What with maintaining cash flow, managing employees, and covering bills, there’s a lot that goes into running a small business. Time can often be of the essence when you need to pay for these costs, making a fast business loan appealing.
Traditional loans may require extensive documentation, such as a business plan, years of bank statements, and proof of collateral to get funding. And in some cases, approval and accessing funds can take weeks or more.
Taking a closer look at the different types of small business financing available can help if you’re considering whether a fast small business loan might be a good fit for you.
Types of Fast Business Loans
Fast business loans typically provide funding within a matter of days after you apply. While these loans offer quick approval and turnaround, this convenience may come with tradeoffs, such as higher interest rates and service fees.
How fast you can get your funds and the costs involved will depend on which kind of small business loan you opt for. Here are some fast business loan options you may want to consider.
The U.S. Small Business Administration (SBA) offers a variety of loan programs catering to different business types and funding needs. Although some of these loans may involve a longer application process, if you’re after quick-funding business loans, the SBA Express program could be a solution. Eligible businesses may request up to $500,000 and receive approval from the SBA in as little as 36 hours after applying.
SBA Express loans are issued by a network of SBA-approved lenders. The SBA guarantees to fund up to 50% of the loan in the event that the borrower defaults. This reduces risk to the lender and allows them to offer more flexible qualification criteria.
Having cash on hand can be important for covering both day-to-day operations and emergency expenses. Instead of applying for financing whenever costs arise, a business line of credit allows you to access cash (up to an approved limit) whenever you need it. While it may take some time to set up a business credit line, once it’s there, it’s a resource you can draw on at a moment’s notice.
Once approved by a lender, you are allocated a maximum credit line and can withdraw funds up to that threshold to pay your bills, purchase inventory, or fill in gaps for working capital. You only pay interest on the amount you borrow and, once you repay those funds, they are available to borrow again.
Equipment is integral to many businesses’ operations, whether it’s concrete mixers for a construction business or computers for an accounting firm. However, purchasing machinery and other vital equipment is often too costly for businesses to pay for out-of-pocket.
If this is your situation, equipment financing may be a route to consider. This type of small business loan may charge less interest than conventional options, since the equipment itself is typically used as a form of collateral. Repayment terms are determined by the individual lender but usually span a few years.
Getting an equipment loan is typically a faster process than obtaining traditional funding, though it can vary by lender.
Short-Term Loans
A loan’s term is the amount of time it will take for the borrower to pay the loan off completely by making regular payments. For short-term business loans, this duration can range from a few months to up to18 months.
Short-term business loans are often a faster route to cash than long-term financing options. Since the repayment terms are shorter, lenders usually view short-term business loans as less risky so their requirements may be less stringent.
Easier qualification helps speed up the process so that businesses can act quickly to maintain cash flow, buy inventory, and address other unexpected costs.
Delays in payments from customers and clients can lead to cash flow issues. Those, in turn, can delay you when you need to act on investment and growth opportunities. Instead of standing by, many businesses can borrow against outstanding invoices owed to them through a practice called invoice financing.
In invoice financing, the lender loans you a large percentage of the face value of your unpaid invoices. As your customers settle their debts, you receive the rest of the invoice amount, minus the lender’s fees.
This quick funding option is typically better suited to businesses that sell wholesale or let customers buy goods or services on credit. Otherwise, they may not have enough invoices on hand to finance.
A merchant cash advance (MCA) can be a solution for a business that needs capital immediately to cover cash-flow shortages or short-term expenses. With an MCA, a financing company gives you an upfront sum of cash that you repay using a percentage of your debit and credit card sales, plus a fee. Often the way the financing is structured is that MCA provider automatically deducts a daily (or weekly) percentage of your debit and credit card sales until the advance is repaid in full.
This quick access to cash generally comes at high cost. MCA companies charge a factor rate plus fees. When the factor rate and fees are converted into an annual percentage rate (APR) and compared to other business financing options, MCAs tend to cost considerably more.
For businesses in a cash crunch, a fast business loan could be a funding solution to cover day-to-day expenses or seize an investment opportunity.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
With one simple search, see if you qualify and explore quotes for your business.
SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
By Susan Guillory |
SMB |
Comments Off on What Trucking Business Loans Are & How They Work
If you’re in the trucking business, whether that means running a tow-truck company, a fleet of semis, or even using trucks to deliver products, your biggest expense is the vehicles that your staff drives. Without those trucks, you can’t operate. But do you have the cash you need to buy those high-dollar trucks?
A trucking business loan can help you purchase new trucks in order to start or grow your trucking business. Keep reading to learn more on what a trucking loan is, the pros and cons of trucking business loans, and other business loan options to consider for your small business.
What Is a Trucking Business Loan?
Small business loans for truckers are specifically used for purchasing a commercial truck, with the vehicle you’re purchasing acting as collateral to secure the loan. A loan backed by collateral can sometimes help you secure lower interest rates than you’d get with an unsecured loan, too.
When it comes to small business loans for trucking companies, there are a few differences in how they work compared to other types of small business loans.
Because the truck you’re buying serves as collateral, you may be asked questions about the vehicle in the loan application, including the year, make and model, and what you will use it for.
Once you’re approved, you can purchase the truck or trucks. The lender, whether that’s a bank, credit union, or online lender, will then have a lien on the truck, meaning that if you can’t pay back your loan, the lender has the right to seize the truck and sell it to cover your remaining debt.
A Word on Collateral
What is collateral, exactly? It’s a physical asset that the lender can take a lien on. This means that if you are unable to pay your loan back, the lender could seize the asset and sell it to cover the remaining debt.
In traditional loans, collateral might be a piece of equipment or real estate. With trucking loans, the truck you’re buying serves as the collateral, so you don’t have to come up with another asset for collateral.
