5 Best and Fast Small-Business Loans (Some of Which You've Never Heard of) Need a small loan fast? We've vetted these small-business loans for you.
By Carolyn Sun
Opinions expressed by Entrepreneur contributors are their own.
Do you need a small-business loan fast to start or grow your business? Whatever your reasons for borrowing cash fast, not all small-business loans are made equal. Some of them have stringent credit history and documentation requirements, some have high interest rates and some are government-guaranteed, long-term loans that allow for lower rates. There are multiple channels for small-business owners to borrow from, and the choices can get confusing.
To get started, ask yourself how the ongoing borrowing costs and interest payments will impact your bottom line. "Just because capital can be borrowed doesn't mean that it should be," S. Michael Sury, lecturer of finance at the University of Texas at Austin, told U.S. News & World Report. To minimize risk and ensure you net a positive return on your investment, you can do an informal small-business loan performance analysis using a calculator on a loan site, such as Fundera, which will forecast how the loan will financially impact your business before you commit to taking out a loan.
Also, find out how much you can actually afford to borrow by calculating your Debt Service Coverage Ratio (DSCR). To figure out your DSCR, you simply divide your net operating income by your total debt service. With some lenders, you can get away with a 1.0 ratio; however, most lenders prefer a DSCR that shows your annual net operating income is higher than your total debt, such as a DSCR of 1.35 and above.
Another tip: Check your personal credit score before starting the application process and look for any errors that need to be corrected. As a sole proprietor, your credit score will be part of the loan process, and the higher your credit score, the better terms and lower interest rates you'll get on a loan. If you're already in business, you should check your business credit score through credit reporting agencies that deal with business credit, such as Dun & Bradstreet.
Make sure you have a strong business plan, which will show lenders how profitable your venture is and where you plan to spend the loan. "It's vitally important for small businesses to have organized, well-thought-out and professionally presented business plans," Sury said.
You can check out these resources on Entrepreneur.com on how to write a strong business plan:
The good news is that there are a ton of free informational resources for small-business owners, including Small Business Administration (SBA) district offices and SCORE chapters (a nonprofit providing free business advice and services), the NFIB, Veteran's Business Outreach Centers and Women's Business Centers. Ask for help, because you shouldn't go at it alone.
On that note, if you're looking for a quick loan, let us guide you toward five of the best and fastest small-business loans (minus the loan shark route).
Related: How Much Should You Borrow to Grow Your Business?1. SBA Express Loan
Loan highlights:
Simplified application process
36-hour response time
Flexible use of funds
Can borrow $350,000 maximum
Typical 10-year repayment period
4.5 percent to 6.5 percent interest above prime interest rate
The SBA Express Loan, up to $350,000, is one of two kinds of SBA Express Loans with a swift response (typically within 36 hours) following submittal of your application and is also 50 percent guaranteed by the Small Business Administration, a U.S. government agency serving small businesses. (The other SBA Express Loan that is swift and half guaranteed by the federal government is the SBA Export Express, which we'll get to.)
Here are the loan's perks: The SBA Express Loan carries a lighter documentation requirement than a traditional loan, which is why it can be a good fit for a small business or startup that may not have the credit history or collateral to receive a traditional loan. As mentioned, the time it takes for loan approval is much quicker than for a traditional loan, however the actual time it takes to get the funds -- it can be as swift as a few days to as long as 90 days. (Traditional loans take, on average, 90 days to fund.)
The interest rate for this loan is capped and cannot exceed a maximum of 4.5 percent to 6.5 percent above the prime interest rate (up to 6.5 percent for loans of $50,000 or less and up to 4.5 percent for more than $50,000). Also, the loan program is flexible, so the money can be used for a broad range of business needs, including the purchase of inventory, supplies, furniture, fixtures, machinery or equipment, a line of credit or commercial real estate. It cannot be used to pay off debts. These loans typically have a 10-year repayment period, but this varies, depending on the loan terms.
Here are some of the requirements for the SBA Express Loan:
The business must be registered and operate for profit.
The business must be able to demonstrate operations within the U.S.
The business must be be in operation for at minimum two years.
It must qualify as a small business.
