Small Business Financing: Your Options – Bankrate.com

Small Business Financing: Your Options – Bankrate.com

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You might have come up with a solid business idea or even established your business out of passion for what you do. But along the journey, every business needs funding to grow and become sustainable in the long term. Getting the right business loan can make all the difference in accessing enough capital to buy equipment, hire employees or cover daily expenses.
Take a look below to find all the options you have to get small business financing, including banks and alternative sources like crowdfunding.
Who it’s best for: Businesses with strong credit
Where to get bank loans: Traditional banks, such as the bank where you do business banking
Chances are when you think of business loans, you think of a traditional, brick-and-mortar bank. You can apply for a business loan with most traditional banks.
But banks focus on providing loans to creditworthy businesses, so be prepared for strict qualifications to apply. Common requirements for traditional banks are:
A good place to start is with the bank where you keep your business bank account. Some banks require you to have a relationship with them to get approved for a business loan, though not always.
And in exchange for a strong credit history, banks typically offer some of the lowest interest rates for business loans among lenders. They also tend to stick to conventional types of financing, such as term and equipment loans and business lines of credit.
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Who it’s best for: Businesses with fair-to-bad credit or needing funds quickly
Where to get online loans: Fintech lenders without bank branches
Online loans are offered through lenders that don’t have branches and typically don’t offer business bank accounts. Because of relaxed eligibility guidelines, these loans are usually more accessible to startups or businesses that need to rebuild credit. Typical requirements for online loans include:
Online loans also have fast funding speeds as quick as 24 to 48 hours. This makes them ideal if you need funds quickly to cover a cash flow gap or emergency expense.
Online lenders may specialize in specific types of business loans, including alternative financing like merchant cash advances. Repayment terms tend to be five years and under, shorter than traditional banks that can go as long as 10 to 25 years.
And while starting interest rates can be similar to banks, rates for bad credit business loans can get up to 99 percent or higher.
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Who it’s best for: Businesses that don’t qualify for conventional loans
Where to get an SBA loan: SBA-approved or preferred lenders
Small Business Administration loans are term loans or lines of credit partially guaranteed by the U.S. government. These loans have requirements and maximum interest rates set by the SBA.
They’re offered through approved SBA lenders. These are often traditional banks, but some fintech lenders like Lendistry offer SBA loans.
Because SBA loans are competitive, lenders often add strict criteria that business owners have to meet. For example, you may need a minimum credit score of 670 and two years in business. Lenders also have to get SBA approval to guarantee the loan, slowing down funding time to 30 to 90 days.
The SBA offers several types of SBA loans, including:
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Who it’s best for: Minority business owners, startups and businesses with bad credit
Where to get community-based loans: Certified Minority Depository Insitutions (MDIs) or Community Development Financial Institutions (CDFIs)
Community-based loans are provided by lenders with a mission to support and develop certain communities. They focus on underserved markets like minority business owners and businesses in financially at-risk areas. They may also offer educational support to set businesses up for success and sustainability in their markets.
Community-based lenders are certified under special designations called Community Development Financial Institutions (CDFIs) or Minority Depository Institutions (MDIs). These can be banks, credit unions, loan funds or venture capital funds.
CDFIs are financial institutions that aim to develop businesses in target markets, including minority and low-income areas. They must offer training and education to support their communities. CDFIs are certified by the CDFI Fund, which offers lenders training, financial awards and specialized lending programs like its Small Dollar Loan Program.
Minority Deposit Institutions are organizations that are mostly owned (51 percent) by people of color and serve minority communities. MDIs also should have a board of directors made up of mostly minority individuals. They’re often located in a minority community and may offer bilingual services to promote an equal playing field for financial understanding.
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Who it’s best for: Any business, including startups and those that don’t qualify for conventional business loans
Where to get business credit cards: Banks or your preferred credit card issuer
If you’re just finding your footing as a business or need to cover small expenses, a business credit card is a solid place to start. You typically need a good credit score of 670 or higher, but they’re otherwise easier to qualify for than a business loan.
You won’t have to meet requirements for making enough revenue or staying in business for a set amount of time. You don’t even need to be registered as a business entity, although the application will ask you to define your business.
Business credit cards typically offer APRs in the 14 percent to 28 percent range. While you can find business loans with lower interest, business loans can soar up to 99 percent. You may see high rates if you don’t meet a traditional lender’s criteria and need an online or alternative loan.
Other benefits? Business credit cards typically let you earn cash back for everyday purchases or rewards to redeem for travel. They may also offer multiple cards for employees complete with spending limits.
Pros:
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Who it’s best for: Startups or underserved businesses needing free capital
Where to get business grants: Governments, private corporations and non-profits that provide business grants
If your business meets qualifications, business grants are the ideal choice to get funding that you don’t have to pay back. That doesn’t mean grants are easy to apply for and win.
Your business has to match the grant’s specific criteria, such as being a minority business owner. You then have to compete with other businesses that also meet the criteria, possibly showing a detailed business plan or presenting your business idea and goals.
If you get the grant, you may have to report business results to the organization. You also have to be patient about waiting to hear back from the company giving the grant.
Pros:
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Who it’s best for: Businesses that can stoke public or investors’ interest
Where to get crowdfunding: Crowdfunding platforms like Kiva and Kickstarter
Crowdfunding is a form of business financing that raises funds from interested private investors or customers. These may be angel investors with enough capital to invest in a risky venture or crowdfunding platforms that take small investments from multiple people.
Getting funding this way works best for businesses with a unique product or those filling a gap in the market with few competitors.
Crowdfunding can be a simple, one-off fundraiser. Or it may involve giving investors equity in your business or rewarding them with gifts, profits or the product itself.
Pros:
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Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range, can also impact how and where products appear on this site. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service.
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