SMB Archives | Page 38 of 43

May

2024

All About Getting a First-Time Business Loan

By Kevin Brouillard | SMB | Comments Off

Many business owners use financing at some point, whether it’s to help them launch their companies or to fund expansion further down the line. No matter what stage your business is at, however, applying for your first business loan can feel overwhelming and intimidating.

While there’s no one-size-fits-all solution to getting a first-time business loan, this guide will break down what kinds of funding you may want to consider, where to find a first-time business loan, and what you can expect during the loan application process.

How Do You Apply for a First-Time Business Loan?

There are many different kinds of small business loans, and the application process can vary somewhat for each one. However, here are some basic steps that can help you find and apply for the right small business loan.

Check Your Credit Score

Your credit score is one of several factors that lenders consider when assessing how risky you are as a potential borrower. From the lender’s perspective, a borrower with poor credit has a higher risk of defaulting on loan repayments.

For a first-time business loan application, a lender may look at your personal rather than your business credit score (which you may not have established yet). Ranges vary depending on the credit scoring model, but generally fall between 300 and 850. A credit score of 700 or above is usually considered good, while a score over 800 is considered excellent. Credit scores are calculated from your payment history, credit usage, length of credit history, and recent credit history (such as applying for new accounts).

If you need a business loan for the first time and your business lacks credit history, there are some things you can do to establish a business credit score. Getting a business credit card and maintaining a successful record of paying it off each month is one strategy that can help you build credit over time.

Recommended: Debt-to-Income Ratio

Figure Out How Much Money to Apply For

When you’re applying for a first-time business loan, it can be helpful to identify how much money you need to start your business and what the funds will be used for. Being able to provide justification for the amount you are requesting can improve your chances for loan approval.

For example, obtaining price quotes for new equipment or providing comparable listings for a real estate purchase can demonstrate your preparedness as a first-time business owner and/or borrower, as well as justify your need.

Debt-Service Coverage Ratio (DSCR) and How to Calculate It

The debt-service coverage ratio (DSCR) is a measure of the cash flow available to pay current debt obligations. Knowing what yours is can help you assess how much debt you want to take on. Lenders may also weigh your business’s DSCR as they make their decisions about offering financing.

DSCR is calculated by dividing the sum of a business’s earnings (before interest, taxes, depreciation, and amortization) by its current and proposed debt obligations. Even if this is your first time getting a loan, you may have short-term debt to factor in, such as rental agreements or outstanding credit card payments.

Borrowers may need a minimum DSCR to receive a loan. The threshold can vary by lender, requested amount, and current economic conditions. Generally, however, a DSCR below 1 indicates that a business might not be able to cover its debt payments in full. Therefore, applicants may need a DSCR above 1 to qualify for a first-time business loan.

Gather Documentation

The paperwork you need to submit for a first-time business loan will depend on the type of loan, lender, and amount requested. In many cases, however, you need to provide:

• Business licenses and registration

• Commercial lease agreement

• Business plan

• Up to one year of business bank statements

• Personal and business tax returns from the most recent three years

• Business financial statements

• List of current accounts receivable

• Schedule of business debts

• Proof of collateral

Types of First-Time Business Loans

Different types of business loans have different requirements, repayment terms, interest rates, and conditions. Here’s an overview of some leading options for first-time small business loans.

Bank Loans

Regardless of the age of your business, seeking a loan from a bank or credit union you already have an account with can be a logical place to start. Bank loans can come in various forms, including term loans and business lines of credit.

Term loans give businesses a lump sum that is repaid (plus interest) over a designated period of time (known as the term). Generally, repayment is on a monthly basis. Term lengths can range from several months to multiple years.

A business line of credit provides access to a set credit limit. You can draw what you need when you need it and only pay interest on the amount you borrow. As you repay what you borrow, the funds become available to borrow again.

Both options can offer businesses some flexibility as to how they spend their financing. This may be advantageous for businesses with a wide range of operational and/or startup needs.

Banks often offer the best interest rates on business loans. However, they generally have strict qualification requirements, such as at least two years of business history, excellent credit, and a minimum amount of annual business revenue.

SBA Loans

SBA loans are business loans that are partially guaranteed by the U.S. Small Business Administration and issued by participating lenders, which can be banks or online lenders. Because the government will cover a large portion of the loan in the event of default, SBA loans represent less risk to lenders. As a result, you may have better luck qualifying for an SBA loan than a traditional bank loan.

SBA loans break out into four categories:

• 7(a) loans: The most common SBA loan, 7(a) loans can be an ideal option for business financing due to their long repayment terms and low interest rates. Plus, 7(a) loans can be used for a variety of purposes, including working capital, business expansions, or purchasing equipment and supplies. The maximum loan is $5 million.

• 504 loans: These SBA loans offer affordable financing for large equipment or real estate-related purchases. Terms can be as long as 25 years, with maximum loan amounts up to $5.5 million.

• Microloans: These small loans (up to $50,000) are targeted specifically to startups. The SBA microloan program is fully funded by the SBA and administered by an intermediary network of nonprofit community-based lenders, rather than traditional banks.

• Disaster loans: These low-interest loans provide up to $2 million to assist small businesses that have been negatively impacted by a declared disaster.

Getting an SBA loan is typically a time- and work-intensive process. However, it can be worth the effort due to their high loan amounts and favorable interest rates and terms.

Recommended: Small Business Grants for Women

Business Acquisition Loans

Not every first-time business owner is starting from scratch. Purchasing an existing business may eliminate startup costs and allow for quicker cash flow.

A business acquisition loan is a tool for doing just that. Potential lenders will likely consider the existing business’s financial performance, as well as the applicant’s finances and proposed plan for the business under new ownership.

Recommended: Online Business Loans

Invoice Financing

If your business is already serving customers, invoice financing can be a way to get a cash advance to tackle pressing needs. With this type of financing, you use your outstanding customer invoices as collateral for a loan. Typically, the lender will advance a large percentage of your unpaid invoice amount — potentially as much as 90%. When your customer pays the invoice, you receive the remaining percentage, minus the company’s fees.

You’re still responsible for collecting payment from your customers unless you choose invoice factoring, a form of invoice financing in which the invoices are sold outright to a factoring company.

Because your invoices serve as collateral, invoice financing can be easier to qualify for than other small business loans. However, borrowing costs tend to be higher than other financing options.

Recommended: Business Loans for a Rental Property

Equipment Financing

Purchasing equipment can be a significant cost for starting, maintaining, or expanding a business. Equipment financing is a type of loan that lets business owners make these essential, but costly, purchases without depleting their savings. You can use an equipment loan for anything from office furniture to medical equipment to farm machinery. Typically the equipment itself serves as collateral for the loan.

