Best Small Business Loans

It is integral for companies to seek funding options for several reasons, and the best small business loans are a viable solution. You can use the money to finance expenses such as payroll or new equipment. You can also utilize it to maintain your cash flow.

Best Small Business Loans: What’s the Right Funding for You?

There are many types of business loans to choose from, and each one offers different benefits for the borrower. Depending on your situation or need, you can avail yourself of the most suitable product that meets your needs.

Which business loan works for you? Our expert team at Booster Financial provides you with a comprehensive list of financing options. We are an agency dedicated to helping our customers find the loan product that gives them access to capital. Our goal is to help your company thrive and grow.

A Quick Look into Small Business Loans

A small business loan is a type of funding that allows enterprise owners to borrow cash when they need it most. You can use these financing solutions as general business funding for your expenses. Others work to supplement your working capital, ensuring that your cash flow is stable.

These loans come in different forms, the most common being lump-sum loans with fixed interest and monthly payments. Another popular option is the revolving lines of credit that work similarly to credit cards. 

Commercial loans for small businesses allow owners to venture into opportunities for growth. These products are a way of investing in your company’s future.

Best Possible Small Business Loan Options

Choosing the best loan product depends on several factors. You can ask yourself these few questions if you think that this funding option is the best for you:

• Why do you need the money?
• How long are you willing to wait to receive it?
• How much additional capital does your business need?
• Does your business qualify for a loan? (i.e., creditworthiness, financial health, etc.)
• How much is the total cost of debt?

Once you identify your preferences for the loan, the next step is to choose the right product for you. Here are some of them.

Business Term Loan

Best for: When you decide to take up a large-scale one-time investment or expense.

Typical loan amount: up to $500,000

Approximate interest rates: 9-99%

Where to get it: online lenders

How it works

Business term loans are the most popular form of small business financing. You can repay the loan plus interest and fees on a set schedule over time. Term loans could be short-term (3-18 months) or long-term (up to 10 years). With this loan, you can receive a lump sum that’s enough to cover your one-time need. 

In general, term loans have fewer restrictions than other types. You can use the cash for any purpose, given that it is for your business. However, there are also loans designed specifically to finance inventory, equipment, or commercial property.

Pros

• Easy to qualify
• Widely available and convenient to access online
• You can receive cash faster than other loan types

Cons

• One of the most expensive loans
• The lender may require collateral or a personal guarantee to secure the loan
• Some lenders may charge prepayment penalties when you want to pay the loan off earlier than the maturity date

SBA Loans

Best for: Businesses that find it difficult to qualify for other loans and owners who want a financing option with flexible terms.

Typical loan amount: $30,000 to $5,000,000

Approximate interest rates: 5.58-8%

Where to get it: affiliated banks and lending agencies

How it works

The Small Business Administration (SBA) is a government-owned institution that provides financial help to small businesses and startups. It works with national and local banks to bring loan products with long-term repayment schedules and low-interest rates. 

While this government backing is an affordable loan for owners, it is also one of the hardest to qualify for. Generally, the borrower should have a credit score of 690 or higher. The business should also provide exemplary finances. Moreover, you must be patient as it takes some time to get approved for this loan.

Pros

• Businesses that fail to acquire traditional loans may qualify
• Interests for SBA loans have a cap, keeping them affordable
• You can seek assistance from SBA’s resource centers

Cons

• Most SBA loans require a down payment of about 10-20% as equity
• Banks may ask for collateral to reduce risk
• If you fail to repay, the SBA can forward debt collection to the US Treasury Department 

Business Line of Credit

Best for: When you struggle to manage your cash flow or are met with unexpected expenses. You may also use it to fund short-term business needs.

Typical loan amount: $1,000 to $250,000

Approximate interest rates: 9-99%

Where to get it: Banks and alternative lenders

How it works

Business lines of credit work as a safety net for businesses. It operates similarly to credit cards. The lender approves you of a credit account with a maximum loan amount. You can borrow money whenever you need it without having to reapply for the loan. 

Funds on a line of credit are revolving, which means that you can draw money for a set period, typically up to five years. If you manage to repay early, the amount becomes available on your credit account again. 

Unlike term loans, a business line of credit only charges you interest for only the money you used. You can continuously access the funds you need, making it ideal for short-term financing projects.

Pros

• Allows you to stabilize your cash flow during slow and off-seasons
• You only pay for the money you borrow
• You can build good credit if you repay diligently
• It’s a flexible option you can access anytime during the draw period

Cons

• Some lenders charge additional charges and fees that may get expensive
• Lines of credit have generally lower borrowing limits than bank loans
• You can potentially misuse the funds since it’s always available for use

Equipment Financing

Best for: Purchasing big-ticket equipment and machinery that your business should own to usher growth and stability.

