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Taking out a business loan or line of credit is one way to get the working capital you need to launch or grow your business. But there’s also another option to consider: a small business grant.

Awarded by government agencies, foundations, and corporations, small business grants provide funding to new and existing businesses of all types, and do not have to be repaid. Some grants even come with added benefits like business coaching and mentorships.

Because grants are essentially free money, however, they can be difficult to get. Here’s what you need to know about small business grants.

What Is a Small Business Grant?

A small business grant is a lump sum of money awarded to a business or business owner that, unlike a loan, does not have to be paid back. Business grants are offered by federal, state, and local governments, as well as foundations, nonprofit organizations, and corporations.

Some grants are targeted to businesses in specific industries or that are developing certain types of products. Other grants are designed for businesses located in underserved communities or owned by women, minorities, or veterans. In some cases, a grant will come with stipulations about how the money has to be used by the business; in others, there are no restrictions.

Recommended: Grants for Women-Owned Businesses

Why Consider Small Business Grants?

Grants provide a way to get funding without taking on debt. They also offer funding opportunities for startups that might not qualify for a loan. In fact, some grants are available for entrepreneurs who may have nothing more than a great idea for a business.

You’ll want to keep in mind, however, that grants attract a large number of applicants and often come with fairly strict qualification requirements. Plus, the application process can be rigorous. You typically need to supply a lot of information and financial details about your business, plus explain how you plan to spend the grant money.

Where to Find Government Small Business Grants

There are so many different kinds of government business grants available – at the local, state, and federal level – that trying to find the right fit for your business can feel overwhelming. Fortunately, there are some helpful resources and databases that can help streamline your search.

The U.S. Small Business Administration (SBA) and other federal agencies list their government grants for small business on Grants.gov . There, you can search based on criteria like eligibility, categories, and funding agency.

America’s Small Business Development Center, an SBA partner, is a nationwide network of Small Business Development Centers (SBDCs) located throughout the U.S. New and existing businesses can seek free business consulting and low-cost training. SBDC consultants can also help you find a grant for your business.

Recommended: What Are Term Loans?

6 Private Company Business Grants

Certain private companies offer small business grants. Below is a sampling of what’s available.

1. Visa Everywhere Initiative (VEI)

This global program offers funding to tech-focused startups around the globe. To apply, you need to show how one of your products or services involves Visa products in a creative way. The top award is $50,000, but smaller amounts are also available.

2. FedEx Small Business Grant Contest

The FedEx Small Business Grant Contest is designed to help startups grow and scale their companies. Each year, it awards a $50,000 Grand Prize and nine additional $20,000 grants. To apply, you need to have been in business for at least six months and have no more than 99 employees.

3. NASE Growth Grant

The National Association of the Self-Employed offers a $4,000 grant to qualifying NASE members to help take their businesses to the next level. Grants can be used for marketing, advertising, hiring employees, expanding facilities and other business needs.

4. Fast Break for Small Business

Fast Break for Small Business is a grant offered by LegalZoom, along with the NBA, WNBA, and NBA G League, that focuses on helping businesses in underserved communities. The grant provides $10,000 and up to $500 in LegalZoom products and services. Applications are open twice a year.

5. Venmo Small Business Grant

The Venmo Small Business Grant awards 20 small businesses with $10,000, free promotion on the Venmo and PayPal web and social media sites, and professional consulting services. To qualify, you must have less than $50,000 in annual sales and no more than 10 employees.

6. Lenovo Evolve Small Grant

Lenovo’s Evolve Small Initiative is a program that provides funding, mentorship resources, and community support to small businesses located throughout the U.S. and Canada. Each year, the focus and funding amounts of the grant vary.

3 Grants to Start a Business

While many grants are aimed at established businesses, others are designed to provide free money (and sometimes support) to start a small business.

1. The Small Business Innovation Research (SBIR)

The Small Business Innovation Research (SBIR) and its sister program, the Small Business Technology Transfer (STTR), support small businesses with big ideas in technological innovation. The programs not only provide funding to qualifying small businesses but also partner those small businesses with federal research organizations to help develop those ideas into commercialization.

2. The Halstead Grant

The Halstead Grant is specific to a particular type of business entrepreneur — emerging silver jewelry artists. The grant includes $7,500 in funding plus $1,000 in merchandise to start a small business.

3. Challenge.gov

If you’ve got a great solution to an existing problem, you could submit your idea to Challenge.gov. This site is a hub for all prize competitions and challenges across the federal government and leverages crowdsourcing to come up with ideas that turn into businesses.

4 Business Grants for Women Business Owners

Some grants are only open to women who run businesses. Below is a selection of available grants.

1. Cartier Women’s Initiative

The Cartier Women’s Initiative seeks women who are making a difference in the business world. In addition to grants of either $30,000, $60,000, or $100,000, winners also receive business and financial coaching.

2. Amber Grant

WomensNet offers several Amber Grants throughout the year, giving away at least $30,000 every month, including “Startup Grants” and “Business Category Grants,” as well as two “$25,000 Year End Grants.”

3. Tory Burch Foundation Fellows Program

This Fellows Program provides 50 eligible women running early-stage businesses with a one-year fellowship that includes workshops, coaching sessions, network-building, and financial resources.

4. The SoGal Black Founder Startup Grant

The SoGal Foundation, along with Winky Lux, bluemercury, and other sponsors, offers several $10,000 and $5,000 startup grants to Black women or nonbinary entrepreneurs. Grant-winners also receive fundraising assistance and access to the SoGal Ventures team. Applications are rolling.

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3 Grants for Minority Business Owners

Here’s a look at just some of the available awards.