Equipment loans are provided by banks, SBA lenders, and equipment finance companies that focus solely on this type of small business loan. Depending on what you want to purchase and your company’s qualifications, you may be able to get an equipment loan that covers up to 100% of the value of the equipment you’re looking to purchase. You repay the loan over time, with interest.

Recommended: Cost of Capital

Alternatives to First-Time Small Business Loans

If your business is still a startup, you may face difficulties obtaining traditional funding. But there are still more options you could consider.

• Personal loans for business: These are traditional loans that you may be able to get as an individual. Not all lenders will allow you to use a personal loan for business use, so it’s important to check before you apply. And note that, while paying your installments promptly for a personal loan may help your personal credit, it won’t help your business establish an independent credit history.

• Crowdfunding: For this funding option, you set a monetary goal and create a marketing campaign to solicit funds online through a crowdfunding site. With rewards-based crowdfunding, people contribute to your project or business and get a gift or reward in return. Crowdfunding can help you raise excitement about your business and test the waters to see how interested people are in your idea. However, it can take a fair amount of time and effort to run a successful crowdfunding campaign.

• Loans from family and friends: Supportive friends and family members may be willing to loan you small amounts of money to help you get your business up and running. If you go this route, it can be a good idea to write up a promissory note so the amount of the loan and terms of repayment are clear, and there are no misunderstandings that could jeopardize your relationship.

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 does someone get a loan for the first time?

Requirements vary by lender and type of business loan. But you generally need to have a good-to-excellent personal credit score, strong business financials (or at minimum, a solid business plan), and proof of collateral to qualify for a first-time business loan.

How much can you borrow to start a business?

The amount you can borrow to start a business will depend on numerous factors, including your personal credit, your revenue history, the type of business it is, and the lender. Startup loans can range from $1,000 to $5 million. In some cases, you may have to use financing from multiple sources to get the funds you need.

What is a first-time business loan?

A first-time business loan is the first loan a business takes out, whether it’s a startup or an already established business. A first-time business loan can be virtually any type of business loan, including a Small Business Administration (SBA) loan, term loan, business line of credit, equipment loan, or business acquisition loan.

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May

2024

Merchant Cash Advance With Bad Credit

By Lauren Ward | SMB | Comments Off

A merchant cash advance gives businesses with bad credit an opportunity to access financing.

In exchange for receiving a lump sum of cash to use at your discretion, the lender receives a portion of your company’s credit card and debit sales until the balance is paid in full. Collateral isn’t always required and there are also typically less stringent credit requirements compared to a small business loan.

However, merchant cash advances are structured much differently than traditional financing options. Be sure to understand the details in full and seriously weigh the pros and cons before making a decision.

What Is a Merchant Cash Advance for “Bad Credit”?

Whether or not a business’s or an individual’s credit is considered “bad” is ultimately up to a lender and what they see as risky. However, according to FICO® rankings, a score of less than 580 is considered “poor,” while a score between 580 and 669 is considered “fair.”

A merchant cash advance is a type of small business financing that provides you with a lump sum of cash from a lender at the beginning of a borrowing term. Instead of making fixed payments like you would with a loan, however, you consistently repay the funds with a portion of your sales until the balance (including additional fees) is gone. In addition, instead of accruing interest as with a traditional loan, lenders apply factor rates to determine how much you’ll need to pay for the borrowed sum.

Factor rates will be explained in detail in the next section, but in general, the higher the factor rate, the more expensive the merchant cash advance will be.

With a merchant cash advance, borrowers with less than stellar credit may be more likely to qualify for funding than with a traditional small business loan. This is because merchant cash advances are repaid based on a businesses future sales, so credit scores aren’t as much of a deciding factor. Plus, the application process is generally fast and you typically get access to the funds quickly if you qualify.

Recommended: Bad Credit Business Loans

How Merchant Cash Advances Work

A merchant cash advance works differently than other kinds of small business loans, so it’s important to understand all of the components of the transaction.

Once you receive the lump sum, you’ll have a set period of time to repay the total owed amount — which includes the principal as well as fees. Depending on your borrowed amount and your sales volume, the repayment term could last anywhere between three months and three years.

Rather than being charged a fixed interest rate like with a loan, a merchant cash advance assesses a fee as a factor rate. A factor rate is a multiple of the amount you’re being funded. For example, if your factor rate is 1.2 and you borrow $50,000, you would multiply the two together to determine the total balance to be repaid.

1.2 * $50,000 = $60,000

As you can see in this hypothetical scenario, it would cost $10,000 to borrow $50,000 with a factor rate of 1.2. There may be other types of fees you need to pay, as well.

The next concept to understand when considering a merchant cash advance with bad credit is the holdback amount. This refers to the percentage of your credit card or debit card sales that will be diverted to repaying the cash advance. In general, you can typically expect a holdback amount to range between 10% and 20% of your sales (or sometimes up to 30%). It is important to seriously weigh this along with your factor rate to avoid any cash flow issues — and the possibility of defaulting — during the repayment period.

Recommended: Working Capital Line of Credit

Qualifications and Application Process

Qualifying for a merchant cash advance typically relies more on your company’s financial transactions than credit history, which is why businesses with bad credit may opt for this type of financing. Merchant cash advance companies may also have a minimum threshold for monthly credit card sales.

While the application process may not be as extensive as a traditional small business loan application, still expect to pull some of your company’s financials together. Here are some common documents that may be requested:

• Several months of bank statements

• Tax returns

• An accounts receivable summary report

• A profit and loss statement

While there will likely be a credit check during the application process, your company’s daily sales are generally weighed more heavily than its credit score. In many cases, you don’t need to provide a personal guarantee, which makes you personally responsible for the debt if your business is unable to repay it, and can instead keep the advance completely in the business’s name. If you are requesting a large sum, however, you may need to provide that personal guarantee or some other type of collateral.

Pros and Cons of a Merchant Cash Advance for Bad Credit

A merchant cash advance may be a financing solution to consider in some scenarios, but it’s worth fully weighing the pros and cons of this type of financing.

Pros

One of the biggest benefits of using a business cash advance is that you can get lump sum financing even if you or your company has bad credit. You can also typically expect to receive funding quickly if you qualify, often within a day or two of applying.

Cons

These conveniences come with a hefty price, however. Merchant cash advances usually involve extremely high fees and factor rates. Typically interest rate limits don’t apply since they’re technically not loans. Another drawback is that there aren’t any savings if you pay off your balance early, as there might be when you make prepayments on a traditional business loan. And you may experience a cash flow crunch because of the daily holdback amount.