Pros and Cons of Trucking Business Loans
Like any big decision, deciding to take out one or more trucking business loans should carefully be considered.
Pros of Trucking Business Loans
Cons of Trucking Business Loans
Get the financing you need to buy trucks, even if you don’t have the cash on hand
Can only use funds to pay for truck
Won’t need to put down additional collateral
If you can’t pay, the vehicle can be seized
Pros of Trucking Loans
If not having cash to buy trucks has stopped you, taking out a trucking business loan can ensure you have the capital you need to buy the vehicles to grow your business. And because the vehicle acts as collateral, you don’t also need to come up with cash or another asset as additional collateral for the loan.
With the vehicle acting as collateral, you may qualify for a lower rate than you would with an unsecured loan, and borrowers who aren’t as creditworthy may have an easier time qualifying.
Cons of Trucking Loans
If you’ve never taken out financing for your startup, business loans for trucking may be unfamiliar, and you may not realize the true cost of a loan. You’ll be paying interest on the life of the loan, and many lenders charge fees, which can add up.
If you aren’t able to make your monthly payments, the lender can take your truck and leave you without the vehicle you need to run your business.
It may sound great to get a loan for $100,000 to buy trucks, for example, but if you don’t have a plan to pay it back, you could find your business financially strapped. You can take the maximum repayment period possible (usually 72 months) to reduce your monthly payment, though realize your truck will depreciate over time, and you might still be paying it off when it’s time to replace the truck.
Using a Trucking Business Loan vs. Conventional Business Loan vs. Equipment Loan
Trucking business loans are just one option you have when it comes to financing a vehicle for your business. There are other loans you can also use to buy the vehicles you need, and each has its own distinct characteristics.
You already know that you can use a trucking loan to purchase a vehicle for your business. If this is the only thing you need financing for, it may be your best option.
Conventional Loan
You can use a conventional business loan to purchase a truck or cover any other business-related expense, including payroll, marketing, equipment, supplies, inventory, rent, and fees. If you need money to not only purchase a truck but also cover other expenses, this may be the right fit.
Equipment Loan
Another option for purchasing your business truck is an equipment loan. With an equipment loan, you can buy vehicles in addition to things like mixers, cranes, industrial ovens, and computers. If you need any other type of equipment in addition to a vehicle, consider taking out an equipment loan to buy everything at once.
Qualifying for Trucking Business Loans
If you’ve already researched how to apply for business loans, you’re well-prepared for applying for a trucking business loan. There are few differences in the process, though, other than having to fill out a few details about the vehicle you’re buying.
Each lender will have slightly different criteria to qualify for a loan, so before applying, see what these criteria are. Some may require you to have a certain credit score or time in business, whereas others may look at your annual revenues.
With some lenders, you can check to see if you prequalify without an impact on your credit score. This can give you a sense of what sort of rates you could get with a trucking loan. The collateral may help if your business is less established or your credit score isn’t great.
Below are a few scenarios where you might benefit from truck financing.
• Starting a tow truck business. If you’re starting a tow truck business, you’ll need at least one truck to get started. You can take out a loan for that truck and, as your business thrives, you can pay it back and borrow more money to expand your fleet. Keep in mind that if your business is brand new, you may be limited in your financing options and/or pay higher interest.
• Running a semi truck business. If you are an owner-operator of a semi truck business, you can also benefit from a truck loan. Working on your own, you’ll quickly make enough to repay the loan and keep profit.
• Needing a new truck to continue your business. Another situation where you might need a truck loan is if your current truck is no longer functional, either because it needs major repairs or just isn’t as efficient as it once was. If you find yourself desperately needing a vehicle, taking out a business truck loan can alleviate the stress this situation can cause.
There are several different types of loans to purchase the truck or fleet of trucks your business needs.
Short-Term Business Loans
Deciding what kind of business loan for a trucking company you need will depend on how quickly you want to pay back the loan. If you need cash fast to make the purchase but know you could pay it back in a few months, a short-term business loan is an option.
Also, note that these loans tend to have higher interest than long-term loans, so if you qualify for a conventional loan, you may get a lower interest rate and can aim to pay the loan back before the repayment period is over.
Small Business Line of Credit
A small business line of credit, or LOC, gets you access to cash when you need it, rather than distributing it all up front. Consider business lines of credit if you know you’ll be buying more trucks in the future or have other needs for capital.
SBA Loans
Whether you’re an owner-operator of a semi or have another trucking business that’s been around for at least two years, you may qualify for an SBA loan. These loans have long repayment periods and low interest rates, but the qualifications are stringent and funding times can be long.
Equipment Financing Loans
Equipment financing loans work similarly to trucking loans in that the equipment you’re buying — in this case, a truck — acts as collateral for the loan, which helps you save in interest. There are a few types of equipment financing, including heavy equipment financing, so see what your options are.
Alternatives to Trucking Loans
Alternatives to trucking loans include business credit cards, merchant cash advances, and invoice financing as a means to get the cash you need for your business. You can also consider borrowing money from family or friends if that is an option.
Now that you’ve learned just how many types of loans you have as an option to buy your business’ truck, how do you decide which is right?
Start by considering what you need the capital for and how much you need. Are you looking to just buy one truck or do you need a fleet? Do you need to purchase other business materials or just trucks? Do you need all the cash right now or do you need some now and more later? What sort of loans do you qualify for? How long do you want to repay the loan?
Once you’ve answered these questions, research lenders and their criteria for the type of loan you land on. And make sure to comparison shop with multiple lenders. Doing so could save you hundreds or even thousands of dollars over the life of the loan. Even a slight reduction in interest can make a big difference, and every penny you save is money you can reinvest in your trucking company.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
Large or small, grow your business with financing that’s a fit for you. Search business financing quotes today.