1. Galaxy of Stars Grant

Galaxy of Stars, an online network for minority- and women-owned businesses, offers a grant of $2,750 to eligible applicants to start or grow a business.

2. The Coalition to Back Black Businesses

The Coalition to Back Black Businesses offers $25,000 grants to 14 Black business grantees who’ve been selected by a panel of judges. It also awards mentorships and resources to other qualifying small businesses.

3. National Black MBA Association Scale-Up Pitch Challenge

If you have an idea for a Black-owned startup that is scalable, you might want to consider this Pitch Challenge. Sponsored by the National Black MBA Association, the competition aims to give eligible startups a chance to connect with venture capitalists and other early-stage investors. Three finalists also receive cash awards (up to $50,000).

How Do You Qualify for a Small Business Grant?

While each grant program will have different requirements for applicants, many share certain criteria.

If the grant is U.S.-based, applicants may be required to be U.S. citizens. If the grant is state-based, applicants may be required to be citizens of that state or doing business there.

Additional requirements for certain grants may include:

•  You may only qualify if you have been in business for a certain period of time.

•  You may need to operate a for-profit company (or, in some cases, the opposite: a nonprofit).

•  You may need to have a business in a particular industry.

The key is reading all of the qualification requirements carefully before applying to make sure you meet the criteria before investing too much time in the application process.

The process of applying for a small business grant can be time consuming. You’ll want to write your business plan (if you haven’t already) or refine it. The plan should clearly explain your business and what sets it apart from other competitors, plus detail what you would do with the grant money. Small business grant applications may also require financial data and other relevant information for your business, so having that information organized and prepared can help streamline the process.

Pros and Cons of Small Business Grants

Like any type of small business funding, grants come with both benefits and drawbacks. Here’s a look at how they stack up.

Pros

•  You don’t need to repay the money. Unlike small business loans, grants do not have to be repaid, so they’re essentially free money.

•  Information is widely available. No matter what type of business grant you’re looking for, a lot of information about grants is available online.

•  Provides credibility. In addition to the funds, a grant can provide more visibility to your business and validate your business idea. It can also make it easier to receive other grants in the future, since you’re already a proven candidate.

Cons

•  Time-consuming. Just finding the right grant to apply for can require a lot of research. And once you do, completing the application and making a convincing proposal can take time and effort — and may not result in any returns.

•  Hard to get. Small business grants are appealing, so you’re not the only business looking for one. Grants typically receive a large number of applicants, but only a few are chosen.

•  Money may have strings attached. Some grants come with restrictions about how you can spend the money. Others require you to spell out your plans for the money in your application; once you get your award, you typically need to stick with that plan.

Recommended: LLC Business Loans

Alternatives to Small Business Grants

If you don’t qualify for any small business grants (or don’t feel it’s worth the time and effort to apply), you’re not necessarily out of funding options. Here are some other ways you may be able to get the capital you need to launch or grow your business.

Small Business Loans

There are many types of loans for small businesses. For example, the SBA helps businesses by backing up loans made by partner lenders. While banks typically have strict criteria (such as at least two years of business history and a minimum amount of revenue) for business loans, online business lenders tend to have more flexible requirements. Just keep in mind that rates from online lenders are generally higher than those from traditional banks.

Angel Investors

Angel investors are high-net-worth individuals who invest in early-stage startups in exchange for equity in the company. Since they invest using their own money, they aren’t beholden to banks or other institutions. This allows them to invest more freely. Typically, when an angel investor funds your company, you also get access to their expertise and industry contacts, which could help you grow your business.

Merchant Cash Advances

If you do business using credit card transactions, you may be able to get a merchant cash advance (MCA) fairly easily. With an MCA, you get a cash advance in exchange for a fixed percentage of future credit card receipts. Typically, the MCA provider automatically deducts a daily (or weekly) percentage of your debit and credit card sales until the advance, plus fees, is repaid in full. While an MCA can be a quick source of cash, this is one of the most expensive types of small business financing.

Recommended: First Time Business Loans

The Takeaway

No matter where you are on your business journey, there may be a loan available to help you take it to the next level.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

Which business grants are considered taxable?

Generally, the money you receive from any type of business grant is taxable and should be reported on your federal tax return. Depending on what state you live in, you may also need to report a business grant award on your state return.

How do you get small business grants?

Small business grants are offered by the government (at the federal, state, and local level), foundations, and corporations. You might start your search with the government database Grants.gov., as well as simply Googling “Business [industry] grant.”

Who can get small business grants?

Grants are available for all types of business, but you may have a better chance of finding one if your company serves an underrepresented or rural community, is in the tech sector, or is owned by a woman, minority, or veteran.

Photo credit: iStock/mapodile
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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

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Many small businesses take out loans to cover day-to-day operating expenses, hire staff, or make a big purchase. And, while there are many loans available in the $5,000 to $100,000 range, what can you do if you’re dreaming bigger?

Many banks and other lenders offer million-dollar business loans (and even much higher amounts) to help small- and medium-size businesses see their growth skyrocket.

Here’s what you need to know about large business loans, where to find the best options for your business, and how to apply.

What Is a Large Business Loan?

A large business loan is one of $500,000 or more.

Maybe you want to acquire another business, buy real estate, or get high-dollar equipment for your company. That’s where large business loans come in.

Typically, small business loans, loans backed by the Small Business Administration (SBA), and business lines of credit all max out at about $5 million. Financing for purchasing or expanding commercial real estate can offer up to $10 million.

Repayment terms for large business loans can extend many years. These types of loans are available from traditional banks, credit unions, and online lenders.

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How Do Large Business Loans Work & What Are Their Uses?