Merchant cash advances are also only available to businesses with credit or debit sales, such as retailers or restaurants. And finally, your payments on a cash advance are not reported as positive payments on your credit report, so it doesn’t help to build your business credit.

Alternatives for Bad Credit Business Financing

Businesses with bad credit may consider other alternatives before deciding on a merchant cash advance. Some lenders specialize in bad credit business loans, including those designed specifically for startups and women business owners. It may be challenging for applicants with less-than-stellar credit scores to qualify for a business loan. And keep in mind that terms and rates may vary based on personal qualifications and lender policies.

Another option is a business line of credit. It may be difficult to qualify with traditional banks, but you may find some alternative online lenders who offer lines of credit for businesses with sub-optimal credit.

Finally, invoice factoring could be another viable choice if your business needs better cash flow while waiting for companies to pay their invoices. The factoring company fronts you the majority of the amount of your unpaid invoices, but first subtracts a percentage as its fee. Once the invoices are collected, you’ll receive the remaining balance. The price of invoice factoring can be very high, however. Plus you may have to rely on the factoring company to manage your client relationships when collecting invoices.

Compare Financing Options for Your Small Business

A merchant cash advance offers quick and easy financing for small businesses with bad credit, but there is substantial risk involved. Before accepting a merchant cash advance, review all of your options and evaluate your company’s cash flow to make sure it’s strong enough to support the ongoing holdback amount.

Trying to figure out your best option for securing a small business loan can feel overwhelming. We’re here to help you spend less time on the loan search and application process so you can spend more time taking care of your business.

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

Can someone with bad credit get a merchant cash advance?

Creditworthiness matters less when applying for a merchant cash advance than it does for a traditional business loan. Instead, approval typically relies more heavily on the volume of retail transactions. If you have a high daily volume of credit card purchases, having a credit score on the lower end of the spectrum may not harm your chances of approval for a merchant cash advance.

Are merchant cash advances a good idea?

The benefits of a merchant cash advance include quick access to funds and an application process that places less emphasis on your company’s credit. In some cases, you may not have to provide a personal guarantee, meaning your own credit and assets aren’t on the hook for the borrowed amount.

However, the fees are extremely high compared to many other types of financing and are usually automatically deducted from your daily card transactions. Both of these factors can cause a major disruption to your cash flow.

Also note that even if you’re able to pay off the balance on a merchant cash advance ahead of schedule, this won’t likely lead to any savings, as it might with a traditional loan. This is because the fees due do not amortize as they would on a traditional loan, which could allow you to save money in interest by repaying early.

Does applying for a merchant cash advance involve credit checks?

There’s a good chance that your application for a merchant cash advance will involve a credit check. However, approval relies more heavily on your sales volume. If you’re worried about a hard check damaging you or your business’s credit score, ask the company ahead of time what type of check they run.

What happens if you default on a merchant cash advance?

Defaulting on a merchant cash advance comes with serious consequences. The lender may apply late fees that increase your balance and also report the delinquency to the credit bureaus. Your personal credit may also suffer depending on whether or not you signed a personal guarantee for the advance.

What is needed to apply for a merchant cash advance?

Requirements may vary from lender to lender, but generally, you’ll need to provide basic financials in order to apply for a cash advance, such as bank statements and a profit and loss statement. The cash advance lender may also run a credit check.

Photo credit: iStock/shapecharge

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May

2024

Guide to Emergency Small Business Loans

By Lauren Ward | SMB | Comments Off

Finding the right emergency business loan can mean the difference between making it through a difficult time and having to shut your company’s doors for good. Fortunately, there are many options available, each with its own advantages and disadvantages.

Whether you’re coping with supply chain delays, inflationary increases, or a sudden, unforeseen problem with your business, there are ways to get help. Read on to learn about the different types of emergency funding for small businesses.

What an Emergency Loan Is

An emergency small business loan is financing that helps your company make it through a difficult period that your normal working capital or cash reserves can’t cover.

Your emergency could be a national or regional problem, like a pandemic or an earthquake. Or it could be a problem that’s unique to your business, like uninsured fire damage or a flood in your storeroom.

Emergency loan products may be available in different types of loan structures, and eligibility requirements may differ among lenders. But you should be able to use the funds to repair damage, to replenish stock, and/or for normal operating costs, like paying your employees.

Recommended: Emergency Business Loans

Pros and Cons of Emergency Loans for Businesses

Pros

Compared to other types of loans, an emergency business loan requires far less documentation when you apply. If you seek an emergency loan online, some lenders will distribute them to approved applicants within 24 hours.*
Emergency loans come with a variety of terms. You may be able to pay back the money over several months to several years.

Cons

Most emergency loans are unsecured, which means you may have to meet rigorous criteria in order to get approved. This can be difficult if you haven’t been in business for long.
Interest for an emergency loan might be higher than it would be for a long-term loan. Also, this is a place you may find predatory lenders, so exercise caution.

Recommended: Restaurant Loans Guide

6 Types of Emergency Loans Used for Businesses

Different types of small business financing come with their own specific pros and cons. The best choice for you depends in part on the type of emergency your business is experiencing. Get to know some of the most common options out there to make the right choice.

1. SBA Emergency Loans (EIDLs)

The SBA offers Economic Injury Disaster Loans (EIDL) to help small businesses face financial challenges that wouldn’t have arisen if not for the disaster. Up to early 2022, the SBA EIDL program offered COVID-19 Economic Injury Disaster Loans. Some of the pandemic EIDL loans may be forgivable, depending on the program.

COVID-19 loans are no longer available, but the SBA can provide up to $2 million to help meet financial obligations and operating expenses following other types of disasters. The loan amount will be based on your actual economic injury and your company’s financial needs, regardless of whether the business suffered any property damage.

If you need the money right away, SBA Express Bridge Loans are also available to help business owners quickly obtain up to $25,000. To apply, however, you do need to have a relationship with an Express Lender already. This temporary financing serves as a bridge loan and should be repaid with an EIDL loan.

2. Emergency Term Loans

A term loan comes with a fixed interest rate and a set term length during which you repay your balance plus interest, usually in monthly payments. There are many sources for term loans, including traditional banks and online lenders.

Online Lenders
A short-term loan offered by an online lender, in particular, may help you get cash quickly when your business is suffering from an emergency.

Traditional Banks
A traditional bank may take longer to approve your loan, which can be a problem when you’re experiencing an emergency. But you may have a better chance for approval if you already have a relationship with the lender.

3. Emergency Lines of Credit

A business line of credit is different from a term loan because it can actually help you prepare in advance for a financial emergency. A business line of credit is similar to a credit card in that you draw on funds as you need them instead of getting a lump sum.