FAQ
Can you get a business loan to start a trucking company?
With some lenders, you may be able to take out a loan for a new business, but most conventional and SBA loans require you to have been in business for at least two years. If you are looking at a trucking loan, because the truck acts as collateral, you may qualify for more options, even if your business is new.
Can truck drivers get SBA loans?
Truck drivers who have run their own business for at least two years may qualify for certain SBA loans.
How can you start a trucking business with no money?
Finding financing for a brand-new business can be challenging, but not impossible. Some types of loans, such as short-term loans and merchant cash advances, look at factors other than time in business to qualify you. You may also consider taking out a personal loan to start your trucking business.
SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
If you’re a business owner with limited or no collateral for a business loan, you may find it harder to get the financing you need to support your business. Some traditional lenders, like banks and credit unions, generally require collateral to secure a business loan — in the event that borrowers are unable to pay back the funded loans.
Unsecured Business Loans Explained
An unsecured business loan is one in which the lender usually does not require collateral. Instead, the lender relies heavily upon the creditworthiness of the applicant. In contrast, with a secured loan, lenders may require collateral in the form of real estate, equipment, or another type of asset. Collateral can help lenders to offset the risk of loaning out money, but not all businesses or business owners (even established ones) have adequate funds or assets to offer as collateral.
If a business owner doesn’t have necessary collateral, he or she may opt to apply for an unsecured business loan. While unsecured business funding may not require a borrower to pledge specific business collateral, like real estate or equipment, some lenders may still ask for a personal guarantee from applicants.
A personal guarantee is a written promise to personally pay back the loan in the event that your business cannot. This differs from collateral because a personal guarantee is not linked to any specific asset, which may offer some borrowers more freedom when looking for small business loans.
However, it’s important to keep in mind that, when a business defaults on the loan repayment, the personal guarantee may allow the lender to seize personal assets, which could include checking and savings accounts, cars, and even a house.
Not all unsecured business loans require a personal guarantee or collateral. But borrowers may still find that unsecured business loan rates are higher than the interest charged on a secured loan, because the lender is taking on more risk. Even without the collateral or personal guarantee, lenders can still take legal recourse when an unsecured loan isn’t repaid. They may send outstanding accounts to debt collection or sue to ensure the money gets paid back.
Additionally, failing to repay a loan may severely impact a borrower’s credit score, which can affect the likelihood of getting approved for lender financing in the future.
Unsecured vs Secured Business Loans
The primary difference between an unsecured business loan and a secured business loan comes down to collateral. Secured business loans are those that require collateral in the form of a valuable asset, while unsecured loans do not.
While collateral is the main factor that separates these two types of loans, there are a few other differences to note:
• Secured loan amounts are typically determined by the loan-to-value ratio (LTV) of your collateral. Lenders use loan-to-value ratio to determine how much they choose to loan out based on the value of the collateral. Asset values can vary depending on the type of asset. For example, real estate that’s not considered “ready-to-go” may result in a loan amount that’s smaller than a piece of property that’s completely paid off. Lenders may also look at LTV differently, so it’s important to consult with individual lenders about how they calculate asset values.
• Collateral can be business or personal assets. These may include real estate, vehicles, jewelry, collectibles, stocks and bonds, cash savings, and assets that can be converted into cash.
• Secured loans typically have longer repayment terms. Because a secured loan poses less risk, lenders typically give longer repayment periods compared to unsecured loans.
Examples of secured loans are mortgages, secured auto loans, home equity lines of credit, and commercial equity lines of credit (CELOC). Examples of unsecured loans include student loans, unsecured personal loans, and business signature loans.
When comparing secured and unsecured loans, secured loans can offer some potential benefits for borrowers with valuable assets, but they also come with some potential complications — including:
• Risk of losing any pledged collateral (if the borrower defaults on repayment)
• Longer repayment terms mean you’re paying the loan for a longer period of time compared with unsecured business loans that typically have shorter terms
• Some secured loans may actually offer less financing than you’re looking for, because they’re based on the value of collateral, not just on the financial history of your business or your personal creditworthiness.
• Loan applications can take weeks or months to process if the lender requests to appraise the value of the collateral and how it’s tracked.
Some business owners may pursue unsecured business loans, but there are pros and cons to be aware of. The following pros and cons might be helpful when deciding if unsecured business financing is right for you:
Pros of Unsecured Business Loans
• Faster potential turnaround time: No matter what type of business loan you’re seeking, lenders will likely conduct a thorough check on your qualifications. But an unsecured business loan typically requires less time to approve (since lenders do not need to vet and verify collateral). With a secured business loan, lenders generally need to assess the value and legitimacy of collateral, which can require more time. For borrowers who need financing to come quickly, an unsecured loan may hold appeal.
• Lenders can’t seize property (without a court order): One of the risks of a secured business loan is having valuable assets seized if you default on the loan. With an unsecured business loan, lenders cannot seize business or personal property (without a court order), because no collateral has been pledged to the lender.
• Unsecured loans may be discharged if you file for bankruptcy: In the unfortunate event that your business has to file for bankruptcy, an unsecured business loan may be discharged, meaning you may not be liable for a business debt. Most unsecured loans are considered non-priority debt under various laws and, in some cases, may be discharged in bankruptcy. In contrast, discharging a secured loan in bankruptcy may not prevent a creditor from seizing the collateral.
• Lenders may have fewer restrictions on how you use funds: Unsecured business loans may give you more flexibility on how you can use the funds compared with secured business loans. Borrowers cannot, of course, use business loan funds for illegal purposes.