You can use a large business loan for many purposes, including:

•  Purchasing commercial real estate to expand your space or open new locations

•  Fulfilling large orders

•  Expanding your product line

•  Buying large assets or equipment

Large business loans can be harder to come by than smaller ones. For a business to get a large loan, it typically needs to have a good track record, show several years in business (or have experienced explosive growth in a short time), report a good business credit score, and be able to back the loan with collateral.

Unlike smaller loans, which often have simple online applications with an instant response on whether you’re approved, a large business loan may require a more in-depth application process that can take several weeks or months.

You may be asked for details on what you plan to use the loan for. In the case of purchasing equipment, for example, you may be asked to specify the model and age of what you’re buying, as well as what you’ll use it for.

You may also need to provide financial statements or tax returns to show that you’re fiscally responsible enough to pay back such a large loan. Some lenders, particularly traditional banks, may require you to visit a physical branch to complete the application.

Pros and Cons of Large Business Loans

Should you take out a large business loan?
 

Pros of Large Business Loans

If you have big plans for your business, you might not have a way to fund those plans other than a large loan. Maybe you want to acquire another business that’s asking $1 million as the purchase price. You know it’s a great value, but you don’t have the capital.

The better your credit and financial history, the lower the rate you’ll pay. Also, the longer the loan term, the lower your payments will be, and most large business loans have long repayment periods.

If your business doesn’t see consistent revenue from one month to the next, having a large amount of cash can ensure you have steady access to working capital when you need it.

Recommended: LLC Business Loan

Cons of Large Business Loans

Like any financing, you’ll pay interest on a large business loan. And the larger the loan, the more interest you’ll pay in total. Keep in mind, too, that longer terms mean you’ll pay more in interest over the life of the loan.

If you’re in a hurry to get financing, a large business loan may not be right for you, because it typically takes weeks or months for your application to be processed.

While having a large lump sum of cash can be appealing, you have to be able to pay it back. A large loan payment each month could strain your budget.

Where Can You Find Large Business Loans?

As you start your research on how to get a large business loan, you can look to banks, credit unions, and online lenders. The SBA has several loan programs with high caps to consider, as well.

It can be a good idea to start your quest with the bank you already have a business relationship with. However, you don’t necessarily want to stop there. Comparison shopping your different business loan options could help you find a better rate and terms.

Qualifying for Large Business Loans

The qualification requirements for a large business loan will be more stringent than for a $5,000 loan because there is much more risk to a lender. You’ll need to have:

A proven track record: To approve a large loan, lenders often want to make sure that a business has been operating for at least a couple of years. Generally, the more experience you can show, the better.

Large revenue: Companies that qualify for large business loans tend to have very strong revenue to show potential lenders.

Strong credit scores: Good scores show lenders that you have a history of paying your personal and business debts on time. This gives a lender confidence that you’ll end up paying back a large business loan fully and on time.

Sufficient collateral: Having business collateral can make it easier to qualify for a large business loan. It lets the lender know that even if you should default on your loan, they could still get their money back by seizing the assets you put up as collateral.

Types of Large Business Loans

There are many different types of business loans to explore when you’re looking to borrow high dollar amounts.

SBA Loans

SBA loans are issued by traditional bank lenders but guaranteed by the Small Business Administration. With SBA-backed loans, such as the 7(a) and 504 loan programs, you can borrow up to $5 million.

SBA loans typically offer the best rates, along with term lengths of 10 to 25 years. These loans can be used for a wide variety of business purposes — from purchasing a new business to covering working capital needs.

Recommended: Business Acquisition Loans

Commercial Real Estate Loans

Commercial real estate loans help businesses purchase commercial property, such as an office building, hotel, or retail space. They are available from private lenders, banks, and the SBA. Just like getting a mortgage to buy a home, commercial real estate loans typically come with long repayment terms and are secured by the property being purchased.

Secured Business Loans

Accounts Receivable Financing

Another option for getting the cash you need is accounts receivable financing. This allows you to borrow against the value of your unpaid invoices.

Accounts receivable financing allows businesses to get early payment on outstanding invoices and purchase orders. If payments are delayed, the business still has the funding it needs to continue operations. When payments come through, customers pay the lender directly.

Since the loan is secured by your invoices — money your business has already made — the risk tends to be lower for both you and the lender. You can often find AR financing products from online lenders.

Franchise Loans

If you plan to purchase a franchise or already operate one that could use an infusion of cash, franchise loans may be worth considering.

Business Lines of Credit

If you don’t plan to use a large business loan all at once, a business line of credit may be a better option than a loan. Similar to a credit card, a business line of credit allows you to borrow up to a set limit and gives you access to funds as you need them. You pay interest only on the amount you borrow.

How to Get a Large Business Loan

Large business loans have more hoops to jump through in the application process. You may be required to provide tax statements, financial documents, and even a business plan. Many lenders will want particulars on how you will use the funds, and may also ask about assets you can use as collateral.

See below for a list of records you may need to submit:

Personal & Business Information

With many lenders, you can fill out an online application. To get started, you’ll likely need to provide:

•  Your name, phone number, email, and social security number

•  Business name, address, and EIN

•  Business industry

Time in Business

Lenders will want to know how long you’ve been in business. Most lenders want to see at least six months of business history. For larger business loans, they may want to see a few years of history.

Credit Score

To qualify for a large business loan, lenders typically like to see a credit score of 680 or higher. The lender wants to make sure you’ll be able to pay back a large amount of money. The stronger your score, the better the rate you’ll receive.

Annual Revenue

Businesses seeking a large business loan need to be bringing in high annual revenues. Most lenders want to see at least $350,000 annually, with some preferring even more depending on the amount you want to borrow, your business history, and your credit score.

Intended Use of Loan

When you apply for a large business loan, lenders will want to see a detailed business plan. If you explain that you’re using the money to purchase a second location, for example, this gives the lender more security knowing that if you default, they can seize the property.