There’s generally a limit to how much you can draw at a time, but interest doesn’t accrue until you actually borrow funds. And you may be subject to a variable interest rate when you start making payments, depending on the terms of your line of credit.

A line of credit works best as emergency funding if you already have it in place before the emergency hits. If your business’s finances tank, it’s hard to get approved for new funding. But if you apply for a line of credit when things are good, you can wait to take out funds until you truly need them. One drawback, however, is that some lenders may charge a maintenance fee.

4. Personal Loans

A personal loan is often easier to qualify for than a business loan. That’s because a personal loan application only asks you to prove your personal ability to keep up with the payments. For a business loan, however, your entire business may be evaluated. Plus, many lenders provide quick decisions and fund disbursement, so you can access the money fast.

Of course, there are a few downsides. Personal loans typically have lower limits than business loans, and your offer will be based on your income and other debts. You also put your personal finances and credit at risk when you use the funds for your business.

And finally, personal lenders may have restrictions that prohibit you from using their loans for business purposes. Be sure to check for limitations like these as you compare personal loans.

5. Business Cash Advances

Rather than being structured as a loan that you pay back, a business cash advance fronts you a lump sum of money based on your business’s credit card sales. The cash advance company then takes a percentage of each card transaction at your business (plus a fee) to repay the loan. There is no set repayment term.

A business cash advance is typically easy to qualify for as long as you’re still making sales during your business emergency. But it comes at a price, mainly in the form of a high factor rate that’s applied to your principal balance and dictates how much above your principal you’ll have to pay.

6. Invoice Factoring

Companies that take in payments through invoices rather than credit card transactions may consider invoice factoring as a way to raise emergency funding. Here, you sell unpaid invoices to a factoring company and receive a percentage of those invoices’ face value upfront from the factoring company.

Invoice factoring also means you have to turn over the invoice collection process to the factoring company. When it collects the full amount owed from a customer, it pays you the balance remaining after the initial percentage it already paid you, minus the factoring company’s fee.

Because the invoices serve as collateral, your business may be better positioned to qualify for this type of financing even when you’re experiencing a financial emergency. In addition to high fees, however, you may also not like someone else managing your customer relationships.

Recommended: Loans for Business Expansion

What to Consider with Emergency Funding for Small Businesses

No matter what kind of emergency financing you’re looking at for your small business, be sure to understand the short- and long-term implications of each offer.

• Compare the total cost: Look at how much it will cost you to borrow, including interest rates and fees.

• Scrutinize how repayment works: Some lenders require you to enroll in an auto draft program that deducts money from your business banking account on a regular basis. Payments may be due monthly or as frequently as weekly, which could potentially cause a cash crunch.

Depending on which option you choose, you may also want to prepare to have your cash flow impacted by invoice factoring or merchant cash advances, since both take a bite directly out of your sales.

• Consider timing: How long will it take to apply for and get your funding? Different emergency business loans proceed at different speeds. If getting funds fast is your priority, you may be limited to higher-cost solutions.

Tips for Applying for Small Business Emergency Funding

If you’re wondering how to get a business loan during an emergency situation, try these tips to navigate the process more easily.

Calculate how much financing you need. Apply for the right amount so that you don’t have to worry about needing more money later on. Many lenders allow only one loan at a time, so you may be better off requesting the maximum amount you’ll need. That way, you don’t have to apply with multiple lenders at different points in time and face multiple payment schedules.

Factor in not only one-time costs to get you through a short-term emergency, but also working capital you may need for the longer term.

Pick the right loan. Review eligibility requirements for different emergency small business loans to see which you seem likely to qualify for. Then narrow your list based on pros and cons, including the costs involved.

Be ready with financial documents. Each type of emergency business financing comes with its own application requirements. Expect to submit things like:

• Bank statements for both your business and personal finances

• Tax returns for both your business and yourself

• Business-related legal documents

• Revenue statements

• Accounts payable and accounts receivable

Finding a Business Emergency Lender

Once you understand the options for emergency business funding and the implications for each one, it’s time to take action.

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

What are emergency loans?

An emergency loan for business is financing that helps you make it through a difficult period that your normal working capital or cash reserves can’t cover. Emergency funding may be available in different types of loan structures, and eligibility requirements may differ among lenders.

Where can I get emergency money?

Check with a variety of sources to compare your options for emergency money for your business. Avoid taking the first offer you receive without looking around, since there may be other loan products out there that fit your needs better. You may be eligible for SBA funding, or you may want to look at online lenders. Other options to explore include personal loans, invoice factoring, and merchant cash advances.

What can emergency loans be used for?

Recently, many small businesses have used emergency loans to help them through lockdowns and other difficulties caused by the COVID-19 pandemic. Emergency loans can also help with problems like seasonal downturns and surprise expenses. On a more positive note, an emergency loan can also help you finance new growth opportunities when there is a sudden demand for your products or services.

Photo credit: iStock/pixdeluxe

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.

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May

2024

30 Small Business Grants and Grant Databases for Women in 2024

By Susan Guillory | SMB | Comments Off

Small business grants provide money that, unlike loans, doesn’t typically have to be paid back. Business owners can use this money to take their companies to the next level. And if you’re a woman, you may qualify for woman-owned business grants that provide capital you can use to launch a venture or expand it to a new location.

Below, you’ll find a list of 30 small business grants for women. If you’re newer to the process or not ready to apply, we’ll also cover:

• What a small business grant is

• What you can do with a woman-owned business grant

• Tips on applying for small business grants for women

What Are Small Business Grants for Women?

Small business grants are lump sums of money you can use to do things like launch a business, buy equipment, hire staff, or grow your company. Unlike business loans, however, you do not have to pay back grants.

While there are small business grants for anyone who owns a business, some grants are specifically for woman-owned businesses. Why? Women sometimes don’t have the same opportunities that men do in the business world, so companies and government organizations want to provide them with a leg up.

There are many grants for women entrepreneurs. However, small business grants for women are frequently reserved for established businesses. So if you’re just starting, it’s a good idea to look for grants that are specifically for startups.

Remember: You aren’t restricted to woman-owned business grants. There are grants for small business owners, minorities, and veterans that may also be worth exploring.

Recommended: Small Business Loans for Women

Small Business Grants for Women

After extensive research, we narrowed our list to 30 small business grants for women entrepreneurs. However, new ones pop up all the time, so this list is not exhaustive.

Here are our top small business grants for women.