• Unsecured loans may have higher interest rates: The risk involved in providing an unsecured business loan can be significantly higher for lenders. Consequently, unsecured loans typically have higher interest rates for borrowers than the rates on a secured loan.
• Eligibility requirements: Without collateral, lenders may rely more heavily upon other eligibility requirements — factors like a loan applicant’s credit score, financial history, and business revenue. If you have poor credit or lack sufficient revenue, a lender may deny your application for an unsecured business loan.
• Smaller loan amounts: Due to the increased risk that comes with no collateral, lenders may not offer large loan amounts. With a collateralized loan, lenders are more protected and may offer more funding.
• Personal guarantee may be required: Even though an unsecured business loan doesn’t require specific collateral, lenders may want a personal guarantee so they know the loan will be paid in the event of default. When you sign a personal guarantee, you are still responsible for paying back the loan even if your business dissolves, and lenders can still legally pursue a borrower’s personal assets, even if they aren’t noted as collateral.
Financing a business with unsecured business loans offers a number of options for different types of small businesses. Check out the following unsecured loan types to learn more about your options:
Short-Term Loan
What is it? Short-term business loans give borrowers a sum of money upfront, which is then repaid with interest over a time set by the lender. Short-term unsecured business loans typically have terms of 18 months or less.
Why choose it? If you need a fast business loan that’s unsecured and you can repay fairly quickly, a short-term loan may help. Short-term loans may also be easier to get with poor credit, no credit, or minimal business history.
Keep in mind: Unsecured, short-term loans usually have much higher interest rates than other loan options because lenders are taking on more risk. Borrowing amounts may also be lower.
Loan With Personal Guarantee
What is it? Unsecured business loans with a personal guarantee are those in which the borrower signs a legal promise to repay the loan if the business defaults on the loan.
Why choose it? Loans with a personal guarantee can help borrowers get financing when they don’t have a well-established business, collateral, or creditworthiness to qualify for other forms of business financing on their own.
Keep in mind: There are limited and unlimited personal guarantees. Limited guarantees give lenders the ability to collect a certain amount of money or a specific percentage of the outstanding balance. Unlimited personal guarantees mean that the borrower is responsible for the entire balance of the loan and the lender can legally pursue payment for the outstanding balance.
Business Line of Credit
What is it? A small business line of credit with no personal guarantee is a type of short-term loan that can help with managing cash flow. Borrowers receive a set credit limit and use funds up to that limit, with interest paid on the money that gets withdrawn. Some lines of credit are revolving (aka able to be replenished), while others terminate when the balance is paid off.
Why choose it? If your business experiences seasonal fluctuations, a cyclical sales cycle, or has emergency expenses, a business line of credit can be helpful in supplementing cash flow. It’s typically easier to qualify for a business line of credit, because funding amounts are generally smaller and limited to shorter terms.
Keep in mind: Starting a business line of credit may have additional fees and costs to be aware of. In some cases, lines of credit offer smaller borrowing limits than a long-term loan.
Invoice Factoring
What is it? Getting business funding without personal credit may be challenging, but options like invoice factoring may be an additional option. Businesses receive a sum of cash when a factoring company purchases unpaid invoices at a discount. Funds can be used toward working capital and other smaller expenses. The factoring company takes ownership of the invoices, so they are responsible for collecting payment directly from customers. Technically, invoice factoring is not a loan but rather a cash advance based on invoices.
Why choose it? Invoice factoring can assist businesses that offer products and services with irregular billing cycles and B2B companies that deal regularly in customer invoices. Factoring companies offer a percentage of the value on outstanding invoices, giving the business faster access to cash.
Keep in mind: The cost of unsecured business financing via invoice factoring can be quite high. It may include additional fees and a variable APR if there are late payments from customers. Businesses also lose control over collections, so it’s important to make sure that factoring companies use ethical collections processes.
Peer-to-Peer Lending
What is it? With peer-to-peer (P2P) business lending, borrowers receive funding directly from other individuals, thus eliminating the need for a financial institution to act as a go-between. Borrowers and private investors connect using online platforms, and funding can happen quickly.
Why choose it? For small businesses and entrepreneurs that need cash quickly with competitive rates, P2P loans are one possible option.
Keep in mind: Loaned amounts are typically smaller than traditional loan offerings, and you may need excellent credit to qualify for larger loan amounts.
Merchant Cash Advance
What is it? A merchant cash advance (MCA) gives cash up front in return for repayment taken as a percentage of the borrower’s credit card sales. Automatic withdrawals are often set up for daily or weekly payments to make the repayment process quick and timely.
Why choose it? If you need quick access to cash for working capital or emergency expenses or your credit is poor and you are in search of a business loan with no collateral, merchant cash advances may help.
Keep in mind: You pay for the convenience of merchant cash advances, making them one of the most expensive unsecured business loan options — which means borrowers need to be extra careful about the lenders they work with.
Since unsecured business funding doesn’t rely on collateral, many lenders will need adequate proof that a borrower is able to repay their loan. Whether you’re seeking a loan from a bank or an alternative loan provider, it could be helpful to review these steps when preparing to apply:
1. Determine How Much Funding You Need
The amount of funding you need plays a role in the type of unsecured business financing you apply for. If you simply need quick cash to cover a repair or emergency expense, you may consider a business line of credit or a short-term loan. In contrast, if you need enough to cover larger expenses over a period of time, you may seek an unsecured loan with a personal guarantee.
Here are some factors you may want to keep in mind when deciding how much cash is needed:
• What is the loan going to pay for? Is it absolutely necessary?
• How often will you be able to make payments?
• What is your ideal loan term?
• What is your budget?
• Do you have other sources of funding?
2. Understand What Your Business Qualifies For
Each lender or funding company will have their own eligibility requirements that can also vary, depending on the type of financing you apply for. Before applying, make sure that you meet general eligibility requirements for unsecured business funding.
