This article discusses:
- The types of small business loans
- Benefits of business loans
- The requirements for getting a small business loan
- SBA loans
- Why good credit is important in getting a business loan
- The best business loan for business owners with good credit
Good credit is one of the most important things for entrepreneurs to have when applying for a business loan. That’s because your credit score is one of the first things traditional banks and lenders look at when weighing whether or not to finance your loan. But assuming that you have a good credit score, what then? What’s the best loan a business owner can get with good credit? We’ll get to that shortly. But first, some basics about business financing options in general (we won’t get into personal loans here).
Types of Small Business Loans
Entrepreneurs often need small business loans at various stages of running their company. The most common reasons are beginning a new business or expanding their current business, purchasing inventory or equipment, and bolstering their working capital.
Financing and small business loans for business owners with good credit include:
Other business financing includes short-term loans such as invoice factoring from unpaid invoices and merchant cash advances. But those are usually utilized by business owners who lack credit or have bad credit. So people who use these loans will pay interest that is notoriously high. Therefore, business owners with good credit will usually avoid them.
What are the benefits of a business loan?
Simply put, a small business loan can help your business thrive and survive, and realize your business goals.
Sometimes you need funds to help cover payroll or buy business supplies when your business is slow. A business loan can give you the cash flow you need in one lump sum at that time.
You might also have an unexpected opportunity to grow your business. Or new equipment might be in order, and you may have a chance to secure it all at rock bottom prices.
There are many reasons a business owner needs capital from time to time. A business loan gets you the financing your business needs to continue to flourish.
At the same time, each business loan you take out will help you build the vital business credit you need to secure the best terms for future loans.
What are the requirements for getting a small business loan?
Lending requirements for small business loans differ from lender to lender. But there are a few things that most lenders will want to evaluate once you apply for your loan. They are:
- Business and personal credit scores
- A well-executed business plan
- How long you’ve been in business (many lenders will focus on your business meeting their minimum annual revenue requirements, which is often $250,000 or more)
- Financial statements including income tax returns, accounts receivable, profit and loss statements, bank statements from business your checking account, balance sheets, etc.
- Collateral when applying for a secured loan
- Debt-to-service ratio
- Your business’s industry
- Your ability to make a downpayment upfront
Traditional lenders and the SBA will be more rigid in these loan requirements. If you’re a newer business, you may not have had enough time to produce some of these, especially financial statements or a business credit score.
That’s why so many business owners today have turned to alternative lenders and online loan marketplaces. Some online lenders are willing to loan money to borrowers who are more limited in the required documentation.
In those cases, it’s possible an online lender will gauge your creditworthiness on your personal credit score alone, then look at your business plan, collateral, and other vital details as part of their loan approval process.
SBA loans are often considered the gold standard in small business financing. The Small Business Administration will loan up to $5 million to business owners.
The most common of the SBA loan products is the SBA 7(a) program which offers funding for real estate, working capital, and equipment and supplies. An SBA 7(a) loan can also be used to refinance your current business debt.
SBA loans are actually administered through a qualified SBA-approved lender that does the underwriting, and then the SBA guarantees up to 85% of the loan. The guaranteed amount depends on the type of SBA loan program and the loan amount.
Typically, the SBA will allow a repayment term of up to 25 years for real estate loans, 10 years for working capital loans, and 10 years for equipment loans, so these are great choices if you’re looking for medium to long-term loans.
However, the maximum loan maturity is limited to the economic life of the items being financed. For example, if you take out an SBA loan for equipment that is only expected to last seven years, you will only be allowed to have seven years to pay off the loan.
The interest rate on an SBA loan can be fixed or variable and is usually tied to the prime rate. As of June 2022, SBA loan rates are averaging between 7% and 9%.
What are the eligibility requirements for SBA loans?
An SBA loan has many of the same requirements as traditional financing, including a minimum credit score, a business plan, financial documentation, etc. Applicants must also meet eligibility requirements from their loan provider before applying for an SBA business loan.
In order to be considered eligible for an SBA loan, a business must:
- Operate only in the U.S. or its territories
- Be a for-profit business (non-profit businesses are not eligible)
- Invest enough owner’s equity
- Use other financial resources at your disposal before applying for an SBA loan (this includes your personal assets)
While many types of businesses meet the eligibility requirements for an SBA loan, some types of businesses are ineligible for SBA financing, including but not limited to financial institutions, insurance firms, and real estate investment firms. You can learn more about SBA eligibility requirements on their website.