Desired Loan Amount

How much you want to borrow factors into your application. The more you hope to receive, the more stringent the lender’s requirements will be.

Collateral

Most large business lenders will want you to put up collateral before qualifying you for the loan. Collateral can include property, equipment, machinery, vehicles, accounts receivables, and investments.

Larger loans tend to take longer to process than small loans, so it may be weeks before you get a response from the lender, particularly for bank and SBA loans. Once you’re approved, you will need to review the loan agreement, which will tell you how much you have been approved for and the repayment terms.

Once you sign the agreement, the funds can often be deposited into your bank account in as little as one business day.

Alternatives to Large Business Loans

If you don’t qualify for any of the loans above, you have a few other options.

Peer-to-Peer Lending

Rather than going through a bank to be approved for a loan, you can also borrow money through peer-to-peer lending. This is a situation where private individuals, rather than banks or online lenders, loan money to businesses.

There are websites specializing in connecting private investors with companies seeking financing. Rates may be higher than with traditional loans, but you may find these loans easier to qualify for.

Venture Capital

If you run a startup and are willing to give up equity to investors in exchange for capital, venture capital is an option. Sometimes investors bring more than money to the table, as they may have useful industry contacts and advice to help your business grow.

Crowdfunding

Crowdfunding allows you to create a campaign online to raise funds for a particular purpose, such as launching a new product line. Anyone who finds your campaign interesting can donate. Typically, these funds do not have to be repaid.

Some crowdfunding sites require you to give a gift to contributors, such as your product, a T-shirt, or a personal experience with your brand.

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The Takeaway

When the time comes for your business to expand, buy new equipment, or fill an unusually large order, you might find yourself in need of a large business loan.

For a business to get a large loan, it often needs to have a good track record, have been in business for several years (or have experienced explosive growth in a short time), show a good credit score, and more than likely offer collateral to secure the loan.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

How big can a business loan be?

A business loan can range in amount, but there are loans available for as much as $10 million.

What is considered a large business loan?

A large business loan is a commercial loan of $500,000 or more.

How hard is it to get a $1 million business loan?

While criteria to qualify vary from one lender to another, many lenders want to see high credit scores, at least three years in business, and a minimum of $350,000 of annual revenue.

Can you get a large business loan with no collateral?

There are large business loans that do not require collateral. However, these tend to charge higher interest than those that do require collateral. Peer-to-peer lending is an option if you do not have collateral to put up against a loan.

Where can large business loans be found?

There are many lenders who offer large business loans, including banks, credit unions, SBA-approved lenders, and online lenders.

Photo credit: iStock/Kerkez
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.

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Can a limited liability company (LLC) get a loan to grow the business? And what exactly does that kind of company bring as benefits?

Incorporating your business as an LLC is a good idea for a number of reasons, not just for obtaining a loan. In addition to helping you qualify for a business loan, an LLC also helps protect your personal liabilities, maximize your write-offs, and more.

Keep reading to find out what an LLC is, pros and cons of forming an LLC, what type of LLC small business loans are available, and how to improve your chances of getting approved.

What Is a Limited Liability Company (LLC)?

A limited liability company (or LLC for short) is a popular option when choosing a business structure. Essentially, an LLC is a separate legal entity from you that’s created under state law. It has its own assets, liabilities, bank accounts, and credit profile separate from yours.

An LLC can have one or more owners, and each owner is called a “member.” Even if you’re just a one-person operation, however, you may still wish to opt for this business structure.

Unlike a sole proprietorship (which is owned by one person with no distinction between the business and the owner), the members of an LLC have liability protection from the debts and obligations of the business. That means a business creditor or someone who sues the business can’t come after the personal assets of the owners. Like a sole proprietorship, however, the owner of an LLC pays taxes as an individual (not as a corporation).

To form an LLC, you choose a name and file articles of organization with your state’s corporate filing office, often the Secretary of State. And, if an LLC has more than one member, it must obtain its own IRS Employer Identification Number (EIN).

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Pros and Cons of Forming an LLC

Here are some of the pluses and minuses of forming an LLC.

Forming an LLC provides many advantages to small business owners. One of the biggest is that it can reduce your personal liability to debts incurred by the LLC. This liability protection comes without the work and expense of forming a corporation.

There are also some tax advantages. An LLC has pass-through taxation, meaning it does not pay corporate taxes on profits. Business profits pass through to the members, who pay personal incomes taxes on salary and other distributions received from the LLC.

On the downside, LLCs do not issue stock, which can be a powerful tool when raising capital. And, LLCs typically face higher annual fees than corporations. Some states also require annual reports in order to keep an LLC in good standing. Another potential negative is that if a member joins or leaves an existing LLC, that LLC may be obligated to dissolve and reform with new membership.

How the Small Business Loan Process Is Different for LLCs

LLCs follow the same loan application process as other types of businesses. The major difference is who holds liability for the loan funds in case the borrower defaults.

With an LLC, the company owners are not personally responsible for the loan funds unless they sign a personal guarantee . In order to avoid having to sign a personal guarantee, your company typically needs to have an established financial track record or have some type of business assets to use as collateral to secure the loan.

What Is an LLC Loan?

An LLC loan is no different than any other type of small business loan, except it is given to the LLC and not the individual. As stated above, the business owners themselves are not liable for the loan unless they sign a personal guarantee. Instead, it is the business itself that is liable.

Recommended: Debt-to-Income Ratio

How Do LLC Loans Work?

