realization is to create a solid and comprehensive business plan as it is the foundation of your small business and shows potential lenders how profitable your venture would be.
It is important for entrepreneurs, small businesses and startups looking for capital to have a solid, well drafted and professionally presented business plans. You cannot expect a lender to be convinced without a compelling business plan in hand.
A business plan must include the following:
- A brief summary, which provides an overview of your plan.
- A description about your business and its main objectives.
- The primary products and services your business will offer.
- Your target customers, market and your competition.
- Solid Sales and marketing plans.
- Organization and management, which includes the setup and responsibilities.
- You and your management team’s skills and their backgrounds and what role they play in the success of your business.
- Financials, such as the estimated cost to start or grow the business, a breakdown of ongoing expenses and what the funds would be used for.
- Projections, which include projected income and balance sheets for the first few years
- Appendix section, which provides supporting documents for your business plan.
- Take help from business mentor – A business mentor can help you refine your business plan, connect with resources and guide you in the right direction. You can find a business mentor through professional associations, former employers or through SBA (Small Business Administration). Taking help from an experienced business mentor increases your chances of qualifying for a loan.
- Look for local resources available for small business owners – Local business resources such as SBA District Offices and Score chapters provide free counselling, mentoring and training to the small business owners to help them equip with all the knowledge required to start a successful venture. You can receive free counseling, advice or financial assistance for your new small business and in case you’re a veteran with strong credit, you may qualify for a guaranteed loan through a Veteran’s Business Outreach Center.
This video explains how to qualify for Small Business Loans from SBA
Some really important steps that will help you qualify for a Small Business Loan:
According to US News, Small business loans require paperwork and thorough documentation. You’ll need to fill out an application and provide supporting documents, which you should be ready to submit to the lender. Required documentation often includes:
Personal background: You’ll need to provide personal information on the application or a separate document, such as:
- Previous addresses
- Names used
- Criminal record
- Educational background
Resumes: Besides submitting your resume, you’ll need to submit professional resumes of each principal. Some lenders require applicants to have previous management or business experience, particularly for startup business loans.
Business plan: All loan programs require a sound, detailed business plan. The business plan should include a complete set of projected financial statements, including a profit and loss statement, an in-depth, five-year projected financial statement and a cash flow and balance sheet.
Income tax returns: Most lenders require applicants to submit personal and business income tax returns from the previous three years.
Loan application history: You’ll provide records of loans you’ve previously applied for.
Bank statements: Many lenders require one year of personal and business bank statements.
Collateral: Collateral requirements vary greatly. Some loan programs do not require collateral, but loans involving higher risk factors for default require substantial collateral. A strong business plan and financial statement can help you avoid collateral requirements. However, it’s still a good idea to prepare a collateral document that describes the cost and value of personal or business property that can be used to secure a loan.
Use of loan: This document outlines how you plan to use the loan.
Debt schedule: A debt schedule shows all your business’s outstanding loan and credit amounts, monthly payments, interest and payment dates.
Legal documents: Depending on your loan’s specific requirements, your lender may require you to submit one or more legal documents. Make sure you have the following items ready, if applicable:
- Business licenses and registrations.
- Business lease (either a copy of your current business lease or proposed lease from landlord).
- Business formation document, such as articles of incorporation or LLC filing.
- Copies of contracts you have with any third parties, such as subsidiaries and affiliates.
- Franchise agreements.
Bottom Line
No matter what your business idea is or what industry you choose for building your small business, having access to the funds can make a huge difference to your business.
Small business loans are available through banks, private lenders and government institutions for small businesses but it is completely upto the lender whether to fund your venture or not.
Points mentioned above can help you prepare in advance before applying for a small business loan in 2019 and increase your chances of qualifying for a loan.
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