What is the easiest SBA loan to get?
Microloans are typically the easiest SBA loan to qualify for because the lending criteria for microloans are more relaxed than with other SBA loans.
With microloans, the SBA loans money to a private lender network that consists of non-profit lenders in local communities who then disburse the funds to startups and small businesses. A microloan can provide a borrower up to $50,000 in small business financing.
Microlenders often don’t require an extensive business history, so they’re easier to get than other SBA loans if you’re business hasn’t been running for long. But you’re more likely to get fast approval if you’ve been operating your business for at least a year.
That said, some microlenders will approve a microloan in less than a week, compared to other types of SBA loan programs, which will usually take months to make a decision on your loan application.
Why is good credit important for a business loan?
Having good credit history when applying for a business term loan will help you qualify easier for the loan. A traditional lender such as a bank or credit union will only approve loans from applicants that have a higher credit score.
A higher credit score also puts you in the negotiation seat for more favorable loan terms with a lender. You can often receive a higher credit limit and find yourself qualifying for a lower interest rate on your loan when you have proven your creditworthiness. This extends to suppliers and vendors as well as traditional and online lenders.
Furthermore, a lender is more likely to grant you more time in paying back the loan, which could make repayment easier.
But it’s still possible to get approved for a business loan, even when you have a credit score that is lower than what a traditional lender requires. Online business loan lenders have easier requirements than traditional small business lenders do. And you can receive your loan funds much more quickly than a bank, which often takes months.
For instance, Biz2Credit usually approves and disburses their small business loans within a few days. Just remember that your interest rate may be slightly higher than what a bank will offer to someone with excellent credit.
But securing an online loan can help strengthen your business credit so you can get better loan terms down the road. That means easier access to capital anytime you decide to grow your business or new opportunities come along.
What is the best business loan for small business owners with good credit?
SBA loans are considered to be the best small business loan because you’re more likely to secure the best terms for your loan.
But SBA loans are notoriously difficult to get approved. Traditional financing with bank loans or a credit union is also considered to be a good business loan option if you can get approval. However, like SBA loans, financing with a traditional lender is tough to achieve.
The problem is you must have very good or excellent credit to be considered for SBA or traditional financing. But both look beyond creditworthiness when determining whether or not to approve a loan.
They perform an in-depth evaluation of each loan application, and this application process can often take months. And even then, they sometimes find a reason not to approve the loan.
That’s why so many business owners, even those with good credit, are choosing to get their business funding through an online lender. Online marketplace providers are more likely to have an expedient loan process that will put loan funds in your business bank account sooner.
So sometimes the best financing for small businesses is the one you can get right away so you don’t miss a great business opportunity.
What is the best business loan you can get?
When it comes right down to it, the best business loan you can get is the one that meets your needs when you need it. Once a loan application is in process, the wheels of opportunity start turning.
With every second that is lost while waiting to be approved for your business loan, there’s a chance that you’ll miss out. You may not be able to capitalize on a chance to grow your business at a time when it could prosper the most.
Or you may not be able to lock in a favorable price with a vendor. You could also lose the prospect of relocating or opening a new business location.
When it comes to business, time is money. That’s why many small business owners appreciate the fast approval time that comes with getting financed through an alternative lender like Biz2Credit.
With Biz2Credit, business lending is made easy and you have several funding options available to you at competitive rates.
You simply fill out an online application and one of Biz2Credit’s funding specialists will promptly reach out to you to talk about your business goals. Biz2Credit will treat you like a person rather than just another loan application that’s in the queue.
Getting approved is easier as well because Biz2Credit has lower credit score requirements than traditional lenders and less paperwork for you to get through. Many loan applicants have their loan funds disbursed within the second business day of applying.
Biz2Credit client Maryam Zadeh quickly learned the value of fast financing. After realizing her dream of opening a workout studio, she was unprepared for how fast her business would grow. She needed a new location pronto and found the perfect spot to expand her business.
But she faced two challenges. The first was that business locations like the one she found didn’t stay available for long. The second problem was that the lease agreement required her to have the required cash on hand to close the lease.
Traditional lenders weren’t helpful in providing the financing Maryam needed. A friend referred her to Biz2Credit and she was able to get approved for financing by the following business day.
If fast funding sounds appealing to you, maybe it’s time for you to get in touch with Biz2Credit and apply for your business financing.