It must be able to demonstrate a need for financing.
It must be able to demonstrate qualified business purpose for funds.
There can be no delinquent debts to the government.
Also, depending on your lender, some collateral may be required. Lenders are not required to take collateral for loans up to $25,000, but for loans between $25,000 and $350,000, lenders may use their existing collateral policy. Note, for each loan approved and disbursed, the SBA charges lenders a guarantee and servicing fee, so the lender may charge the fee to the borrower after the lender has paid the fee to the SBA and has made the first disbursement of the loan.
You must find an SBA-approved lender to apply for an SBA loan.
Related: SBA Loans for Your Startup
2. SBA Export Express Loan
Loan highlights:
Simplified application process
36-hour response time
Funds must be used for a company's export development
Can borrow $500,000 maximum
Typical 10-year repayment period
4.5 percent to 6.5 percent interest above prime interest rate
Do you run a small export business that needs funds to expand? Or run a small business that needs funds to use toward creating and developing an export business? Then, the SBA Export Express Loan, for up to $500,000, could be for you.
The reason why the SBA created this loan program is because most U.S. banks view loans for exporters as high risk, so small-business exporters who normally would not qualify for a traditional loan may qualify for this one. Also, like the SBA Express Loan, the SBA Export Express Loan is government guaranteed (90 percent for loans of $350,000 or less; 75 percent for loans more than $350,000) with a swift response time (within 36 hours) from the time of application.
The interest rate for this loan is capped and cannot exceed a maximum of 4.5 percent to 6.5 percent above the prime interest rate; however unlike the SBA Express Loan, this program is not flexible. The proceeds for this small-business loan must be used for purposes that will enhance a company's export development, including participation in a foreign trade show, finance standby letters of credit, translate product literature for use in foreign markets, finance specific export orders, as well as to finance expansions, equipment purchases and inventory or real estate acquisitions.
These loans typically have a 10-year repayment period, but this varies, depending on the loan terms.
Here are some of the requirements:
The business must be registered and operate for profit.
The business must demonstrate that it has been in operation for, at minimum, a 12 full months.
The business must be able to demonstrate that the loan will be used for export activity.
The business must be able to demonstrate operations within the U.S.
It must qualify as a small business.
The owner must be able to demonstrate financing the business through alternative means.
There can be no delinquencies on previous debts to the government.
Some other points to note: Personal collateral may be required for SBA Express Export Loans of more than $25,000, and a guarantee and servicing fee will be charge for each loan approved and disbursed.
A simple way to get started on the loan process is to see if your current lender is an SBA Express Export lender. Or you can contact your local SBA International Trade Finance Specialist to find an export specialist in your state to point you in the right direction. Also, you can reach out to the SBA's Office of International Trade.
Related: The 6 Best Financing Options for Franchising a Business
3. Peer-to-Peer (P2P) Loan
Loan highlights:
Simplified application process
Eligibility requirements often less stringent
For individuals, borrowing maximum is typically $35,000; for businesses, $300,000
Repayment period varies from platform to platform (typically fixed at a three-, five- and seven-year repayment period)
Interest on loans varies depending on your credit score or risk grade
Peer-to-peer lending is a rapidly growing landscape, largely because it cuts out the middleman, the financial institution, and the eligibility requirements are less stringent. However, these loans tend to also have higher interest rates and more often than not, are for those individuals who need a loan for less than $35,000 quickly. (In some cases, businesses can borrow up to $300,000.)
The peer-to-peer lending marketplace works through online platforms, which connects borrowers and lenders. Each P2P loan is often divided among several investors, spreading the risk. For instance, somebody who needs to borrow money goes to a P2P company, such as Lending Club, which has been around since 2007 and is well capitalized. At Lending Club, the borrower fills out an application for credit, and once approved, the borrower is assigned to a risk grade, which is a combination of a proprietary scoring model, FICO score and other credit features of the applicant, which then determines the interest rate of the loan.