Without collateral, some lenders may need more proof that you are capable of repaying the loan. The following factors may contribute to your eligibility:
• Personal and business credit history
• Minimum amount of time in business
• Business finances/revenue
• Monthly cash flow
• Business bank accounts
3. Decide Which Type of Unsecured Business Funding Is Right for You
You can now assess which type of unsecured business funding aligns with your needs and qualifications (and it may not be a loan). Some options include:
• Short-term loans
• Loan with a personal guarantee
• Business line of credit
• Invoice factoring
• Merchant cash advance
• P2P lending
4. Compare Lenders and Financing Options
Many lenders offer some type of unsecured business loan, including banks, credit unions, P2P platforms, and commercial lenders. Their loan products may differ, so it’s important to review their fees, interest rates, loan terms, qualifications, and any other conditions associated with the specific type of financing you’re pursuing.
5. Prepare Documentation
Before completing an application for an unsecured business loan, gather all necessary documentation. This may include:
• Business financial records
• Personal and business credit reports
• Cash flow projections
• Business plan
• Identifying information, which may include citizenship
• Business legal documents
• Business and personal tax returns
6. Submit an Application
After you’ve chosen a lender or financing company and gathered the necessary documents, follow the company’s instructions to apply. You may want to check with them to determine the average turnaround time — following up, as necessary, on the application.
Alternatives to Unsecured Business Loans
If you have collateral to offer, or simply desire alternatives to an unsecured loan, the following loan options may be helpful:
Restaurant Loans
Restaurant loans are useful for financing costs associated with starting or expanding a restaurant business. Many different types of lenders offer restaurant loans, including traditional banks, alternative lenders, or P2P lenders.
Franchise Financing
A franchising loan can help with the expenses associated with starting or expanding a franchise business. Traditional lenders may offer franchise financing, but there are also franchise companies who specialize in providing loans to franchise owners.
Equipment Financing
Equipment loans help businesses purchase business-related equipment. Loan terms are typically equal to the expected life span of the equipment and equipment acts as collateral for the loan. Interest rates can vary depending on the industry, type of equipment, and borrower qualifications.
Personal Business Loans
A personal business loan may be useful if you don’t qualify for other types of loans. Borrowers can use the funds for personal and business expenses, offering more financial flexibility. Not all lenders wish to make personal loans for business purposes. You can check with any lender you’re considering before you apply to make sure there are no restrictions against business use.
Inventory Financing
Inventory financing is a type of short-term loan that relies on the inventory as collateral for the loan. Inventory is paid for up front.
Microloans
Microloans may help support small business owners who do not have access to larger sources of funding. They are generally offered by nonprofits, government agencies, or private lenders and can be used for a variety of business-related expenses.
Commercial Real Estate Loans
Commercial real estate loans (CREs) are specifically for the purchase, refinance, or renovation of a commercial property. “Commercial” refers to the property as one that produces income for the business. These types of properties can include offices, retail storefronts, and warehouses.
An unsecured business loan can be an option for business owners who don’t want to pledge collateral when applying for financing. Higher interest rates often come with unsecured loans.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
With one simple search, see if you qualify and explore quotes for your business.
FAQ
How much money can I get with an unsecured loan?
Some lenders may offer small business loans up to $5 million without a collateral requirement. You may need good credit to qualify for large loan amounts.
Does the SBA offer unsecured loans?
Some U.S. Small Business Administration (SBA) loan intermediaries may offer unsecured loans, but SBA loans generally require collateral and a personal guarantee of the business owner. SBA loan lenders can set their own lending and credit requirements.
SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
By Nancy Bilyeau |
SMB |
Comments Off on Small Business Loans and Grants for Veterans
As a veteran with a small business, you need funding. This may include startup financing or money to purchase property, buy inventory, or pay employees, among other needs.
Not only are there business loans to know about but also grants, government funding, and private business options. These funding sources could make a big difference to a veteran-owned business. Read on to learn what’s out there.
4 Types of Small Business Loans for Veterans
The Small Business Administration (SBA) offers programs to support veterans, including small business loans specifically for veterans with disabilities, reservists, active-duty service members, people transitioning out of service, and dependents or survivors.
To learn details about the educational programs, funding options, and counseling available to veterans, you can . contact your local Veterans Business Outreach Center (VBOC).
These are government-backed loans of up to $5 million that can be used for almost any business-related costs, including purchasing commercial real estate.
Why choose it?
If you need more capital, the SBA 7(a) loan program gives you access to funds you can use toward a variety of business expenses. Because these loans are backed by the government, SBA loans tend to have favorable terms and rates.
Borrowers who qualify for the Veterans Advantage program can also take advantage of reduced fees.The fee reduction can be applied to the SBA 7(a) loan.
Keep in mind
Application turnaround time is 5 to 10 business days. If you need a relatively small amount of capital in a shorter period of time, consider an SBA Express Loan.
SBA loans can be competitive. Lenders usually require borrowers to have strong credit, an established business, and some form of collateral to offer.
These small business loans are backed by the SBA and offered by banks, credit unions, and other approved lenders. SBA Express Loans come with an application review time of 36 hours and offer a maximum loan amount of $350,000.
Why choose it?
The SBA Express loans can help those in need of immediate funding.
Keep in mind
There are differences to consider between the standard 7(a) loans and Express Loans. For example:
The maximum amount you can borrow:
• Standard: $5 million
• Express: $350,000
The maximum amount guaranteed by the SBA:
• Standard: 85% for loans up to $150,000; 75% for loans greater than $150,000
• Express: 50% for all loan amounts
The duration of revolving lines of credit (excluding extensions):
3. Military Reservist Economic Injury Disaster Loan (MREIDL)
What is it?
