As the economy emerges from the sub-prime crisis, it is one of the best times for small business loans.
Entrepreneurship is on the rise, job opportunities are again opening up, and business is growing.
The environment is just conducive to the growth of small business.
However, for many budding entrepreneurs, the fund crunch becomes a roadblock.
In the absence of adequate resources, even the best of plans can absolutely fall flat.
The lack of money limits any opportunity quite significantly.
This is exactly where small business loans come to play.
Whether it is for buying equipment, land or inventory, a small business entails a truckload of expenses.
Statistics indicate that nearly 70% of new enterprises use these crucial small business loans.
This includes everything from loans to credit cards to crowdfunding and even venture capital.
In fact, one NSBA study highlighted that small business loans form an important part of the economy.
According to 2015 data, small business loans totaled more than $600 billion.
But the problem is these loans are not that easy to procure.
Often securing a small business loan can be a rather uphill task.
It can entail a series of paperwork, adequate credit score and a proper business plan.
But thankfully, today you have a lot of different types of small business loans.
While the traditional bank loans still work, there are many other options too.
You can choose online lending platforms, peer to peer lending and opt for business credit lines.
Based on the needs of your business, you can select the best possible opportunity.
The terms and the facility provided by the small business loans is what is crucial.
That will decide the loan viability.
Top Banks to Apply for Small Business Loans
Here is the list of the banks that offer small business loans:
- Wells Fargo
- JPMorgan Chase Small Business Loans
- Bank Of America Small Business Loans
- SBA Loans
Let us first explore the most traditional small business loan avenue, that is the bank.
Typically, banks are the first stop for any type of financial requirements.
Banks provide a wide range of small business loans.
Types of Small business loans
– Term Loans
This is essentially a lump sum money that a business can get from a bank. The entrepreneur has to pay back this amount within a fixed tenure.
They also have to pay a certain amount of interest for this loan.
The terms of this type of loan vary from one situation to another.
It will primarily depend on the nature of the business and how you wish to take it forward.
– Line Of Credit
This is how a credit card loan works in personal expenses.
It is a unique business financing arrangement.
The lender offers you funds with an appropriate line of credit.
So you can use these funds whenever you need capital in your business.
This is a very flexible arrangement for new or small businesses.
– Equipment Loan
As the name indicates, these loans are specifically to buy equipment.
So, an entrepreneur can look at dividing their total loan liability into a term loan and equipment loan.
This can reduce the interest expense to a large extent.
The loan amount gets divided, and you can easily go for multiple loans.
– Invoice Financing
This is a particularly useful arrangement to address the cashflow issue.
When you have too many invoices that are pending and will be paid, you can use this method to address the fund crunch.
Basically, you are selling the unpaid invoices to secure funding in the interim period.
Normally lenders may pay about 70-80% of the invoice upfront and the rest after getting actual payment.
Therefore, a small business can apply for any of these.
1. Wells Fargo
You may often hear Wells Fargo addressing itself as “America’s leading small business lender.”
But this is not just a mere promotional line.
If you check the statistics in the past few years, this indeed holds true.
Wells Fargo bank has been consistently lending significant chunks to small businesses.
In 2015 alone, they lent close to $35 million as small business loans.
These loans were extended to companies with less than $20 million in revenue.
This is part of the bank’s 5-year commitment towards the growth of small businesses across the country.
Wells Fargo has undertaken this pledge in 2014 and hopes to lend $100 billion to small businesses in all.
Just like any conventional bank, Wells Fargo offers a gamut of finance options for its borrowers.
So as an entrepreneur, you have a wide range of choices to look at.
The nature of your business and your own financial state will have a key bearing on the overall situation.
But two of their most effective and popular small business loan includes
Unsecured Business Loan
It offers capital anywhere between $10,000-$100,000.
The term for these loans too varies between 1-5 years.
Depending on the amount and credit history, the rate of interest starts from 6.5% and can be as much as 23%.
Since it is an unsecured loan, you will not have to include any collateral in case of this loan.
Unsecured Line Of Credit
You get a credit line of $5,000-$100,000.
The rates for these could waver around 1.75%.
These too don’t need any collateral.
So it is a quick loan opportunity with minimum risk included.
If you don’t want to risk your personal assets, this is a great option.
2. JPMorgan Chase Small Business Loans
With an asset reserve of over $2 trillion, this is among the three best banks in the US for small business loans.
As per early 2015 data, it has lent over $19 billion in small business loans.
Convenience for entrepreneurs and ability to address the requirement of small businesses is the key consideration.
You must remember that this bank has revived from the lows of 2008 on the basis of a focused lending initiative.
Needless to mention that many budding entrepreneurs benefited in the bargain as well.
Among the loans on offer, there are two that are absolutely tailor-made for small business.
Business Quick Capital Loan
The bank offers this loan in association with the online lender, OnDeck Capital.
This loan processing depends heavily on Chase’s huge asset base and speedy underwriting by OnDeck.
As a result, entrepreneurs have a quick, convenient and affordable financial alternative for them.
The rate of interest is also typically a notch lesser than what most online lenders charge for this.
However, you can avail this facility only if you are in the JPMorgan Chase business network.
Business Credit Card
Though you may not consider this as a traditional bank loan, it is a financing solution no doubt.
The Chase Ink Business Preferred Credit cards come with their unique set of advantages.
Given the dynamic nature of modern businesses, many times, these cards get used like loans.
The additional advantage is that the processing time and qualifying conditions are significantly flexible.
As a result, an entrepreneur can easily resort to this measure when they need some handy and quick capital.