An LLC loan works just like any other small business loan, since essentially that is what it is. The type of loan you choose will determine how the loan works. A business line of credit, for example, works similarly to a credit card. You are given a maximum limit of funds to which you can draw on. You make payments and pay interest only on the amount you spend. A business term loan, on the other hand, is a lump sum of money given to you. The interest rate is usually fixed, allowing your monthly payments to stay the same until the loan is paid back.

What Expenses Are LLC Loans Used For?

LLC loans can be used for any type of business expense, including paying for working capital, hiring new employees, purchasing inventory, expanding your business, paying marketing expenses, launching a new business, refinancing existing debt, and more. Small business loans are not allowed to be used for personal expenses.

Recommended: Consolidate Business Loans

Types of LLC Business Loans

When exploring business loans for your LLC, here are some lending options you may want to consider.

LLC Bank Loans

Banks will offer some of the most ideal loan amounts, terms, and interest rates. However, getting a business loan for an LLC from a bank generally requires strong financials and a good credit score. You also typically need to submit a fair amount of documentation in order to complete your application. If you’re looking for fast financing, a bank loan may not be the way to go.

LLC Unsecured Loans

If your LLC is short on valuable assets, or you would prefer not to put assets down as security on loans, an unsecured loan may be a good option, since they don’t require any collateral to qualify. However, since the risk is higher on the lender’s part, interest rates for unsecured business loans are typically higher than secured loans.

LLC Online Term Loans

Online term loans generally have more flexible requirements than bank loans — meaning new LLCs, and even those with bad credit, may be able to qualify. In addition, the application process is typically quick and easy and funding can be fast. However, the ease and flexibility come at a cost — online business term loans tend to have higher interest rates and fees than traditional bank loans.

LLC SBA Loans

LLCs are eligible to apply for SBA loans , which are offered by private lenders but backed by the U.S. Small Business Administration. Because this backing reduces risk for the lender, SBA loans offer LLCs some of the best interest rates, loan amounts, and repayment terms out there. However, SBA loans also have tougher qualification criteria when compared with other types of LLC business loans. And, the application process can take months to complete.

LLC Invoice Factoring

If your LLC processes a large amount of client invoices, another option to consider is. With this type of financing, the factoring lender pays you a percentage of your outstanding invoices up front. Once an invoice is paid, you’re given the remaining balance after a fee is subtracted for the lender. This type of financing can offer quick cash. However, fees can be hefty and the factoring company may take over communication with your customers.

LLC Line of Credit

A business line of credit works differently than a traditional term loan. Rather than receiving a lump sum of money, a business line of credit gives you access to a pool of funds that you can draw from when you need funding. You only pay interest on the funds you draw.

Once you’ve repaid what you’ve borrowed, your line of credit will typically reset to the original amount. This can be a good way to iron out seasonal cash flow issues and keep you prepared for unexpected expenses.

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LLC Merchant Cash Advance

If you need cash quickly and your LLC processes debit and credit card payments from customers, you might consider a merchant cash advance instead of a loan. With this option, you get a lump sum of money upfront from the lender. The lender then takes a percentage of your business’s future credit and debit card transactions sales until the borrowed amount, plus a fee, is repaid. This type of LLC financing is typically more costly than other options.

Recommended: Large Loans for Business

What Documents You May Need

Lenders generally require extensive information and documentation to decide if they want to lend to your LLC. Requirements do vary by lender, but we’ve listed some common ones below.

Financial Documentation

•  Business credit report

•  Income tax return

•  Personal financial statements from all owners with at least 20% interest in the LLC

•  Up to one year of business bank statements

•  Projected cash flow, income statements, and balance sheets

•  Collateral documents that outline the value of any assets you intend to secure the loan with

Online lenders may allow you to digitally connect your banking and accounting software to import some of this information directly.

Business Documents

As an LLC, you’ll need to submit your LLC’s Employer Identification Number (EIN) and possibly also your IRS Form SS-4 notice (this is the notice you receive after filing an SS-4 application for your EIN).

You may also need to submit your articles of organization, which designates your registered agent and management structure, as well as your operating agreement to confirm the ownership structure, revenue sharing percentages, and other details.

In addition, a lender might request a business plan to demonstrate the market, competitive landscape, and growth projections after using the loan funds.

Other Important Documents

A lender may also want to see any relevant legal documents that impact the LLC’s finances. This could include existing loan agreements, leases, and contracts with other businesses.

Tips for Getting an LLC Business Loan

Below are some tips for choosing the best loan while also expediting the application process as much as possible.

Determine What You Need

Before you start applying for an LLC business loan, you’ll want to think about what you will do with the loan, and exactly how much you will need to accomplish your goal. You may also want to create a detailed plan for how your company will use the funds and what impact you expect the money to have on your business growth. Some lenders will ask for this when you apply for the loan.

Consider Your Qualifications

Key factors lenders look at to determine your eligibility for a loan include:

•  Revenues: Lenders will want to know if your business has sufficient cash flow to repay the loan or financing.

•  Credit: This shows lenders how your company has managed debt in the past. If your business doesn’t have much credit history, the lender will likely want to check your personal credit.

•  Time in business: Many lenders have a minimum time in business requirement. Some require a minimum of two years in business, while others will provide financing to younger businesses and even startups.

•  Collateral: This is a tangible asset pledged to secure the loan. Not all business loans require collateral.

Recommended: What Is a Long Term Loan for Business?

Compare Lenders

There are a variety of business loans available, and it can be wise to compare multiple options to find one with a repayment plan that works best for you.

In addition to looking at the interest rate, you may also want to keep an eye out for any other costs, like origination fees (this is a percentage of the loan funds a lender takes as payment for processing the loan) and prepayment fees (a fee charged for paying off the loan early), which also impact the cost of the loan.