1. Amber Grant for Women

The Amber Grant, provided by WomensNet, honors the memory of a young woman, Amber Wigdahl, who died at 19 before realizing her business dreams. The grant awards $10,000 to female entrepreneurs each month. One $25,000 winner will be selected from the monthly winners each year.

Qualifications:

• You must have a business or business idea. The Amber Grant is unique because it’s not limited to women who already have an established business. If you’re able to explain how you plan to start and grow a new business, you can apply for this grant.

• Requires a $15 application fee

2. Cartier Women’s Initiative

The Cartier Women’s Initiative offers female-owned business grants of either $30,000 or $100,000 to women looking to make a difference in the world. In addition to the funds, winners also receive business and financial coaching.

The Cartier Women’s Initiative currently offers two grants for women business owners:

The Science and Technology Pioneer Award: Awarded to women entrepreneurs who are leaders and innovators in science and technology. This grant is open to any woman in any sector and country. The winner will receive $100,000, and the two runners-up will each receive $30,000.

The qualifications for the Science and Technology Pioneer Award are as follows.

A woman must be the…

• primary leader at the company

• founder and majority shareholder of founder equity

The business must be…

• developing a new technology, process, or scientific discovery

• a for-profit business

• an early-stage business with a proof of concept or prototype that’s already in existence or currently in the works. The final product must not have been commercialized for more than five years.

• meeting at least one of the United Nations’ Sustainable Development Goals

The applicant must…

• be at least 18 years of age by the application deadline

• have a good command of the English language; the grant requires Level B2 and above per the Common European Framework of Reference

• commit to participating in the fellowship program

Regional Awards: This small business grant is awarded to 21 women across the globe with early-stage companies that are generating revenue. Cartier is looking for women entrepreneurs who leverage an existing technology, model, or process in an innovative way. The seven winners will each receive $100,000 and 14 runners-up will receive $30,000.

The qualifications for the Regional Awards are:

A woman must be the…

• primary leader at the company

• founder and majority shareholder of founder equity

The business must…

• be for-profit

• be in the early stages with a proven business model, in operation between one and five years

• have generated revenue for at least one year

• not have raised more than $2 million in dilutive funding

• meet at least one of the United Nations Sustainable Development Goals (SDGs)

The applicant must…

• have a good command of the English language; the grant requires Level B2 and above per the Common European Framework of Reference

• be at least 18 years of age

• be able to commit to the fellowship program

3. Jane Walker First Women Grant Program

Jane Walker, a part of the Johnnie Walker whisky company, works with the First Women Campaign and IFundWomen to provide small business grants for women. The grant provides $10,000 and a year-long coaching membership through IFundWomen.

Qualifications:

• A person who identifies as a woman must have at least half ownership in the company

• The person applying must be at least 21 years

The business must:

• have been in operation for at least two years and make at least $25,000 in revenue annually

• be willing to push boundaries and fight for diversity

• be in one of the following categories:

◦ entertainment and film

◦ hospitality

◦ journalism

◦ music

◦ science, technology, engineering, and math (STEM)

◦ sports

4. Tory Burch Foundation Fellows Program

This Fellows Program, sponsored by the Tory Burch Foundation, provides women running early-stage businesses with a one-year fellowship, a $5,000 grant, workshops at the Tory Burch offices, and the opportunity to pitch their businesses.

Qualifications:

The business must…

• be a for-profit organization in early stage (one to five years of operations preferred)

• generate revenues of at least $75,000 in the past 12 months

The applicant must…

• identify as a woman

• be 21 years of age or older and a legal resident of the U.S.

• own the biggest or equal stake in a business that is owned or controlled by women

• be proficient in English

5. Small Business Administration

The Small Business Administration (SBA) offers government contracts to two types of businesses: Women-Owned Small Businesses (WOSBs) and Economically Disadvantaged Women-Owned Small Businesses (EDWOSBs). This removes additional competition for contracts by limiting eligibility to a small but highly qualified group.

WOSB Qualifications:

• Be certified as a WOSB

• Meet SBA size standards

• At least 51% of the business is owned by U.S. citizens who are women

• Women manage daily operations and long-term decision making

EDWOSB Qualifications:

• Meet all WOSB qualifications

• Be run by one or more women who independently have net worths of less than $750,000

• Be run by one or more women with $350,000 or less in adjusted gross income over the past three years

• Be run by one or more women with no more than $6 million in personal assets

6. FoundHer Program

The FoundHer Program is specifically geared toward women-owned businesses in Hawaii. Resources include small business grants, weekly educational workshops, a network of business mentors, and monthly retreats.

Qualifications:

• For-profit business in its early stages

• Based in Hawaii

• 50% AANHPI women-led

7. SoGal Black Founder Startup Grant

Created by the SoGal Foundation, the Black Founder Startup Grant provides grants ranging from $5,000 to $10,000 to Black and multiracial women. Applications are accepted on a rolling basis.

Qualifications:

• Identify as a Black woman or Black nonbinary entrepreneur

• Have a registered business

8. Atomic Grant Program

The Atomic Grant program by Passion Collective gives four women entrepreneurs $1,500 cash and business coaching.
Qualifications:

• Identify as a woman

• 21 or older

• Passionate about making change happen

• Sign up to Passion Collective

9. Freed Fellowship Grant

The Freed Fellowship Grant gives one business owner $500 a month and the chance to earn $2,500 at the end of the year. Winners also receive constructive feedback on their businesses and a two-month membership to the Freed Fellowship community.

While there are no specific qualifications to apply, you will need to answer questions about your business regarding context, content, community, chemistry, and commerce (known as the 5C Framework).

10. AT&T She’s Connected

She’s Connected by AT&T is a $20,000 grant offered to women-owned small business owners. In addition to the grant, the winner will also receive one year free of AT&T service, plus a new device.

Qualifications:

• 18 years or older

• Sole or majority owner of a woman-owned small business

• 50 or fewer employees

11. Fearless Strivers

The Fearless Strivers Grant is designed for small businesses that are at least 51% Black women owned. Four small businesses will receive a $20,000 grant, mentorship, and digital tools to help them grow their businesses.

Qualifications:

• 18 years or older

• 51% Black woman owned

• Annual revenue of $50,000 or more

• Business formed and operating in the United States

12. Publish Her Business Impact Grant

The Publish Her Business Impact Grant is for women of color business owners who are making a difference in the lives of others. The grant is worth $5,000, and the top 10 entries are voted by the public to determine the winner.

Qualifications:

• 21 or older

• Legal resident of the U.S.

• Woman of color business owner

• Business must be 100% women-owned

• Must generate $50,000 or more in annual revenue

13. High Five Grant for Moms

If you’re an entrepreneur and a mom, check out the High Five Grant for Moms by The Mama Ladder. Judges determine the finalists based on your story and your business, and then the public votes on the top three winners. First place receives $10,000, second place $5,000, and third place $2,500.

