Loans are typically offered to startups in disadvantaged areas and to those owned by minorities and women. Repayment terms may be as long as six years, with interest rates ranging from 8% to 13%, depending on the lender. Some online lenders require daily or weekly repayments, so make sure to factor that in — you’ll need enough cash flow to make payments at the time they’re due. If your credit score falls below that threshold, consider nonbank lenders. You may also want to consider microloans or small-business loans for bad credit. Getting fast access to cash may sound ideal—especially to business owners struggling to meet ends. Familiarize yourself with the advantages and disadvantages of fast business loans before committing to financing.

When you have your loan estimate, review the potential loan terms against your business’s other financial obligations to determine what you can actually afford. If your loan estimate is more than you can afford, consider lowering your loan estimate or seeking a different loan option. The collateral, such as real estate or inventory, must outlast the loan. The advantage of a secured loan is that it usually has a lower interest rate than an unsecured loan. According to a Forbes Advisor survey, more than half of small business loan borrowers opt for loan terms between one and three years. A loan is money, property, or other material goods given to another party in exchange for future repayment of the loan value amount with interest.

To qualify for a business loan with the most competitive interest rates and repayment terms, you’ll want to have a few years in business, good credit and strong finances. More traditional financial institutions, such as banks and credit unions, may make you apply at a branch or over the phone. For example, Bank of America accepts online applications for some of its products — like its business auto loans — but requires an in-person or phone appointment for others.

Small-Business Grants: Where to Find Free Funding

In this section, we’ll take a quick look at some of the biggest factors. Finally, adding collateral to your business loan could help you qualify for larger business loan amounts. Because securing the loan mitigates risk for the lender, you might be able to borrow more money as a result. Apart from making yourself a strong How Can I Get a Business Loan candidate for a loan, you can also shop around with different types of lenders and loans. Online lenders, for example, may have less rigorous borrowing requirements than large national banks. U.S. Small Business Administration loans are federally guaranteed business loans backed by the Small Business Administration.

Business payments

DSCR compares your business’s yearly net operating income with your yearly debt payments. Banks typically want to see a DSCR higher than 1, meaning that your revenue exceeds your debt bills by at least 100%. A higher DSCR could make you a stronger candidate for larger business loan amounts. Lenders also want to make sure your business is bringing in enough revenue to afford loan payments. Some want to see annual revenue of $100,000 to $250,000 to qualify for a small business loan. If you want a higher loan amount, you’ll need even higher revenue numbers. The average commercial and industrial loan made by commercial banks is $663,000, according to the most recent data from the Federal Reserve.

Banks prefer to offer their low-rate business loans to borrowers with credit scores in the good and excellent ranges, or 690 and above. Business owners who struggle to receive on-time payments may want to choose invoice factoring or invoice financing .

Pros and Cons of Startup Business Loans

Interested in learning more about choosing a business loan and finding the right loan for your business? Good—we have plenty of other loan resources to help you do just that. The most significant factor in your total loan cost is the size of the loan you take out.

Funding speeds vary by loan type, lender and the borrower’s financial institution. Lenders that offer quick funding can make cash available as soon as the same day. However, this can vary by lender and financing type so choose an option that provides cash when you need it.

Requirements are different based on the lender and type of loan. Some lenders go as low as $40,000, while others set the annual revenue at $100,000 or more. Since many small businesses don’t have established credit, lenders often use your personal FICO score to get a picture of your creditworthiness. For the best interest rates, most banks will look for a score of 680 or higher. Online lenders may drop to the 500s to approve businesses with bad credit for a loan.