Gather Documentation in Advance

It can take time to collect all of the legal and financial documents you need to apply for an LLC business loan. Since most lenders request most of the same information, you can start pulling those documents as you’re rate shopping.

Once you start to apply for a loan, make sure your business loan application includes everything the lender asked for and in the appropriate format. This can help reduce any unnecessary back and forth, allowing you to get a decision as quickly as possible.

Offer Collateral

And finally, you may want to consider offering collateral to secure your loan. Examples of collateral include equipment, buildings, invoices, home equity, inventory, real estate, vehicles, and securities, such as corporate bonds or certificates of deposit.

Putting up collateral reduces the risk to the lender, allowing them to possibly offer you a lower interest rate or better terms. Keep in mind, though, that if you default on your loan, the lender is able to seize your collateral.

Recommended: Business Loan for Bad Credit

The Takeaway

Getting a business loan as an LLC can help you reach your financial goals with an extra infusion of working capital. The best loan choice will depend on your LLC’s needs, as well as factors like your credit score, if you have collateral, how long you’ve been in business, and your company’s annual revenue.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

Can you get a business loan as an LLC?

Yes. Lenders will review your application just as they would any other type of corporate applicant. You may need to submit documentation like your articles of organization to show the ownership structure. Otherwise, the application process should be similar to any other company’s experience.

Is it hard to get business loans as an LLC?

Each lender has its own criteria for approving business loans, including those for an LLC. Requirements may include a minimum amount of years in business, credit score, and annual revenue.

Can LLCs borrow money from banks?

Banks that offer any type of business loan will allow LLCs to apply. Depending on the loan and your company’s financial history and credit profile, you may be required to provide a personal guarantee. If you do, this eliminates the limited liability protection that typically comes with owning an LLC.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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If you’re a small business owner and need funding, you’re considering many options. It may seem like you have too many options.

Factors that determine your loan term include:

•  The type of small business loan you need

•  Which type of lender works best

•  Interest rates and fees

•  Repayment terms

•  Aspects of your business (age, credit score, revenue, etc.)

Repayment term refers to the amount of time you have to pay back the lender. Terms generally range from within a few months to 25 years. Some lenders call out the loan maturity date instead.

It’s helpful to understand how loan terms differ between lenders and loan types to make sure you’re choosing the right financing. You also want to have clarity on rates, fees, and guidelines set by the lender.

We’re breaking down business loan terms and conditions for different types of small business financing, from short-term business loans to boost cash flow to long-term business loans aimed at helping your business grow and alternatives to traditional bank loans.

Recommended: Debt-to-Income Ratio

What Is a Loan Repayment Term?

A loan repayment term can be a short term measured in months, an intermediate term measured in years, or a long term spanning more than two decades.

Typical business loan terms vary depending on business needs, type of financing, lender, and other conditions, as do average business loan amounts. The following sections will highlight common repayment terms and lending vocabulary to help give you an understanding of what to expect when searching for small business loan funding that’s right for you.

Typical Small Business Loan Terms by Loan Type

We’ve broken down several different small business financing options including the following information:

•  Repayment term: How long you have to pay back the loan.

•  Loan amount: Total amount you can borrow from a lender.

•  Interest rate: Amount the lender charges for the loan, usually stated as a percentage.

•  Time to funding: Amount of time it will take to receive the actual funds.

•  Requirements/eligibility: Conditions that determine whether you qualify for financing.

Recommended: Unsecured Business Loans

SBA 7(a) Loans

The U.S. Small Business Administration (SBA) offers a variety of loan programs, including SBA 7(a) loans as highlighted below:

•  Repayment term: Maximum of 10 years for inventory, working capital, or equipment; 25 years max for real estate loans.

•  Loan amount: $5 million is the maximum business loan amount for all 7(a) loans except Express and Export Express, which typically have maximums of $350,000 and $500,000, respectively.

•  Interest rate: Can be fixed or variable and is determined by the lender using guidelines on rate maximums from the SBA.

•  Time to funding: Varies depending on program, but turnaround time can be as short as 36 hours or take up to two weeks.

•  Eligibility: Lenders will have the final say on whether you’re approved for an SBA 7(a) loan, but at a minimum, your business must meet the following eligibility requirements set by the SBA:

◦  Is a for-profit enterprise

◦  Currently does or proposes to do business in the U.S. or its territories

◦  You have a reasonable amount of equity in the business

◦  You have exhausted all other business and personal financing options

Term Loans

A term loan is a type of financing in which the borrower receives a single lump sum of funding that they repay (plus interest) to their lender over an agreed-upon repayment schedule. The business loan term is based on a borrower’s qualifications, loan amount, and other conditions set by the lender. Examples of common term loans are commercial real estate loans and other installment lending options.

•  Repayment term: Short term (3 to 24 months), intermediate term (up to 5 years), or long term (up to 10 years).

•  Loan amount: Varies depending on type of lender and program, but generally starts around $50,000 and can go over $1 million.

•  Interest rate: Depends on type of lender, amount of loan, and other qualifying factors.

•  Time to funding: Varies depending on the program but can be a few days or a few weeks.

•  Eligibility: Typically determined by the lender based on loan amount, creditworthiness, and the amount of time you’ve been in business.

Bank Loans for Small Businesses

Business loan terms and rates from banks are generally seen as some of the most favorable, but also the most challenging to get. Banks typically require collateral and a strong financial history in order to qualify.

•  Repayment term: Typical business loan terms are 3 to 10 years.

•  Loan amount: Average business loan amount is around $500,000.

•  Interest rate: Will ultimately depend on the lender, loan type, and assessed risk of lending to the borrower.

•  Time to funding: Banks often have longer approval processes due to their stricter qualifying factors. They can be anywhere from one week to two months.