Qualifications:

• Must be a mom, which includes mothers of adult children, first-time expecting moms, stepmoms, and foster moms

• Own a for-profit or service-based business with at least 51% ownership

• Must have earned revenue for at least one year

14. You Glow Girl Women Entrepreneur Grant

Eat Me Guilt Free offers a grant for women entrepreneurs called You Glow Girl. Launched in 2021, the grant offers a grand prize consisting of $10,000 to put toward your business, a one-year supply of Eat Me Guilt Free products, a physical health and wellness prize (past prizes include a Peloton bike and a one-year subscription to Class Pass), and a mentorship program.

15. Enthuse Foundation Pitch Competition

The Enthuse Foundation Pitch Competition offers 10 winners a $2,500 grant each. To enter, you must pitch your business at an in-person event. The next round opens in March 2024.

16. The Kitty Fund Mother-Led Business Grant

The Kitty Fund Mother-Led Business Grant is open to all entrepreneurs who identify as a mother. Founded in 2020, the grant awards 25 business owners a $1,000 grant.

Qualifications:

• Business owner must identify as a mother

• Annual revenue may not exceed $5 million

• Based in the U.S.

• Have between two and 50 employees

17. FedEx E-commerce Learning Lab

The FedEx E-commerce Learning Lab is designed for women entrepreneurs and entrepreneurs of color looking to improve their e-commerce business. Created by Accion Opportunity Fund, the FedEx E-commerce Learning Lab is a five-month program consisting of courses and workshops, coaching, networking, online sales support, and a $5,000 grant to support your business’ growth plans.

Qualifications:

• Own at least 51% of a U.S.-based small business

• Have been in business at least six months

• Produce and sell a packaged product

• Earn less than $500,000 annually

18. Women Founders Network Fast Pitch Competition

The Women Founders Network Fast Pitch Competition allows women business owners to pitch their business in-person for a chance of receiving a grant worth $25,000.

Qualifications:

• Founder must be a woman, or business must be majority-owned by a woman

• Must be able to attend in-person event

• Must have raised no more than $750,000 in funding

• Based in the U.S.

19. Women of Color Grant Program

The Women of Color Grant Program was founded by the Tory Burch Foundation in partnership with the Fearless Fund. The program gives 75 women of color-owned businesses grants worth $10,000 and $20,000.

Qualifications:

• 51% women of color-owned

• For-profit business

• Ideally have been in business for one to five years

• Minimum annual revenue of $100,000 preferred

Recommended: How Much Does It Cost to Start a Business?

20. Launch Program by Ladies Who Launch

Ladies Who Launch offers a Launch Program which consists of a $10,000 small business grant, a mentorship program, and six months of free education for women and non-binary small business owners. The program is open to women who sell consumer packaged goods, including food and beverages, apparel, household goods, and more.

Qualifications:

• Woman or non-binary founder

• Consumer packaged goods company

• Minimum annual revenue of $100,000 (not to exceed $499,000)

• U.S.-based

21. StartHER Grant

The StartHER Grant is offered by Texas Woman’s University and awards 25 $5,000 grants annually to women-owned businesses in Texas.

Qualifications:

• At least 51% women-owned

• Five or fewer employees

• Owned and operated in Texas

• For-profit

22. InnovateHER Challenge

Offered by the U.S. Small Business Administration, InnovateHER is an annual competition between small business owners with a product or service that positively affects women’s lives. First place receives $40,000, second place $20,000, and third place $10,000.

Qualifications:

• 18 years old

• Product or service must have a measurable impact on the lives of women and families

• Must have potential for commercialization and fill a need in the marketplace

23. Equity Match Grant Program

The Equity Match Grant Program, offered by the Women’s Business Development Council, offers grants up to $10,000 to women-owned businesses located in Connecticut. The grant money must be put to a specific project that will help the business grow, and cannot be used for things like inventory or operating expenses.

Qualifications:

• Applicants must match at least 25% of awarded funds

• Business and business owner must be located in Connecticut

• Annual revenue greater than $25,000 but less than $2 million

• Be a for-profit business

24. Visa She’s Next Grant Program

The Visa She’s Next Grant Program, in collaboration with IFundWomen, gives women business owners throughout the world access to funding and education. Applications are currently closed, but check back regularly for upcoming programs.

Recommended: Small Business Loans and Grants for Veterans

Additional Private Small Business Grants

In addition to the grants mentioned above, there are other private small business grants that women business owners can look into.

25. America’s Top Small Business Award

The U.S. Chamber of Commerce created America’s Top Small Business Award worth $25,000. The award is open to all small business owners, not just women.

Qualifications:

• In business for at least one year

• Fewer than 250 employees

• Gross revenue must not exceed $20 million for previous two years

26. National Association for the Self-Employed Growth Grant

The National Association for the Self-Employed (NASE) offers a quarterly Growth Grant to four small businesses up to $4,000. To be eligible to apply, you must be a member of NASE and in good standing for at least three months.

27. Incfile Fresh Start Business Grant

Incfile offers a Fresh Start Business Grant to new and aspiring entrepreneurs. The winner receives $2,500 to use for startup costs for their business, plus free services from Incfile. Dates for 2024 haven’t been announced yet, so check back regularly for updates.

28. Fast Break for Small Businesses

Supported by LegalZoom and the National Basketball Association, Fast Break for Small Businesses seeks to help Black-owned businesses, women business owners, and low- to moderate-income small business owners gain access to funding. Businesses that are selected will receive a $10,000 grant.

Qualifications:

• Black-owned business

• U.S.-based

• In business at least six months

• Annual revenue cannot exceed $1 million

29. Halstead Grant

The Halstead Grant is specifically for entrepreneurs in the silver jewelry industry. Applicants must submit their design portfolio and answer 15 business-related questions. The winner receives $7,500 to put toward their business and a $1,000 Halstead gift card.

30. Comcast RISE

Comcast RISE was created to help small businesses recover from COVID-19, and now focuses on helping businesses expand and grow. In 2023, 500 businesses in five cities received grants and other benefits from Comcast RISE. While Comcast focuses on diversity inclusion, the grant is available to all small businesses.

Recommended: First Time Business Loans

What About Federal Grants for Women Business Owners?

According to the Minority Business Development Agency (MBDA), part of the U.S. Department of Commerce, “Despite what the late-night infomercials want you to believe, the federal government does not provide grants for business expansion and growth. There is no ‘free’ money for you to start or grow a business.”