The MREIDL loan program is offered to small businesses with an essential employee who is “called up” to active duty due to his or her position as a military reservist. These loans provide working capital to cover necessary business payments until the essential employee returns from active military duty.
You cannot use an MREIDL loan to:
• Cover lost income or profit
• Expand your business
• Refinance long-term debt
• Replace typical commercial debt
Why choose it?
If you or a vital employee is on active duty in the military, the MREIDL may help support your business. The funds may help prevent losses that would be incurred in the absence of essential employees by offering loans to cover your business’s necessary obligations.
Keep in mind
If your small business can access capital from non-government sources or you’re able to fund your own recovery, you should pursue that option first, as in those cases you will not be eligible for a MREIDL loan. Additionally, MREIDL loans over $50,000 require real estate as collateral.
4. Non-Government Small Business Loans for Veterans
If you’re having trouble qualifying for a government-backed small business loan, there are still a number of lending options. A few to consider include:
• Loan from an online lender: These lenders tend to have less stringent qualification requirements than physical banks. However, their interest rates may be higher and borrowing amounts could trend lower.
• Business line of credit: It’s similar to a personal credit card, with a credit limit and interest accrual only on the expenses you have not repaid. Banks and online lenders both offer business lines of credit.
• Peer-to-peer network: This type of funding matches borrowers with independent investors. Because it doesn’t involve borrowing from a bank or an online lender, a peer-to-peer network may be a good option when it comes to small business loans for veterans with either brand-new businesses or credit that needs work.
If you plan on applying for an SBA 7(a) or Express loan, it’s a good idea to review the Veterans Advantage eligibility requirements to see if you qualify.
SBA Veterans Advantage: Eligibility Requirements
To apply, you and your business must meet the eligibility requirements outlined below.
The business needs to be 51% or more veteran-owned. This includes owners who are:
• Active duty
• Service-disabled
• Reservists and/or active National Guard members
• A spouse of a service member
Small Business Support for Veterans with Disabilities
To further support veterans, the SBA offers the Service-Disabled Veteran-Owned Small-Business Program, which allows eligible veteran-owned small businesses to compete for contracts set aside specifically for disabled veterans.
Unlike a loan, a grant doesn’t have to be paid back. It is essentially debt-free financing that allows you to have the capital you need to start or grow a business.
Almost any business can apply for a grant, but there are some specifically geared toward veteran-run businesses. Given the amount of competition the average federal grant inspires, you may have more of a fighting chance of getting one if the pool is limited to only veteran business owners.
Grants provide capital that can be used for many purposes, from covering startup costs to allowing you to hire employees. You could use the funds to buy equipment or technology that helps you work more productively—it all depends on the grant itself.
Grants to Help Vets Start a Business or Expand One
There are many government small business grants available to veterans. It’s just a matter of knowing where to look in order to find the right one for you and your business. Here are some resources to get a start on your search.
Grants.gov
Grants.gov is a large database of all the federal grants available to anyone, including veterans. You can search by agency, category, or eligibility. Each grant has different eligibility requirements, and only certain types of organizations may apply. It’s important to read those requirements carefully to make sure you qualify.
GrantWatch
Another database to spend some time on is GrantWatch. Here, you can find grants from federal, state, and local government agencies, as well as foundations and corporations in each state.
Your State’s Veteran Business Outreach Center
Most states have web portals with resources for veterans living in that state. For example, California has CalVet, which lists resources for veterans and service-disabled vets, which may include self-employment grants for service-disabled veterans. You can also find local Veteran Business Outreach Centers (VBOCs) by zipcode here.
How to Get a Small Business Grant for Veterans
There are small business grants for veterans in a variety of situations, from disabled vets to those starting a brand new business. Requirements will vary, but most require you to be a veteran, reserve, or transitioning active duty member of any branch of the U.S. military. Some grants are also open to spouses or children of military members.
Reviewing Requirements
To apply, first review the eligibility requirements. Pay attention as well to deadlines so you don’t waste time filling out paperwork for a grant that’s already closed its window for applications.
Putting Together Your Proposal
Gather the required paperwork, which might include a business plan, key financial statements, and mission statement. Next, allot plenty of time to write your grant proposal and/or fill out the application. You may be asked how your business started or what you plan to do with the funds. Answer honestly, but don’t be shy about singing your company’s praise. This is your opportunity to display what is unique about your business.
Reviewing and Polishing
Finally, carefully review your application and make sure you include everything required. Proofread your proposal, maybe asking a colleague to provide a second set of eyes. You want your application to be as flawless and engaging as possible.
You may also consider hiring a grant writer. This is someone who fills out grant applications for a living. They will likely be more familiar with the process and what reviewers are looking for in an application.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
Large or small, grow your business with financing that’s a fit for you. Search business financing quotes today.
FAQ
Does the VA offer business loans for military veterans?
No, the Veterans Administration does not provide loans for businesses. The Small Business Administration (SBA) has a special loan program for veterans. Veterans can borrow up to $500,000 through the SBA’s Express loan program.
Is it easier or harder for veterans to get business loans?
There is no special barrier for veterans to overcome and actually there are programs targeting them through the SBA. However, ultimately they will need to present the same creditworthiness and financial profile as any other successful loan applicant to secure funds.
Can you use your GI Bill to start a business?
This is something that many veteran groups and legislators support: expanding GI Bill benefits to assist entrepreneurial veterans in obtaining access to small business capital. It is not yet in place but may be possible within the next few years.
SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
By Sarah Brooks |
SMB |
Comments Off on Online Business Loans: Compare and Apply
Online business loans can help you quickly get the funding you need for your small business. A variety of loan options are available for qualified borrowers, with competitive rates and terms, and fast funding times.