•  Eligibility: Typically determined by the lender based on loan amount, creditworthiness, and the amount of time you’ve been in business.

Business Line of Credit

A business line of credit gives you access to funding up to an approved maximum amount, with interest typically charged on unpaid balances. These can be good short-term options for small business owners who want cash flow and flexibility to access funding on a revolving basis.

Business loan terms for a line of credit function differently than a traditional term loan because borrowers do not pay back in set installments, but according to how much they borrow against the line of credit.

•  Repayment term: Typically 6 months to 5 years.

•  Loan amount: Credit limit is determined by the lender but generally can be between $1,000 to $250,000.

•  Interest rate: Depends on lender and creditworthiness.

•  Time to funding: Online lenders typically approve within a few days, while traditional banks may take up to 2 weeks.

•  Eligibility: Banks may require a credit score over 680 and a minimum two years in business. Some lenders may have less stringent standards.

Microloans

Microloans can be great for small business startups or businesses that have struggled to get financing elsewhere. The SBA has numerous intermediary lenders participating in its microloan program.

•  Repayment term: Up to 6 years for SBA microloans. Private and peer-to-peer lenders will set their own business loan terms.

•  Loan amount: Business loan amounts vary depending on lender, but are generally up to $50,000.

•  Interest rate: Depends on type of lender, loan amount, and your business’ eligibility, but rates are generally higher than other loan types.

•  Time to funding: Online lenders may approve within 24 hours, while lenders with stricter application requirements may take days or weeks.

•  Eligibility: Traditional lenders will base funding on creditworthiness, collateral, and business history. Alternative lenders may have fewer or different qualifications, and take your business’ cause into consideration.

Invoice Factoring or Financing

With invoice factoring, you sell your invoices to a factoring company that is then responsible for collecting payment from your customers. With invoice financing, you use unpaid invoices as collateral to receive cash from a lender. Both can be nice short-term financing options for small, B2B businesses that regularly use invoices or have irregular billing cycles.

•  Repayment term: Typically 30 to 90 days to reflect the terms set for customers paying the invoice.

•  Loan amount: Typically a percentage — up to 100%, depending on the lender — of the amount of each invoice.

•  Interest rate: On top of a processing fee of typically 3%, the factoring fee is generally 1% to 2% of the total amount of each invoice and charged each week until the customer pays their invoice.

•  Time to funding: As little as 24 hours*

•  Eligibility: Must be a business that invoices customers, which are usually B2B organizations. Lenders may also consider your creditworthiness and your customers’ ability to pay the invoices.

Equipment Financing

A type of small business loan for the specific purchase of necessary business equipment, these are typically intermediate-term loans that are paid off within a few years. With business equipment financing, you can secure loans for necessary equipment and machinery without tapping into valuable cash reserves.

•  Repayment term: Generally, business loan terms are the same as the life of the equipment; could be a few months or many years.

•  Loan amount: Can be up to 100% of equipment cost

•  Interest rate: Typically ranges between 5% and 30%

•  Time to funding: Online lenders may approve within 24 hours, while banks may take up to a few weeks.

•  Eligibility: Lenders will typically look at creditworthiness, business history, and monthly or yearly revenue. Banks may want to see at least two years of business history to qualify. Because the equipment acts as collateral, these types of loans may be easier to qualify for than other financing.

Inventory Financing

This is an asset-based term loan or line of credit that a business receives in order to purchase more inventory and maintain cash flow. The inventory itself acts as collateral for the loan or line of credit.

•  Repayment term: Typically up to one year, depending on the inventory, or possibly longer for revolving inventory lines of credit.

•  Loan amount: A percentage of your inventory, generally 20% to 65%

•  Interest rate: Depending on the lender type, could be anywhere from 0% to 80%

•  Time to funding: Between one business day and several weeks depending on the lender

•  Eligibility: Be in business for at least six months to one year, meet inventory minimum set by the lender, and be willing to have inventory audited if the lender requires it

Merchant Cash Advance

A merchant cash advance allows small businesses (“merchants”) to get a cash advance in return for a portion of their future credit/debit card sales or receivables, plus a factor rate or fee.

•  Repayment term: Typically, three to 18 months but depends on the lending company.

•  Loan amount: Business advance amounts usually up to $500,000.

•  Interest rate: Factor rate typically between 1.1 to 1.5, multiplied by the cash advance amount (E.g.: $5,000 cash advance × 1.3 factor rate = $6,500 owed to the merchant lending company).

•  Time to funding: Can be as little as 24 hours.

•  Eligibility: Lenders typically look at financing documents like monthly sales and bank statements to determine if the business will be able to make the amount advanced back.

Recommended: Working Capital Line of Credit

Loan Maturity Date

The loan maturity date is generally the due date for making the final required payment on your small business loan. The loan maturity date typically aligns with the term length.

A $50,000 SBA microloan with a six-year term, for example, would typically feature 72 scheduled monthly payments. The date when the 72nd and final required loan payment is due is the loan maturity date.

Here are some of the maximum maturity term lengths on SBA loan products:

•  SBA 7(a) loans can have a maturity term of up to 25 years for financing real estate

•  SBA 504 loans can have a 10-year maturity term for equipment financing

•  SBA microloans can have a maturity term of no more than six years

What Is a Prepayment Penalty?

A prepayment penalty is a fee that some lenders may charge if you pay off a loan prior to the loan maturity date. The terms and conditions of your small business loan may disclose the financing costs, including any fees and penalties. Paying off a small business loan early can minimize your interest costs and may be right for you if there’s no prepayment penalty.

Which Business Loan Terms Are Right for You?

When deciding which business loan terms are right for your business, it may help to assess what your immediate needs are and how much debt you can safely take on. To get started, it may help to answer the following questions:

•  What is the total cost of the funding you need, including interest rates and fees?

