If you have a business that needs quick funding, you might consider getting a business loan. Today, there are a wide range of business loans that can be used for all kinds of purposes — such as launching a startup, paying for new equipment, or covering day-to-day operations, for instance. Keep reading to learn all about business loans — including how they work, ways to use them, and some of the top lenders to consider!

A business loan is a popular financial product and form of credit that many banks, credit unions, and online lenders offer to businesses. With a business loan, the company receives a lump sum (or line of credit) of money to use as they see fit. The principal amount, along with any interest and fees, must be repaid to the lender over time. Repayment terms may span from a few months to 10 years, depending on the lender and the type of business loan.

What Is a Business Loan and How Does It Work?

Depending on your business’s needs, there are several types of business loans to consider: Term loans are the most common business loans. The business receives a lump sum of cash that must be repaid with interest over a set term. SBA loans are backed by the Small Business Administration, so lenders are often more willing to give these loans to businesses. With that said, requirements also tend to be much stricter than that of other business loans. Lines of credit differ from traditional business loans in that they give businesses access to funds that they can pull from as needed, up to the designated credit limit. The business only repays the principal (plus interest) on the funds they use. Commercial real estate loans are similar to mortgages in that they allow businesses to buy or invest in brick-and-mortar locations. Most commercial real estate loans have terms of 10–20 years and list the property as collateral. Equipment financing is a secured loan that allows a business to purchase new equipment or machinery. Of course, the equipment is typically listed as collateral with this type of loan. Merchant cash advances are short-term business loans that are repaid by giving the lender a percentage of daily sales, or by allowing daily or weekly withdrawals from a bank account. Invoice financing/factoring is when a business uses outstanding customer invoices as collateral for cash. With invoice financing, the business pays the lender once invoices are paid. With invoice factoring, the business sells the invoices to the lender, who is then responsible for collecting on the invoices.

What Are the Main Types of Business Loans?

<h2>How to Get a Business Loan</h2>If you’re interested in getting a business loan, it’s wise to become familiar with some of the requirements and compare options before applying.

Of course, business loan requirements vary from lender to lender and are also dependent on the type of loan you are applying for. You may be required to have or provide the following: Personal and business credit scores: The reality is that, until your business has a significant credit history, you may need to rely on your personal credit score. Annual revenue: Most lenders use your business’s annual revenue to help determine your likelihood of repaying the loan. Collateral: There are two kinds of loans—unsecured and secured. Secured loans typically require the business to list assets as collateral in case they are unable to pay back the loan. Business plan: Some lenders require a business plan indicating how you plan to use the funds and how you plan to repay them over time. Documentation: This may include personal and business tax returns, income statements, bank statements, business licenses, commercial leases, and other documents.

Requirements for a Business Loan

All lenders and loans are different, so it’s important to compare your options for the following: Loan amount: Loan amounts vary from lender to lender and from one type of loan to the next. Find out how much money you are going to need to determine whether a loan will meet your needs. Interest rate: A loan’s interest rate is arguably the most important factor to consider when comparing options. Even a difference of one or two percent can affect the total loan amount by thousands of dollars. Typically, you want to identify the loans with the lowest interest rates. Terms: If you need a short-term loan, you may be able to get a lower interest rate and avoid listing collateral. If you need a long-term loan, on the other hand, you will be able to spread your payments out over a longer period. Funding: Particularly if your business is in dire need of cash, choose a lender than guarantees quick funding. Many online lenders allow you to receive your funds in just a couple of days, while other lenders may take weeks. Fees: There are a handful of fees to be mindful of when choosing a business loan—application fees, closing costs, late payment fees, and annual fees, to name a few. Reputation: Just as a lender will vet a business before granting them a loan, you should vet your lender. Not all lenders have sparkling reputations, and you may want to avoid doing business with a less-than-reputable company. Be sure to check out the lender’s online reviews before moving forward.

Factors to Consider When Choosing a Business Loan

<h2>How to Apply for a Business Loan</h2>Follow these four simple steps to apply for a business loan: Choose your loan: Shop around, compare your options, and choose the loan that is the best fit for your business. Gather all documentation: There are several documents your lender will likely require when you submit your application, so it’s best to gather these documents beforehand. Submit an application: There are three ways to apply for a business loan—in person, over the phone, or online. Before submitting your application, be sure to review all of the information, as mistakes can cause delays in approval or funding. Receive your funds: If your application is approved, your funds will be distributed via the method you selected on your application. This may take anywhere between a couple of days and a few weeks, depending on the lender and the type of loan.

<h2>Pros and Cons of Business Loans</h2>When determining whether a business loan is the right option for your company, be sure to consider all of the advantages and disadvantages:

<h2>Ways to Use a Business Loan</h2>After being approved for a business loan, you can use funds for just about anything. Some of the most common uses include the following: <ul><li>Start a new business or franchise</li><li>Expand or acquire an existing business</li><li>Repair, replace, or upgrade equipment</li><li>Fund normal business operations</li><li>Cover payroll expenses</li><li>Increase inventory</li><li>Refinance debt</li><li>Make improvements to a facility</li></ul>

<h2>Frequently Asked Questions:</h2>

While many businesses are granted business loans each year, some businesses may have trouble getting a loan. Factors such as limited business history, inconsistent revenue, and poor credit often affect a business’s eligibility.

Is It Hard to Get a Business Loan?

Revenue is an important factor in many business loan decisions. Startups and businesses without consistent revenue are less likely to be approved or may be dealt higher interest rates.

Do I Need Income for a Business Loan?

It’s possible to get a business loan with bad credit, as some lenders value the overall health of the business more than its credit score. What’s more, smaller, short-term loans tend to have more lenient eligibility requirements. With that said, businesses with lower credit scores are more likely to face higher interest rates.

Can I Get a Business Loan With a 500 Credit Score?

Approval times vary from lender to lender. Some online lenders may approve a loan within 24 hours, while other loan products — such as SBA loans—can take up to a few months to process.

How Long Does It Take to Be Approved for a Business Loan?

Business Loans

Top Business Loan Companies of 2024

<ul><li>Loan Amount: Up to $5 million</li><li>Minimum Credit Score: 600+ (recommended)</li><li>To date, Fundera has helped more than 85,000 businesses secure over $2.5 billion in total loans.</li><li>Fundera is a business loan marketplace that allows businesses to compare dozens of lenders and loan options in one place for free by filling out a single, short application.</li><li>Loan products include term loans, short-term loans, SBA loans, lines of credit, equipment financing, invoice financing, merchant cash advances, and startup business loans.</li><li>Fundera will assign you an in-house specialist to help you navigate your options.</li></ul>