The Lending Club, like many other P2P operations including Prosper, uses a a notary business model, meaning it acts as an intermediary between borrowers and investors. In terms of fees, the Lending Club charges borrowers an origination fee that ranges from 1 percent to 5 percent, depending on the grade the borrower receives. Other companies' policies may slightly differ and charge a closing fee based on the borrower's risk grade, but the borrowing process of having your risk score calculated to some sort of fee being paid toward the P2P lender is more or less the same across lenders.
The upswing of P2P platforms is that the process is relatively easy compared to the process of going to a bank. It's very streamlined and done entirely online, and the approval rates for P2P platforms are higher than that at commercial banks. Cutting out the bank can also result in a lower interest rate than you'd get for a bank loan. When calculating your risk grade, factors other than your debt-to-income ratio or credit score -- such as your educational background -- are sometimes factored in, like with Upstart.
Some P2P sites to check out (all with different application requirements):
Related: Funding Options for Bad Credit Risks
4. Microloan
Loan Highlights:
Loans of $50,000 or less to startups and other small businesses
Low interest rates
Loans are often targeted for disadvantaged communities
Average loan term is 40 months
If you're a small-business owner who needs a low interest, short-term loan, then a microloan may be a good option for you. One of the reasons why microloans are advantageous is because microlenders operate as nonprofit financing -- their aim is to offer loans to help disadvantaged communities both domestically and internationally -- hence the low-interest rate. Intermediaries can charge up to 7.75 percent for loans of more than $10,000 and up to 8.5 percent for loans less than $10,000.
Some of the more well-known nonprofit microlenders include Kiva, an interest-free online microlender that operates in more than 80 countries, and Excelsior Growth Fund, a microlender that offers online loans of up to $100,000 (which doesn't seem "micro") funded in less than five days through its ImpactLoan program.
The SBA has several microloan programs that operate through state-specific nonprofit organizations, including the SBA Community Advantage Program, which offers loans of up to $250,000 in communities with limited access to funding. (Loans are guaranteed up to 85 percent through this program.) The SBA Microloan Program allows borrowers up to $50,000. While the maximum repayment term is 72 months for SBA microloans, the average repayment term is 40 months.
To apply for a microloan, first find an intermediary microlender that serves your state. For instance, LiftFund offers microloans in 13 states to borrowers that meet their specific requirements (e.g. if more than 50 percent of the business's full-time workforce is low-income or if their employees live in areas designated as low- to moderate-income communities).
In addition to the ones already mentioned, here are some microloan programs to check out:
5. Business Line of Credit
Loan Highlights:
Ranges from $5,000 and $150,000
Quick funding (one to five days) from time of approval
Works like a credit card
Lower interest rate than a credit card
Apply for line of credit with bank or online creditor
Business lines of credit operate like a credit card, and you can repeatedly use your line of credit without reapplying for a new loan each time. Typically, lines of credit range from $5,000 to $150,000, and the obvious advantage is the swift funding time from approval to credit availability, which can be as fast as 36 hours. When you apply, your lender approves you for a maximum borrowing amount, say $100,000, and then you can borrow up to that amount and repay it, as long as you don't go over your maximum and make the minimum payments. Like with credit cards, you're also charged a monthly interest on the amount you repay. There are both online lenders for lines of credit as well as traditional bank institutions. While online lenders tend to have less stringent borrower requirements, they also tend to charge higher interest rates and offer lower credit lines.
Here are the perks: The line of credit is flexible in terms of what you can spend it on. You can purchase inventory or equipment, invest in marketing or manage fluctuations from seasonal sales. Also, business lines of credit with lower credit limits are typically unsecured, which means collateral such as real estate or inventory is not required.
Here are the requirements: Not surprisingly, you need to demonstrate a good credit score (500 or higher) and a history of revenue (at least six months showing at minimum $25,000 annually) to apply for a credit line. Larger lines of credit may require collateral, which can be seized by the lender if you fail to make payments. The documentation you'll need are personal and business tax returns, bank account information and business financial statements (profit-and-loss statements and a balance sheet). For those who don't meet the credit and revenue requirements of traditional banks, keep in mind that online establishments typically have looser qualifications than banks but charge higher interest rates.
Here are some places to check out for business lines of credit:
Related: Something I Wish I'd Had 20 Years Ago When I Started: Nontraditional Financing