Keep reading to learn more about what online business loans are, how they work, the different types, and more.
What Is an Online Business Loan?
An online business loan may help small business owners secure funding quickly and easily without ever having to visit their local bank. Using systems that take creditworthiness, business performance, and other factors into account, many online lenders are able to quickly provide small business owners with funding options.
The application process is completed online and gives potential borrowers the opportunity to compare a range of financing choices that may work for their needs.
Online business loan applicants are generally more likely to receive expedited funding even if they can’t obtain loans from banks or have bad credit. Online business funding can be used for common business-related expenses, including:
• Working capital: Funds to help maintain short-term, daily business operations such as payroll, rent, marketing, and insurance. Working capital is the value of a business’ current assets minus current liabilities.
• Equipment: Funds can help purchase items like office equipment, tools, vehicles, kitchen appliances, and more.
• Inventory: Funds can help with stocking up on inventory either in preparation for a busy season or to capitalize on a good deal from a manufacturer or wholesaler.
• Cash flow management: Having funds to maintain cash flow is crucial to running a business. Online loans can help small business owners manage their cash outflows without putting as much strain on business finances.
Virtually any business can apply for business loans online and benefit from them, and there are many types of businesses that may be good candidates. These may include:
• Small business startups: These businesses have a growth mindset but may not have the history or business credit to get approved for a bank loan. Startups can use online business loans to increase their chances of approval and get their business up and running.
• Businesses with poor credit or no credit: Small businesses that don’t have enough credit history may not qualify for large bank loans. Additionally, a business with poor credit will often struggle to find adequate financing. Bad credit business loans from online small business lenders may offer the necessary financing needed to grow or start your operation, regardless of creditworthiness.
• Businesses needing funds quickly: One of the biggest advantages of online business loans is their quick review and approval process. Bank loans can take weeks or even months to be approved, leaving businesses without necessary funding for extended periods of time. Online lenders can often approve and fund loans within days, and sometimes even within a few hours.
• Businesses needing short-term financing: For businesses who don’t want to commit to a long-term business loan, online lenders also offer short-term financing, or loans that can be paid back in less than 18 months. Keep in mind that short-term financing typically comes with high APRs.
If you think your business may benefit from online business loans, it’s important to weigh the pros and cons of this type of financing. We’ll cover that next.
Bank Loans vs. Online Business Loans: What’s the Difference?
The biggest and most obvious difference between bank loans and online business loans are the lenders themselves. Bank loans are funded by traditional banks or credit unions and typically have to be applied for in-person. Online small business loans, on the other hand, are offered by a variety of financial technology companies and lenders, and can be applied for using an online application.
The convenience of getting an internet business loan can be very attractive, but like any financing, you must use caution.
To help you further understand how bank loans and online business loans differ, we’ll go over a few of the advantages and disadvantages to online funding in relation to traditional bank lending.
• Flexible: Online lenders typically go beyond traditional bank offerings, which include term loans, lines of credit, and credit cards. With online business loans, you likely have more flexibility with loan amounts, terms, qualifications, and loan products, including cash advances and peer-to-peer lending.
• Fast: Compared to bank loans, online business loan applications typically require less paperwork and can be processed much faster due to technology.
• Able to compare multiple options: With online lender comparison tools, you can compare different lending options matched to your qualifications and needs quickly and easily.
• Readily available: Online business loans are available at various rates, terms, and conditions for businesses of any size and with various funding needs. No matter what your business needs and goals are, there’s likely an online lender who can help.
• May be easier to qualify for: Compared to traditional banks, online small business lenders may be more likely to provide funding to medium- or high-risk applicants because they consider factors beyond credit score, like education, job history, and business revenue. It may also help that online lenders typically offer smaller loan amounts, which are less risky to them.
Online Business Loan Disadvantages
• May be more expensive: Rates and fees for online business loans can be higher than those of bank loans, due in part to their greater accessibility. Generally, the riskier it is to lend to a borrower, the higher the interest rates and fees are.
• Limited in-person interaction: Because they don’t have storefronts like traditional lenders (e.g. banks, credit unions), your face-to-face interaction with alternative lenders may be limited if possible at all. Some business owners may prefer the in-person interaction to build a relationship and trust with a potential lender.
• Less established: Some online small business lenders could be small businesses themselves. Certain online lenders may not have the same financial stability or safety that traditional banks can offer.
Online lenders offer term loans for small business owners who need a fixed amount of funding. The borrower pays back the loan (plus interest) in installments over a specified repayment schedule. Lenders set interest rates and terms based on a borrower’s qualifications, loan amount, and other conditions.
Business Line of Credit
Online small business lenders offer business lines of credit, which can help maintain cash flow by covering small, short-term costs or unexpected expenses. Lenders approve a maximum amount from which you can draw from on a revolving basis, with interest only charged on unpaid balances. Even though business lines of credit are similar to business credit cards, they often offer cash advances in higher amounts and with lower rates.
Equipment financing is a type of small business loan for purchasing necessary business-related supplies and machinery. They are typically short- to medium-term loans that are paid off within a few years. The equipment acts as collateral on the loan, so they can be relatively low-risk for lenders.
Inventory Financing
Inventory financing is an asset-based term loan or line of credit that a business receives in order to purchase more inventory, maintain cash flow, or support working capital. Usually, the inventory being purchased acts as collateral for the loan. The borrower then uses the revenue from selling the inventory to pay back the loan or line of credit.
Invoice Factoring or Financing
Invoice factoring involves selling your invoices to a factoring company who then collects payment from your customers. With invoice financing, you use unpaid invoices as collateral to receive cash from a lender. Invoice factoring and financing can both be helpful financing options for small B2B businesses that deal regularly with invoices or irregular payment schedules.