Typical loan amount: Up to 100% of the cost of the purchase plus soft costs

Approximate interest rates: 4-30%

Where to get it: traditional lenders like banks and online lenders

How it works

When you purchase business-related machinery or equipment like a vehicle, copy machine, or restaurant oven, equipment financing is one of the best small business loans for it. It’s a flexible financing option for everything related to your enterprise needs.

Typically, the lender treats the purchased equipment as collateral for this loan. Therefore, the size of the loan is equivalent to the value of the machinery or equipment. The lender may also ask for a lien or the legal right to seize your assets should you fail to meet your obligations.

Pros

• Helps you build your business credit
• Secured equipment financing is an affordable option for you
• It’s a sure way to acquire the equipment you need to grow your business

Cons

• Can be more expensive in the long run compared to saving for the purchase
• Repaying this loan may affect your cash flow
• If you fail to repay, it could have a negative effect on your credit history

Merchant Cash Advance

Best for: MCAs or merchant cash advances is ideal for businesses such as retail stores that depend on card sales.

Typical loan amount: Usually about 25-50% of your past year’s business profits

Approximate interest rates: 10-350%

Where to get it: online lenders

How it works

Businesses relying primarily on credit and debit card sales can avail themselves of merchant cash advances (MCAs). It’s more a cash advance than a traditional loan per se—owners can access a lump sum by providing the lender with a slice of their future sales receipts. 

If you get this loan, you may repay directly from individual sales made by credit or debit card. Alternatively, you can pay via automatic clearing house or ACH withdrawals from your business account, which is done daily or weekly. 

The lender determines how much fees you must pay by setting a factor rate based on a risk assessment. The cash advance is multiplied by the rate, which may range from 1.2 to 2.5. The resulting number is the total repayment amount. For example, if your loan is $50,000 with a factor rate of 1.4, you must pay for the cash advance at $70,000 in total.

Pros

• You get fast access to money
• It’s an unsecured loan, which means you don’t have to pledge collateral
• Lenders adjust repayment based on your sales

Cons

• You may incur higher interest rates compared to traditional bank loans
• Even if you repay early, you reap no benefits
• It can potentially put you in a dangerous debt-cycle

Invoice Financing

Best for: When your company relies heavily on accounts receivable. It’s a short-term financing option that helps you manage cash flow.

Typical loan amount: Up to $5,000,000

Approximate interest rates: 10-79%

Where to get it: online lenders

How it works

As a form of asset-based loan, Invoice financing lets you receive advance capital for your unpaid invoices. The lender advances a percentage of unpaid invoices, which could be around 85-90%. Once a client pays the invoice, you take the remaining percentage of the invoice value minus the fees.

Here is a concrete example: if you apply for an MCA worth $100,000 with a 90% and 30-day term, the lender cash advances $90,000 to you. If the lender charges a 2% fee for every week the invoice remains unpaid, you will owe them a $4,000 fee ($2,000 each week).

As soon as the customer pays for the invoice, you must send $94,000 ($90,000 cash advance plus a $4,000 fee) to the lender. You get to keep the remaining $6,000 from the payment.

Pros

• Invoice financing is ideal for seasonal businesses that deal with outstanding invoices from another business.
• Lenders treat the unpaid invoice as collateral, meaning that you don’t need to put up your other assets.
• Simple application process and fast funding

Cons

• Invoice financing fees can become sky high depending on how long your customer takes to pay the outstanding invoice
• Often exclusively offered to business-to-business (B2B) companies
• This loan relies heavily on customer payments; it means trouble for you if your clients fail to pay their invoices

How to Qualify for Small Business Loans

Before you choose the best small business loans, you should start evaluating whether you can qualify for these loans. Requirements for loan applications vary from one lender to another. However, they may consider general factors like annual revenue, time in business, and your credit score. Additionally, the lender may investigate your cash flow and capability to repay debts. 

If your personal credit is strong, you might have more luck qualifying for loans with low rates and flexible terms. Is it necessary for you to get a business loan ASAP? If the answer is no, you can start by building your credit score first.

However, if you need fast access to funds, secured loans that let you put up collateral are the most ideal solution for you. 

Before you decide on the loan product, it’s best to prepare your financial documents such as bank statements, tax returns, and more. The lender would likely ask for a copy of these papers to evaluate your application.

Finding the Right Small Business Loan

Booster Financial is proud to offer a wide range of loan products that suit different business needs and requirements. We have the best small business loans for owners who want to grow, expand, or renovate their enterprise.

Understanding these different types of loans helps you in your decision-making. There is no one-size-fits-all funding option, but you can rely on our financing agency to provide the right loan for you.