What is a small business loan and how does it work?
A small business loan is money a lender advances to your company that you repay with interest or fees over an agreed period. The lender reviews your revenue, time in business, credit and existing debt, then issues an offer showing the amount, cost and repayment schedule. If you accept, funds are deposited and you repay on the schedule in the contract, which can be monthly, weekly or daily depending on the product.
What credit score do I need to qualify?
It depends on the product. Bank and SBA backed loans usually look for good personal and business credit along with a track record of profit. Online term loans and lines of credit often accept fair credit if revenue is steady. Revenue based advances and invoice financing weigh monthly deposits or customer quality more heavily than a score. Treat any figure you see online as a typical range, since each lender sets its own minimums.
How fast can I get funded?
Speed follows the lender type. Online lenders and revenue based providers can sometimes fund within a few business days once documents are verified. Banks and credit unions commonly take a few weeks. SBA backed loans often take longer because of the added government paperwork. Fast funding is usually priced higher, so decide how much a week of waiting is worth before choosing speed over cost.
How are small business loan rates set, and what is the difference between APR and a factor rate?
Lenders price risk, so rates move with credit strength, cash flow, time in business, collateral and term. An APR expresses the yearly cost of borrowing, including certain fees, and lets you compare loans of different lengths. A factor rate is a single multiplier, such as 1.30, applied once to the amount advanced and it says nothing about time. A 1.30 factor repaid over six months costs far more per year than a 30 percent figure suggests, so always ask for the total repayment amount in dollars and the term.
Do I need collateral or a personal guarantee?
Many lenders ask for one or both. Equipment financing is usually secured by the equipment itself, and real estate loans by the property. Unsecured products rely on cash flow and often include a personal guarantee, which makes you personally responsible if the business cannot repay. Read the default and lien language carefully, because a blanket lien can affect your ability to borrow elsewhere.
What fees should I watch for besides interest?
Look for origination or underwriting fees, which may be withheld from your proceeds, along with documentation fees, broker or packaging fees, monthly maintenance fees on credit lines, late fees and prepayment penalties. Some lenders charge the full interest even if you pay early. Add every fee to the interest and compare the net cash you actually receive with the total dollars you will repay.
Can I get a small business loan with bad credit or a new business?
Yes, but the options narrow and the cost rises. Lenders may lean on revenue, bank balances or receivables instead of your score. Equipment financing and invoice financing can work because the asset or invoice backs the deal. Expect shorter terms and more frequent payments. Starting with a smaller amount, improving your bank balance trend and paying down existing positions can widen your choices within a few months.
Does comparing lenders here affect my credit, and are you a lender?
We are a comparison and matching resource, not a lender, and we make no credit decisions. The fit finder and calculators on this site run in your browser and do not contact a credit bureau. A credit inquiry only happens if you choose to apply with a lender, and that lender will explain what kind of check it runs.