Though Grants.gov does exist, it’s simply a database. Additionally, it only focuses on government-funded programs, not personal business or projects.

However, some states, such as California, offer small business grants and other types of funding. You may also be able to find assistance through your local Small Business Development Center (SBDC).

4 Databases of Resources and Grants for Women Business Owners

We not only looked for individual grants but also for resource databases for female small business owners. Below are an additional four resources for finding funding.

• 37 Angels: While 37 Angels is an investment company, they have compiled a list of other funding and development options. This list includes bootcamps, venture capitalist firms, and other organizations assisting female entrepreneurs.

• GrantsforWomen.org: This site provides a database of grants and other types of funding for women, not just those in business but also those attending school or in need of funds for different reasons.

• IFundWomen: IFundWomen offers many crowdfunding resources, grants, coaching, and networking opportunities. They also provide unique opportunities within specific fields and AAPI-, Black-, Latinx and Hispanic-, and queer-owned businesses. In addition, they offer a universal application, so one 20-minute application qualifies you for most of their grants.

• National Women’s Business Council: The NWBC offers a list of resources female business owners may find helpful, including grant opportunities for women entrepreneurs.

What Can You Do With Small Business Grants for Women?

What you can do with a female-owned business grant is determined by the organization offering the grant.

Some grants may stipulate funds be used for specific projects or purposes. For example, a tech-focused grant provider may want the money to be used for research and development to solve a particular technology-related problem. Other grant providers allow you to use them for any business expenses, including:

• Adding a new product line

• Buying equipment like a computer, commercial mixer, or cash register

• Covering inventory

• Creating a product prototype

• Expanding into larger commercial real estate

• Hiring employees

• Investing in marketing

• Launching a business

Tips for Applying for a Female-Owned Business Grant

Grants are notoriously difficult to receive, primarily because there is so much competition for them. Here are five tips to get you started on your grant application journey.

1. Get Organized

When considering applying for grants, the first thing to do is get all your ducks in a row. Some best practices for this are:

• Read through all qualifications and deadlines upfront.

• Keep a spreadsheet of grants, requirements, and deadlines so you can stay on top of filling out applications on time.

• Allow plenty of time for research, putting together a budget, and filling out paperwork.

Note: Very few grant-giving organizations require an application fee. If the one you’re interested in is asking for such a fee, do some additional digging to ensure the grant is legitimate. For instance, Amber Grants for Women requires a small fee to help keep the grant active; however, you can contact them to ask about waiving your fee.

You may use some of this compiled information for future grant applications, so keep it handy in a folder to speed up subsequent applications.

2. Don’t Ignore Small Grants

Small grants can add up quickly. For instance, a $1,000 grant could allow you to get a new computer; $500 could fund a ticket to a networking event where you meet other business owners and investors; $250 is enough for an email marketing software subscription.

3. Write a Grant Proposal

While some grant applications are as simple as filling out an online form, much of the time, you need to create a full grant proposal. This isn’t necessarily an intuitive process and can take some time, so taking a grant writing class or hiring a grant writer may be advisable.

Generally, a grant-giving organization wants to see your business plan and understand what you will do with the funds to start or grow your business.

Often, your proposal should tell your business’ story, including the challenge you’re looking to overcome and why you’re so passionate about it.

Remember to tailor each grant proposal to the funding organization. While some of your information (such as your budget) may be reusable, parts of it may not. Read all the fine print before applying.

4. Share What’s Great About Your Business

This is your chance to show why your company shines and why it’s deserving of this grant.
It can be helpful to look at past grant winners to see what types of businesses have been awarded grants in the past.

5. Review Your Application for Perfection

Have at least one person proofread, whether you hire a grant writer or fill out the application yourself. When all other things are equal, would you choose a job applicant who had a typo over one who didn’t? It’s the same with grant applications!

Grants Can Provide Women Entrepreneurs With Necessary Capital

Having an influx of “free” cash could help you take your business to new heights.

Consider what limits you currently have in your business. For example, maybe you would like to invest in a new product. Or perhaps you have been doing everything in your business and know a second set of hands would let you better focus on running your business.

Whatever your dream, a small business grant for women can help you realize it.

Other Financing Options for Women Business Owners

If you don’t find the right small business grant for women, you still have other financing options. There are many small business loans for women that offer low interest rates and favorable terms to female entrepreneurs that qualify.

Keep in mind that sometimes applying for and getting a small business loan can take weeks or months to process. If you need funds faster, you could try a business credit card or an alternative loan with a quicker turnaround. Still, be aware those options may come with downsides, like higher interest rates.

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.

Photo credit: iStock/andresr

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.

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.

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.

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May

2024

Top Business Acquisition Loans 2024

By Lauren Ward | SMB | Comments Off

Acquiring an existing company can help you expand your business or even launch a career as an entrepreneur without having to start from scratch. A loan that helps you buy a preexisting business or franchise (or buy out partners of your current business) is called a business acquisition loan.

Keep reading to learn top business acquisition loans for 2024, common uses for a business acquisition loan, tips for getting a business acquisition loan, and more.

What Is a Business Acquisition Loan?

A business acquisition loan is a type of small business financing that’s used to acquire a franchise or pre-existing business. Like any kind of funding, a business acquisition loan involves risk, even if you’re aiming to buy a company that’s already successful.

If the acquisition makes sense for you or your current company, financing the arrangement with a business acquisition loan can speed up the process of starting your new venture. Make the best decision for your situation by learning how business acquisition loans work and what you’ll need to apply for one.

Do Business Acquisition Loans Work?

With a business acquisition loan, a bank, credit union, or online lender loans money to a small business that it can use to purchase a new business, buy a franchise, or expand their current business.

The lender will have basic requirements that must be met, such as a minimum credit score, minimum annual revenue, and minimum length of time in business. The requirements will vary, so it’s always best to shop around to find the right loan and lender for your situation.

Most business acquisition loans will come with fixed interest rates and set terms, which you’ll see before signing. Make sure you can afford the monthly payment so you don’t risk defaulting on the loan. Once you receive the loan, you’ll start making payments to the lender the following month.

Common Uses for a Business Acquisition Loan

Taking out a business acquisition loan allows a borrower to finance the purchase of an existing business or expand their current one. An acquisition loan can be used to:

• Obtain a standalone business.

• Purchase a franchise.

• Buy out partners in your current business.

While requirements vary by lender and situation, both new entrepreneurs and existing business owners can usually find options to apply for.

4 Types of Small Business Acquisition Loans

There are numerous types of business loans, many of which are well-suited to people wanting to acquire a business. If you’re wondering how to finance a business purchase, start by exploring your options thoroughly to see which requirements you meet and what structure makes the most sense for your needs. There are four common types of business acquisition loans to consider.

