Simple Ways to Acquire a Business Loan When You Need One

Using a business loan to maintain or expand your enterprise can be a strategic move, but simultaneously intimidating.

To help simplify the process, we break down the steps of the loan process including who gives business loans, what documents to gather, and qualifications needed to be approved. Not all loans are the same, so we also highlight loan options including ones from the U.S. small business administration and loan alternatives.

Here’s what you need to know.

Is It Simpler To Get a Business Loan Using an Online Lender or a Bank?

Generally speaking, acquiring a small business loan is simpler when going through an online lender vs a traditional financial institution like a bank or credit union. Because online lenders are not regulated the same way as traditional lenders, they can provide faster approval times and funding speeds. For certain financing options, some borrowers can potentially receive approval and funding in the same day.

The process of getting a loan from a bank or credit union is more rigorous, can take longer, and sometimes requires an in-person visit to finalize the loan. In some cases, traditional bank loans might be offered at lower interest rates so it’s worth including them when researching small business lenders.

The business financing process using an online lender can be very simple relative to a traditional bank. Using an online lender, you can expect a loan application process that might look like this:

• Initial setup/profile: You will need to provide basic business information to help the lender understand your funding needs.

• Submit Your Application: The lender will likely have a general questionnaire that goes beyond your profile setup, along with a place to submit your documents and connect your business’s bank accounts.

• Review funding options: Once your documents have been securely submitted to the lender, they will process them to provide your funding options. You can review your options on screen – or some lenders will give you the option to connect with a funding specialist – to determine which loan options make sense for you.

• Underwriting to make final approval: The underwriting team will make the final approval of the loan terms.

• Receive funding: Depending on the lender, you might receive your funds via wire, ACH transfer, or physical check.

Reputable online lenders can be just as safe as loans from large banks. However, it’s always a good idea for business owners to do their due diligence and research online lenders’ reputation by reading online reviews and consumer reports.

Business loan options

Not all businesses qualify for all loan types. Let’s review a range of business loan options, the types of businesses that are eligible, and high-level requirements for each. Keep in mind that different lenders will have different requirements based on your situation. The numbers below are meant to give you a general sense of what to expect:

• Term Loans: Established businesses can use term loans for a wide range of business needs. This could include a down payment on new equipment or updated facilities. Lenders will likely be looking for annual revenue greater than $250k, a 660 credit score or above, and at least 18 months in business. Funding amounts can be in the $25k – $500k range.

• Working Capital Loans: Businesses that are somewhat established can use working capital loans for business expenses like hiring staff, purchasing inventory, buying equipment, and more. Lenders will likely be looking for annual revenue greater than $250k, a 575 credit score or above, and at least 6 months in business. Funding amounts can be in the $25k – $2M+ range.

• CRE Loans: Established businesses with existing commercial real estate equity can use commercial real estate loans to acquire a new business, refinance an existing project, fund a renovation, refinance existing business loans, and more. Lenders will likely be looking for annual revenue greater than $250k, a 660 credit score or above, at least 18 months in business, and if you already own commercial property. Funding amounts can be in the $25k – $6M range.

• ERTC Loans: With an ERTC Loan, you can get the cash from your business’s IRS credit to use for a range of business needs. Lenders will look to see if your business has a pending IRS credit of $100K or greater, a 660 credit score or above, and has been in operation since at least February 2020.

A Deep Dive Into US Small Business Administration Loans

The SBA has small business financing options for both new and established businesses but having a good credit score is key. The minimum credit score ranges a bit depending on which loan you take, but generally, it needs to be above 600.

Because loan eligibility for new businesses is typically based on its owner’s personal credit score, establishing and maintaining a good personal credit score is important too. Bad credit history is one of the main reasons why SBA loan applications for small businesses get declined.

Let’s review the different types of business loans the SBA offers:

• SBA 7(a) Loans: The maximum loan amount for a 7(a) loan is $5 million. These loans are commonly used for working capital, refinancing business debt, purchasing furniture, fixtures, and supplies. Key eligibility factors are business income, clean credit report and credit history, and where the business operates. Most businesses will be eligible for an SBA 7(a) loan if they meet the following criteria: are for-profit, operate in the U.S. or its territories, have owner equity to invest, and use alternative financial resources including personal assets before seeking financial assistance. For more information, visit the SBA’s website on 7(a) loans.

• SBA 504 Loans: 504 loans provide long-term, fixed-rate financing promoting business growth and job creation. The maximum loan amount is $5 million but certain energy projects can receive up to $5.5 million. To be eligible for a 504 loan, your business must meet the following:
• Be for-profit
• Operate in the United States
• Have a net worth of less than $15 million
• Average net income of less than $5 million after federal income taxes for the last two years
• Meet SBA size guidelines
• Ability to repay the loan
• For more information on eligibility criteria, and loan application requirements, visit the SBA’s website on 504 loans.
• SBA Microloans: Smaller-size loans of up to $50,000 are provided through SBA lenders. Microloans can be used for a variety of business purposes that help small businesses expand, provide working capital, make business improvements, purchase equipment, and more. A microloan cannot be used to pay existing debts or to purchase real estate. For more information, visit the SBA’s website on Microloans.
• SBA Disaster Assistance Loans: This is the only loan where the SBA issues direct loans. When a business is impacted by a disaster in a declared disaster zone, the SBA provides low-interest disaster loans to help them recover. Disasters can include civil unrest and natural disasters such as hurricanes, flooding, and wildfires.

Business Loan Alternatives

In addition to business loans, there are other capital options to acquire business financing. The main benefit of these options is that they can be established before your business needs capital.

• Business Credit Card: Business credit cards can be an alternative or supplemental to a business loan. Some startups might struggle to obtain a business loan in the early days and a business credit card is a viable alternative. However, be aware that the annual percentage rate (APR) on a business credit card can be high. This could lead to monthly payments where interest can quickly build.
• Business Line of Credit: A business line of credit can sometimes be easier to get approved for than a business loan and provide higher credit limits than a business credit card. Similar to a business credit card, once it is established, you simply tap into it when needed. You will need to sign a loan agreement before taking hold of the line of credit.
• Merchant Cash Advance: A merchant cash advance is a viable loan alternative for businesses with strong cash flow. A merchant cash advance is not a loan and it gives you access to funds based on future sales.

How To Simplify the Capital Acquisition Process

Banks or credit unions typically require more loan documentation and have stricter eligibility requirements than an online lender. Depending on who you use to fund your loan, you might need these documents:

• Bank statements
• Credit statements
• Tax returns
• Financial statements
• Balance sheets
• Business tax returns
• Business licenses
• Commercial leases
• Articles of incorporation
• Business plan
• Financial forecasts

For new businesses, lenders will likely want to look into personal finances to determine creditworthiness and repayment terms. Along with a business credit score, a new business owner might need to collateralize the loan with a personal guarantee by using assets such as personal property, cash, and other possessions.

FAQs About Business Loans

1. What’s the easiest way to get a business loan?

   No one way is the easiest. Each lender will have a different application process and approval requirements. It’s advised to research loan programs that fit your business needs.

2. Can you get a loan to buy into a business?

   Yes, there are business acquisition loans. Be sure to search around for competitive interest rates before choosing a lender.

3. Do banks give loans to start a business?

   Yes they do. However, it could be a bit difficult to secure financing without any proof of cash flow.

4. Can I get a business loan to acquire a business?

   Yes, you can get a business acquisition loan.

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