Peer-to-Peer (P2P) Lending
Another category of online business loans is peer-to-peer (P2P) lending. P2P lending networks match borrowers directly with individual investors, cutting out the financial institution “middle man.” Loan applicants and lenders create profiles on P2P websites, where they can search for funding and causes that match their preferences.
SBA Loans
SBA loans are guaranteed by the U.S. Small Business Administration, making them low-risk and highly sought-after lending options. Their most popular options are the 7(a) loan programs, which offer short- and long-term financing. Since these are government-backed, they typically take longer to be approved and may have stricter eligibility requirements than non-SBA loans.
Merchant Cash Advance
A merchant cash advance allows small businesses (“merchants”) to get a cash advance in return for a portion of their future sales or receivables. As such, these aren’t technically loans because the merchant only makes payments on what they sell, as opposed to on a set repayment schedule.
Tips for Selecting the Right Online Lender
While many online lenders are trustworthy, you are still sharing personal, business, and financial information that you want to make sure is being used responsibly. Additionally, you want assurance that you will be treated fairly throughout the online business loan process. The following tips may help you decipher which online lenders are the most credible.
• Make sure they are registered in your state: All lenders are required to register to do business in their respective states. Contact your state attorney general’s office or banking/financial regulation department to confirm the lender you’re considering is legitimate.
• Look for well-known lenders: A good place to begin your search is with lenders you’ve heard of and who come highly recommended. Their reliance on reputation often leads to more credible practices.
• Read their Better Business Bureau (BBB) rating: Whether you’re familiar with a lender or not, it’s a good idea to check their BBB rating before applying for a business loan online. You can view any past complaints and get a good idea of what their reputation is.
• Read customer reviews: Customer and expert reviews can be a great resource when you’re comparing online lenders. If you’re trying to choose between similar lenders, lender reviews may help you come to a final decision.
• Check for media presence: Check if the lender has received media attention in the past, and if so, what it was for. If an online small business lender receives repeated bad press, it may be wise to search for another.
• Do they support the Small Business Borrowers’ Bill of Rights?: Some lenders choose to abide by the Small Business Borrowers’ Bill of Rights. You can check if a lender is a signatory to see if they ascribe to these fair lending practices.
Possible Red Flags
If you come across an online lender that seems too good to be true, your instincts might be right. Here are a few red flags to be aware of when you’re comparing small business lenders online:
• They don’t ask for your credit history: Very rarely will you come across a potential lender who doesn’t ask for your personal and/or business credit scores during the application process.
• They offer you a loan over the phone: It’s illegal for lenders to do business (offer loans or credit and ask you to pay for it) over the phone.
• Their name is deceivingly similar to that of another lender: Scam lenders may try to confuse applicants by using copy-cat names that sound similar to legitimate online lenders.
• They tell you to pay via money order or wire transfer: It can be difficult to track and recoup money transferred via wire or money order, which make these preferred payment methods for illegitimate lenders.
• They tell you to pay an individual: Trustworthy lenders will not ask you to pay an individual person. You should be making payments to the lending institution. Even in the case of P2P loans, the payments are done through the lending network provider.
How to Apply for an Online Business Loan
One of the many benefits of online business loans is how easy it is to apply. Depending on the type of financing and lender, you can apply in as little as a few minutes.
Typically, you’ll answer a few questions about yourself and your business, and then a soft credit check will be run by the lender. If you prequalify, you’ll submit the required paperwork, the lender will run a hard credit check, and you’ll receive a lending decision within a few hours up to a few days.
You may be asked to submit the following documents:
• Personal and business credit ratings
• Personal and business tax returns for the previous 1 to 2 years
• Business bank account statements
• Profit and loss statements
• Identifying documents like a government issued ID
It’s a good idea to have these documents handy in case you want to move forward with the loan. If you are fully approved for the loan, you should receive funding within a few business days. Some lenders even offer same-day funding*.
The Takeaway
Online business loans are simply small business loans you get through an online lender (as opposed to a bank or credit union). Because everything’s done online, approval is often instantaneous and funding can take place within 24 hours* of loan approval with certain lenders. As with any type of financing, though, it’s always best to shop around so you can find the best rate and terms for your situation.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
With one simple search, see if you qualify and explore quotes for your business.
FAQ
How do online business loans work?
Online business loans work similarly to business loans from a bank, except everything is done online. You’ll get prequalified, apply, and submit the required documentation via your computer. Online business loans are typically fast, and approval can happen instantly. From there, funds can be disbursed in as little as one business day depending on the lender.
Can you get a business loan for an online business?
Yes, it is possible to get a business loan for an online business. As long as your business meets the qualification requirements of the lender, it does not matter whether your business is based in an office or on the internet.
What is the fastest way to borrow money to start a business?
The fastest ways to borrow money to start a business include startup business loans, online business loans, online personal loans, and borrowing money from a friend or family member.
Can you get an online business loan with a 500 credit score?
While it can be tougher to get an online business loan with a low credit score, it’s not impossible. There are online lenders that specialize in bad credit business loans. Keep in mind, though, that you’ll usually receive a higher interest rate if your credit profile isn’t strong, as that makes the loan more risky for the lender.
Photo credit: iStock/shapecharge
SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.
Small Business Loans
*Reference to “same day funding” or “funding within 24 hours” describes a general capability of many lenders you can reach through SoFi’s marketplace. This funding timing is not guaranteed. Your experience with any lender will vary based on requirements of the lender and the loan you apply for. To determine the timing of funds availability, you must inquire directly with any lender. In addition, your access to any funds from a loan may be dependent on your bank's ability to clear a transfer and make funds available.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