1. SBA 7(a) Business Acquisition Loan

There are a wide range of loans offered by the Small business Administration (SBA), including the SBA 7(a) loan. While the SBA 7(a) isn’t issued solely for the purpose of acquisition, the funds can be used toward the purchase of a new business.

With an SBA 7(a) loan, you can borrow up to $5 million, but typically you’ll need to make a 10% down payment. A personal guarantee is required if you own more than 20% of the business. In order to qualify for an SBA 7(a) loan, you’ll need a good credit score and enough cash flow to keep up with the loan payments.

The SBA doesn’t lend directly to business owners. Instead, applicants must apply with a lender that specializes in SBA loans. These may include banks, credit unions, and certain online lenders. Each lender will have its own approval requirements, so you should still compare lender options even if they’re providing the same type of loan.

Recommended: Large Business Loans

2. Online Lenders

Online business acquisition lenders often have less stringent approval criteria than traditional bank lenders. And they may offer more funding options, too.

Online lenders have different requirements of applicants, including length of time in business, minimum credit score, and annual revenue.

Online lenders have a reputation for much faster funding times when compared to banks and credit unions. Preapproval is generally swift once you’ve submitted all of your documentation, and funds could arrive in your bank account within a few days. These conveniences may, however, come with rates that are typically higher than those seen at traditional banks.

Recommended: Business Consolidation Loans

3. Seller Financing

Though it depends upon the specific situation of the business you want to acquire, in some cases, you may be able to arrange for seller financing. Essentially, this means that you’re getting the loan from the seller and making your monthly payments to that former owner.

Seller financing might appeal to a business owner who’s retiring, for example, but still interested in a passive income stream. In cases like these, the loan terms could potentially be quite flexible since you’re making financing arrangements with an individual rather than a financial institution.

You’ll likely need a large down payment (up to 50% of the purchase price) to make it more appealing to the seller to finance the rest of the deal. Then, you’ll need to agree on other terms, including the interest rate and repayment period. These details are outlined in the loan promissory note, which must be drawn up by a lawyer and is legally binding.

4. Equipment Financing

Businesses that rely heavily on equipment may sometimes rely on equipment financing to fund their purchases. In order for this to be an option, the bulk of the business’s value should be in the equipment. A construction firm may rely on its bulldozers and other heavy machinery, for example, or an accounting firm may depend on its computer systems.
Because the equipment is used as collateral, an equipment loan can help reduce the immediate cost of acquiring the business. You may also be able to avoid making a down payment, depending on the lender.

Recommended: Typical Small Business Loan Fees

Business Acquisition Loan Requirements

Applying for a business acquisition loan typically requires more work than other types of business loans. You’ll need to provide information about your finances and the business you want to purchase.

What each lender wants can vary, but there are some general requirements and documentation you may need when you’re applying for a business acquisition loan, including:

• A fair to good personal credit score

• Personal and business bank statements and tax returns

• Business financial statements and a business plan

• Proof of down payment and/or collateral

Additionally, you’ll likely need to supply some details about the acquisition and the business itself, such as:

• A letter of intent outlining the terms of the acquisition

• Company valuation

Recommended: Working Capital Line of Credit

Tips for Getting a Business Acquisition Loan

In order to qualify for a business acquisition loan, you’ll want to make sure your business is established, your credit is in good standing, and you have decent annual revenues. While minimum credit scores and annual revenue amounts will vary by lender and type of loan, typically the better these two numbers are, the better the interest rate and terms you’ll receive.

If you’re a startup or have bad credit, it may still be possible to get a business acquisition loan. Here are two things you can do to help increase your odds of approval.

Recommended: Business Expansion Loans

Offer a Down Payment

One option is to offer a large down payment along with collateral or a personal guarantee. You may find a lender willing to accept just one of these additions or you may need to extend all three in order to get approved. The risk, of course, is that you could lose your personal assets if you default on the loan, so it’s crucial to weigh that risk against the potential for return.

Build Your Credit Scores

It’s also a good idea to look for ways to build your credit score before applying for a loan. Make all of your payments on time each month, pay down excessive debt, and check for errors on each of your credit reports.

Recommended: Restaurant Loan Guide

Compare Business Acquisition Loan Options

Skipping the bootstrap phase and diving right into running an existing company is an attractive option for many entrepreneurs. A business acquisition loan makes this possible, whether you’re extending your existing company’s footprint, purchasing a franchise, or simply starting off your entrepreneurial career with a company that’s already gotten off the ground.

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

How do you get a business acquisition loan?

There are several funding options for business acquisition loans, including SBA 7(a) loans, equipment financing, seller financing, and small business loans from online lenders. To get a business acquisition loan, first decide which type of loan would be right for your needs. Then, shop around different lenders — including banks, credit unions, and online lenders — to find the best rate and terms. Once you’ve narrowed your search, you’ll submit a full application to your lender of choice and wait for final approval.

What is an acquisition loan?

An acquisition loan allows you to borrow money in order to purchase a business that is already established. It can be used to purchase a franchise, buy out partners in your own company, expand your company’s footprint, or simply jumpstart the process of developing a business. Once you’ve taken out the loan, payments come due regularly and include principal and interest. Collateral is often required to qualify for an acquisition loan.

How much money can you borrow to buy a business?

The answer depends on the lender. SBA 7(a) loans go up to $5 million. Online lenders typically advertise their maximum loan amount on their websites, and it often goes up to $250,000. But just because a lender advertises a certain maximum loan amount doesn’t mean you’ll qualify for that much.

There are several other factors that go into the amount you may be able to borrow. Once you complete the small business loan application, the lender will review your company’s financials (among other things), paying close attention to cash flow, to determine the size of your loan offer. The lender will also want to see the financials of the business being acquired. The valuation and the sales price should match. You may not be able to qualify for the loan if the company doesn’t meet the lender’s standards.

Finally, remember that some lenders require a down payment equal to a percentage of what you’re borrowing. This means that the amount of cash you’re able to put toward a down payment can limit the amount you can afford to borrow.

Can I use an SBA loan to buy a business?

Yes, SBA loans come with flexible options that let you use the funds to buy a business. The SBA 7(a) loan has minimal restrictions on what the funds can be used for. Terms last from five to 25 years and, while interest rates depend on your application, they are generally competitive.

How do you get funding for an acquisition?

To fund a business acquisition, a business can use its own savings or company funds, it can offer bonds or equity to investors, or it can acquire a loan, such as a small business term loan, an SBA loan, or a secured business loan.

Photo credit: iStock/simonkr

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