Easy Business Loans: How to Find the Best
Fees mentioned below are accurate as of September 20, 2018.
The National Small Business Association’s 2017 Year-End Economic Report lists financing as one of the common challenges for small businesses. The report goes on to point out that without the extra capital from a business loan, companies are unable to grow their businesses or increase their inventory and sales.
If your company is need of quick funds to hire seasonal workers, renovate an office or increase marketing efforts, you’ll want to consider an easy business loan. Traditional bank loan applications are known for being lengthy and time-consuming; however, there are plenty of alternative lenders that have fewer requirements, making them more ideal when you need quick cash.
What is an easy business loan?
There are several components that make up an easy business loan. First, the loan can’t require an abundance of paperwork or have a lengthy application. Time is also a factor, as easy business loans are not only approved quickly, but also disperse funds with a few days. Finally, easy business loans are accessible.
Expansion Capital, for example, has a 60 percent approval rate, while Reliant Funding accepts more than 70 percent of applications. The downside to these loans is the cost. You can expect to pay more in interest and fees in exchange for the convenience an easy business loan provides.
Types of easy business loans
There are four main types of easy business loans, each with their own advantages. While some of them are not technically loans, they are still forms of financing that will get you the working capital you need to grow your business.
Short-term loans have a fixed repayment schedule and typically need to be paid back within one year. Depending on the lender, terms can range anywhere from three to 12 months. This type of loan is excellent for covering seasonal expenses, such as adding inventory or hiring additional employees, making emergency repairs to essential office equipment and launching new marketing campaigns.
Some lenders offer between $2,500 and $250,000, while others are willing to fund up to $500,000 through a short-term loan. Of course, you’ll want to pay careful attention to the interest rates and whether there are any fees. OnDeck Capital charges as low as 9 percent simple interest, while Kabbage doesn’t charge any interest at all. Instead, it imposes a monthly fee plus a charge of 1/6 of the total loan amount for six-month loans and 1/12 of the loan amount for 12-month loans. CAN Capital doesn’t list its interest rate, but it does make borrowers aware of its origination fee, which is 3 percent of the loan’s principal.
Before applying for the short-term loan that has the best terms and rates, you’ll want to check that you meet the company’s loan qualifications. For example, Kabbage requires businesses to be at least one year old with a $50,000 annual revenue. National Funding, on the other hand, looks for $100,000 in annual sales and three recent bank statements.
Merchant cash advance
A merchant cash advance, sometimes called a business cash advance, is one of the funding sources that isn’t exactly a loan. With this type of financing, the lender provides a cash advance based on the business’s revenue or credit card sales. You pay back the advance through a percentage of each future sale.
OnDeck Capital lists 10 to 20 percent as the norm. So, if the borrower had a $500 sale with a 10 percent repayment requirement, then $50 would be sent to the lender. This cycle continues until the advance is paid off. The more sales the business experiences, the faster this happens. This type of loan works well for companies that have trouble getting the funds they need through a traditional loan, as well as those that need money fast to make payroll, order more inventory or pay taxes.
The amount of cash you can obtain through an MCA depends on the lender. RapidAdvance allows up to 250 percent of your monthly credit card sales volume, while National Funding approves up to $250,000. Rates and fees also vary. Credibly has factor rates starting at 1.15 percent and a one-time underwriting fee of 2.5 percent of total advance amount. It is important to note that factor rates are not the same as interest rates and are only charged once based off of the original loan amount. If your loan amount is $10,000 and your factor rate is 1.15, then you multiply the two figures together to get a total payment of $11,500 ($1,500 being the fee). The Business Backer starts its rates at 1.12, but doesn’t disclose whether they charge any additional fees. CAN Capital doesn’t publicize its rates, but it does charge a $395 administration fee.
Qualifying for a merchant cash advance is often easier than a short-term loan. Fora Financial only requires companies be in business for six months and have $5,000 a month in credit card sales. Credibly has the same six-month requirement, but adds the following stipulations: a 500 credit score or higher and bank deposits of $15,000 or more a month. There’s also National Funding, which raises the time in business to one year, but lowers the monthly credit card revenue to $3,000. Keep in mind that merchant cash advances are not loans, and that they can be very expensive.
Invoice factoring, also known as invoice financing, enables business owners to sell their invoices to a lender in exchange for a percentage of the value of the invoices. BlueVine, for example, provides 85 to 90 percent of the invoice amount upfront. When the lender collects the total invoice, they deduct their fee and return any outstanding balances to the business. Because invoice factoring focuses on the strength of the customer, and not the business owner, it is an excellent financial tool for companies with less-than-perfect credit who have invoices with 30, 60 or 90-day due dates.
Paragon Financial offers invoice factoring for 100 percent of a company’s creditworthy invoices. It will advance up to 90 percent of the invoice amount at a rate between 1.25 and 2 percent. There’s also BlueVine, which has factoring lines of up to $5 million at rates starting at .25 percent per week, and 1st Commercial Credit, which funds up to 95 percent of invoices between $5,000 and $10 million at rates of .69 to 1.59 percent.
Each lender has its own qualification requirements, which you’ll want to review before applying. BlueVine only asks companies be in business three months, but it wants to see $100,000 in annual income. Kabbage, however, only considers businesses that have been in operation for a minimum of one year. Its income requirement is lower though at just $4,200 per month. 1st Commercial Credit wants to see things like aging reports, rate confirmation agreements and client lists.
Business credit cards
A business credit card is a type of loan with a revolving credit. Each card is assigned a limit that is often increased over time when payments are regularly made by their due dates. As the card is used to pay for business expenses, the available total decreases; however, when the funds are repaid, the total increases. Business credit cards are useful because they keep personal and business purchases separate. They also make it a cinch for companies to buy inventory online, make a large equipment purchase and even take clients out for a meal.
There are several things to consider before applying for a business credit card. First, you’ll need to look at the interest rates. Second, you’ll want to check if the card you’re interested in charges an annual fee. Finally, decide if one of the rewards cards would benefit your business. There are cards that offer travel rewards, airline miles and cash back.
Getting approved for a card is largely based on your credit score and ability to repay. Be prepared to supply information about your business, including your tax identification number, gross annual revenue and how long the company has been in operation. You might also need to supply at least one owner’s personal information or the information of any owner that has at least a 25 percent stake in the company.
Risks of easy business loans
Although easy business loans are convenient, they may not be the best option. They often come with daily and weekly repayment requirements and require a higher interest rate, which can make it more difficult to get out of debt. That puts you at risk of getting stuck in a debt cycle. Additionally, you might be approved for a loan that you can’t really afford. Since alternative lenders, just like traditional banks, report late and missed payments to the major credit reporting agencies, your credit score could suffer. That will make it harder to qualify for another loan in the future.
The bottom line
Easy business loans work well to meet a business’s short-term needs when in a bind. If you don’t have the time to wait for a traditional loan to get approved because an essential piece of equipment broke, or taxes are due, for example, an easy loan can be a lifesaver.
A loan from the U.S. Small Business Administration (SBA) is a better choice if time permits; however, because it shares risk with a lending partner. As a result, they are able to offer more competitive terms. A better interest rate can save you thousands over the course of the life of a loan, so take the time to examine the needs of your company to see if you truly need cash now, or if you can wait for a better deal.