•  What are your revenue projections for the business loan terms you’re considering?

•  What items are the most essential to purchase for your business? Are there items that can wait?

•  What are your regular business expenses and how do you plan to cover them?

•  How much working capital do you currently have to work with?

•  Do you have collateral you can offer to lenders?

•  Has cash flow been healthy or restricted? Would financing help or hurt it?

The Takeaway

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

What are common terms for a business loan?

A business loan can have a short term, intermediate term, or long term repayment schedule depending on its purpose. Microloans, for example, generally have terms of up to six years. SBA 7(a) loan terms can go up to 25 years for financing real estate and up to 10 years for working capital purposes.

What is a typical SBA loan term?

•  Up to 25 years for SBA 7(a) loans used for real estate financing

•  Up to 10 years for SBA 7(a) loans used for working capital purposes

•  25 years for SBA 504 loans used for real estate financing

•  10 years for SBA 504 loans used for equipment financing

•  No more than six years for SBA microloans

How long can a business loan term be?

What are the three types of term loans?

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.

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.

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It’s a dilemma: When you start your own business, you may have trouble getting approved for traditional financing because you haven’t been in business very long or haven’t established business credit. Yet you still need capital to launch your business, renovate space, or hire employees.

An unsecured business line of credit for startups may be one option worth considering. Be aware that they usually have higher interest rates because lenders consider them riskier.

Secured vs Unsecured Business Lines of Credit: The Difference

Before we talk about getting an unsecured business line of credit, let’s first look at the differences between secured and unsecured business lines of credit, as well as defining what a line of credit is.

With both types of small business lines of credit — unsecured or secured — you are approved for a maximum amount of funds. You may take out money from that line of credit, up to that maximum, and pay it back. This is in contrast to a loan, which gives you a lump sum of money that you then pay back over time.

Recommended: Unsecured Business Loans

For example, if someone is approved for a $10,000 line of credit, they might take out just $1,000 now and pay that back, and another $8,000 down the road when the money is needed. Whatever is paid back can be borrowed again.

It is possible to obtain a startup business loan with bad credit and no collateral, though it is not easy. More common is a secured line of credit that requires some sort of collateral as security against the financing. That might be a down payment or an asset like real estate or equipment.

Secured lines of credit may have lower interest rates than unsecured lines of credit because they’re generally considered less risky, given the collateral backing it. Should you not be able to pay back what you’ve borrowed, your lender will be able to take your asset acting as collateral to cover the debt.

On the other hand, an unsecured line of credit does not require any pledged collateral. It may be more difficult to win approval, as lenders may have stricter criteria for applicants than with a secured loan, including more stringent requirements around credit scores and revenue history.

Adequate funding is critical to succeeding with a small business . As a startup, you may not yet have assets you can use as collateral for secured lines of credit, so an unsecured business line of credit could be a better fit.

Recommended: Peer-to-Peer Business Loans

Alternatives to Unsecured Business Line of Credit for Startups

Some startups may find it difficult to qualify for an unsecured line of credit. Here are a few other small business financing options that may be available to startups.

Business Credit Cards

Business credit cards can provide new business owners with needed access to cash. They can also be an important tool to help business owners separate their personal finances from their business finances. Credit card issuers will generally review things like your personal credit score and income. Some options may require collateral or a personal guarantee.

SBA Microloans

The U.S. Small Business Administration (SBA) has a microloan program that offers loans up to $50,000 to certain eligible small businesses. These small business microloans can be used to finance things like working capital, inventory, furniture, and machinery or equipment. Other SBA loans may also provide eligible small businesses with funding to meet their needs.

Crowdfunding

There are a variety of crowdfunding platforms online that allow business owners to raise money to support their business. This process allows business owners to raise money for their project without taking on additional debt.

Equipment Financing

Equipment financing helps businesses that are in need of new or used equipment. With this type of loan, the equipment becomes the loan collateral, which means that lending requirements may be less strict than for unsecured loans.

Recommended: Bad Credit Business Loans

An Unsecured Business Line of Credit Can Give You the Boost You Need

While having access to cash when you need it, rather than in one lump sum, can be tremendously helpful to a startup, keep in mind that some lenders will charge more than others — whether that’s in fees, interest, or both — so it’s important to decide how necessary the financing is to your business right now.

Given that the line of credit options discussed here are unsecured, it may be difficult for some startups or applicants with lower credit scores to meet the minimum qualification requirements set by certain lenders.

Recommended: Business Loan vs. Personal Loan

The Takeaway

An unsecured business line of credit can help you fund and build your venture. The growth of many new businesses depends on their ability to access adequate capital. However, unsecured business lines of credit have higher interest rates and you may have to sign a personal guarantee, meaning you will be responsible for paying if the business fails.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

How do I get an unsecured business line of credit?

Requirements for unsecured business lines of credit vary, but to apply, you’ll generally need information about your business, personal details, a government-issued photo ID, and financial statements. Not every business will qualify for this type of financing.

How do I get a $250,000 unsecured line of credit for my business?

Each lender has a different cap for lines of credit, so look around to find one that offers $250,000 or more, then review the requirements to see if you might qualify.

What is an unsecured line of credit for business?

An unsecured line of credit for business is a revolving credit account that a company can access and draw funds from up to a set limit. It’s a commercial lending product that does not require businesses to pledge any assets as collateral.

How do I qualify for an unsecured line of credit for small business?

Requirements vary from one lender to another, but you will likely need to meet eligibility standards like a minimum time in business. Your business may also need to generate strong annual revenues and meet a minimum level of creditworthiness to qualify for an unsecured line of credit.

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.

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