Along with this credit cards, cardholders also get access to business checking accounts.
This provides further flexibility to entrepreneurs.
3. Bank of America Small Business Loans
One of the best banks to undertake transactions with, it is one of the foremost in terms of lending to small businesses.
In terms of sheer capital lent, they are second with a stupendous record of $33 billion small business loans thus far.
Small businesses need access to this type of quick and convenient capital.
The terms of payment make it even more attractive.
All in all, these loans encourage effective implementation of a business plan.
– Unsecured Business Line Of Credit
This is undeniably one of the best solutions when you are looking for small business loans.
You may consider that all line of credit will operate at similar terms.
But that is not so when you consider the Bank Of America Unsecured business line of credit.
The credit line ranges from $10,000-100,000.
Like the Wells Fargo one, it is also a flexible financing option with no collateral required.
The bank does not set the rate of interest upfront in this case.
This interest rate is based on your eligibility criterion and also previous interaction with the bank.
For example, if you already have a business bank account with BankAm, you can look at getting loans at a lower rate of interest.
There are several relationship-based offers that you can take advantage of.
But you can apply for this credit line only if your business is operational for at least two years.
Moreover, the bank will also take into account your revenue generation capability.
You have to gross an annual revenue of at least $100,000 in the year before applying for the loan.
That is an important eligibility criterion for BankAm’s unsecured credit line.
4. SBA Loans
When you are looking for small business loans, it is hard to ignore SBA loans and grants.
They decidedly play a crucial role in furthering the small business and facilitating their operation.
SBA stands for Small Business Administration.
It is essentially a Government supported organization that supports small business and facilitates funding for them.
They offer a series of loans and guarantees to further the interest of small business.
These loans are generally executed by SBA approved commercial lenders.
In this case, the SBA guarantees close to 85% of the loan amount.
The loans could be for as much as $150,000.
When the loans are for $500,000 and more, the SBA guarantees 75% of the loan amount.
This also reduces the level of risk associated with a specific loan they guarantee.
Here is a quick run through of some of the most popular SBA backed loans.
– 7(a) Loans
These are by far the most popular, flexible and simple loan offerings from SBA.
The rate of interest on these loans is also much lesser than many other offerings.
You can look at incorporating these loans for generating working capital or new building construction.
You can also use it to fund renovations of any type or expand current facilities or business prospects.
However, there are some pre-conditions associated with these loans.
You must carefully look at details before signing on the dolled lines.
– Express Loans
In this case, you can get a loan processed very fast.
Often borrowers can expect the loan sanction within 36 hours of putting in the application.
In this case, you can apply for a maximum of $350,000.
The Small Business Association guarantees 50% of these loans.
The maturity for these loans can vary from 5-25 years.
Most times it depends on how the money is used.
– SBA’s Microloan Program
There is another unique opportunity offered by the Small Business Association.
This is named the Microloan program.
Businesses that are just setting up or expanding can easily make use of this loan facility.
In this case, as the name indicates, you can get loans up to $50,000.
You can use these loans for a variety opportunities like generating working capital or buying equipment.
You can even use these Microloans to pay off short-term loans or reduce interest expenses for your businesses.
A small business loan can be used to address a whole gamut of financing requirements.
Debt refinancing can be a purpose as well for these loans.
The SBA basically works in tandem with the designated commercial lender they approve.
They make funds available to these lenders.
These are primarily non-profit organizations that support and manage this unique microloan program.
The average loan amount, in this case, is about $13,000, and repayment is done in about 5-6 years.
The repayment terms may not be same for all businesses though.
Individual credit condition and business viability pay a crucial role in it.
How the fund is being planned to use also has a bearing on the overall repayment asked.
Alternative Funding For Small Business
But apart from these, there are many other options to procure small business loans now.
They can be direct online lenders or peer to peer lenders.
They all provide easy cash to small business with limited interest rates.
Most importantly, most of these are geared to encourage the growth of small business.
Peer-to-Peer small business loans
Peer to peer lending generally incorporates a pool of fund.
The borrower digs into these pools to address any sudden financial need.
These peer-to-peer lending facilities often screen the borrowers very closely.
As a result, the relative risk involved is much lesser.
Most importantly, the screening also ensures the significantly lower rate of default.
That makes this service popular too.
Online Direct Lending
The basic difference with peer to peer lender, there is no third party investor here.
The lender is funding your business using their own capital.
As a result, these loans can be often processed in a very short time.
The paperwork involved is much lesser in these online direct lending facilities.
Generally, the time required to secure these loans is much lesser than most other loan facilities today.
However, the APRs may be much higher in this case, when you compare with peer-to-peer lending.
The average loan amount that you can apply for ranges from $20,000-$500,000.
The loan term averages 1-4 years.
However, most of these loans are for a shorter duration.
But when you are applying for small business loans, you must remember that these are predominantly for established players.
If you are just starting your business or plan to do so, they may not always offer the best terms.
The higher APR amount remains a constant irritant for those looking to reduce their interest expenses.
This is for low hassle sudden monetary requirement for small businesses.
Given the revival in economic conditions, it is not difficult to procure small business loans.
But the point is you must keep in mind your state of business and years of experience.
Typically a small business that is operational for a few years with proven revenue records can get loans a lot easily.
However, for first-time entrepreneurs who are just starting their business, the going can be tough at times.
So you must undertake thorough research before deciding on any small business loans.
You must opt for the loans that offer you maximum value at minimum interest.
For best results, always go through the fine print of the small business loans you apply for.