SoFi

If you’re looking for a small business loan with bad credit or no credit, you could face some extra hurdles. Banks tend to prefer borrowers with a good credit score — typically a personal credit score of 670 or higher — leaving business owners wondering how to apply for a business loan if they have bad credit or if their business has no credit history.

Fortunately, there are options for business loans for bad credit. Even if you have a personal credit score below the mid-600s, you may find lenders who offer options to help you start, grow, or expand your small business.

Below, you’ll find a guide to resources that might help you with the process of applying for a small business loan when you have bad credit, as well as different loan options.

What Are Business Loans?

A business loan is a sum of money received by a business owner exclusively for use in their business that is repaid — with interest — over an agreed term.

Personal loans are usually of shorter duration. Business loans offer more capital with, ideally, a lower interest rate. Personal loans usually mean a smaller amount of money with a higher rate of interest.

What Is Considered Bad Credit?

Your personal credit score, a rating derived from your credit history, is an important indicator of your creditworthiness to lenders. Similarly, when your business builds up a credit history, it may receive a credit score that potential lenders can use to assess whether to lend it money.

If your credit rating isn’t high enough or your business hasn’t been in existence long enough to build up a credit history, potential lenders may evaluate you as having bad credit or no credit, and it may be harder for you to get good terms on financing or even any financing at all.

Understanding what lenders may be looking for can help you figure out your best options for getting business loans for bad credit.

Personal Credit vs. Business Credit

A common question when you’re trying to figure out how to apply for a business loan with bad credit is whether a lender will look at your personal credit score or your business’s credit score.

Personal credit is based on your individual credit history, including factors such as your record of borrowing and repayment on items like credit cards and loans. It’s connected to your social security number (SSN) and includes specific details regarding any credit-related inquiry. Your credit score is used to sum up how creditworthy you are considered so that potential lenders can assess how risky loaning money to you might be.

Most personal credit scores range from 300 to 850 (although there are a few different scoring models with slightly different scales). Less than 580 is typically considered a poor score.

Business credit is based on the financial history of a business. Instead of being connected to an individual’s SSN (even the SSN of the owner), it’s generally connected to the business’s Employer Identification Number (EIN).

Business credit scores may be issued by several different companies with different systems. Some (though not all) range from 1 to 100, and higher scores are typically viewed more favorably by lenders than lower ones. The scores are generally determined by factors that can include payment history, business history, credit utilization ratio (how much the business currently owes divided by its credit limit), and type of industry.

Every lender may have its own rules, but in general, on a scale of 1 to 100, a business credit score of 80 or above means that the business is likely to be seen as low risk, while a score of 49 or below may suggest high risk to potential lenders.

While your personal credit score and your business’s credit rating are different, they can both matter when you’re looking for a business loan, particularly if you’re a sole proprietor — the only owner of your business. When banks are evaluating an application for a business loan, they commonly review both personal and business credit scores, if available.

Recommended: LLC Business Loans

Why Your Personal Credit Score May Matter for a Business Loan

Many businesses start out with a sole proprietor — just one person who owns the business. When the business is new and hasn’t had the chance to build up a credit history yet, potential lenders may look at the owner’s personal credit when they’re assessing the business’s creditworthiness. A majority of lenders will consider your FICO® score (the credit score issued by the Fair Isaac Corporation) when evaluating an application for a small business loan.

While FICO has different versions of its credit scores for different purposes, personal FICO credit scores are generally determined using the following factors:

•  New credit – 10%

•  Credit mix – 10%

•  Length of credit history – 15%

•  Accounts owed – 30%

•  Payment history – 35%

Every personal credit score uses these five categories, but the importance of each can vary depending on the individual. For example, a person with a long credit history will be evaluated differently than someone who is just beginning to establish credit.

Lenders use multiple factors to determine what small business financing options they want to offer you. But even though your credit score is just one factor, lenders may have minimum personal credit score requirements to qualify for loan products. That’s why it can be useful to know what your personal credit score is and whether it’s considered good or bad when you’re applying for a business loan.

Banks and SBA-approved lenders generally require credit scores over 680 to qualify for a small business loan, in addition to credit history. Alternative lenders, like those who offer options like merchant cash advances or factoring services, may accept lower credit scores (below 600), but you may face higher total borrowing costs due to increased interest and factor rates.

Recommended: What Factors Affect Your Credit Score?

Applying for a Business Loan With Bad Credit

Getting a business loan with a lower credit score may require a bit more legwork. There are five steps to applying for a business loan with less than stellar credit.

Checking Your Credit Scores

To find your personal credit score and history, you can request a credit report from any of the major bureaus: Equifax®, Transunion®, or Experian®. The Fair Credit Reporting Act (FCRA) entitles individuals to one free copy of their credit report per year from each of the three bureaus.

When you’re looking into a bad credit business loan and you want to know your business credit rating, however, digging that up may be more challenging than finding your personal credit rating. The following sources may offer comprehensive business credit ratings, but keep in mind that some are paid services: Dun and Bradstreet, Experian, and Equifax.

After you’ve gathered your credit reports and scores, you’ll probably be better prepared to determine how eligible you are for financing by comparing your ratings against potential lenders’ minimum requirements.

Recommended: What Are Business Consolidation Loans?

6 Steps That Can Improve Your Chances of Getting a Business Loan

Working toward a higher credit score can take time, but a strong credit score may better your chances of securing a more competitive interest rate on a small business loan. The following steps can help you improve your chances of getting a small business loan.

1. Check your credit reports and dispute any errors

It’s important to monitor your personal and business credit scores to ensure there aren’t any incorrect entries. An error on your credit report could lower your score, making it more difficult for you to secure the financing your business needs.

Check your personal credit reports with the three major credit bureaus (TransUnion, Experian, and Equifax) and report any potential errors directly to that bureau. You can access a copy of each of these credit reports for free once annually.

You may also want to check your business credit history with Dun and Bradstreet, Experian, and/or Equifax. The sooner you can catch and correct any discrepancies, the sooner you can improve your chances of getting approved for funding.

2. Establish credit with a business credit card or line of credit

One way you can work toward building your business credit score is by using a business credit card to make small daily purchases. To help build credit, it’s important to pay your business credit card bill on time each month and avoid carrying a balance.

If you qualify for it, another option that may help you build business credit is taking out a business line of credit. Like a credit card, a credit line lets you take out available credit to make purchases and then pay in full each month. Some lines of credit are revolving, while some close after they’re paid in full, but both give you access to cash flow to support your business while you’re also laying a positive credit foundation.

And finally, consider keeping your business credit card or line of credit accounts open, even if you aren’t using them. Canceling a business credit card could impact your business credit score.

3. Keep your business expenses separate from personal expenses

There are a number of reasons to keep your business and personal expenses separate. These include building credit, keeping your records accurate, and streamlining your taxes, as well as for the legal implications. Whether you’re just starting your business or trying to build good credit, these steps can help you establish and maintain a separation between your business and personal expenses:

•  Open and maintain separate business and personal bank accounts

•  Avoid using your business credit card for personal expenses and vice versa

•  Register your business with an EIN number

•  Hire a bookkeeper to manage accurate accounting for your business

4. Maintain your personal credit score

Can you get a loan with a 500 personal credit score? It may be difficult, which is why it’s important to maintain strong personal credit if it’s at all possible.

Even though your business and personal credit are separate ratings, having a good personal credit score may improve your chances of getting approved for a business loan. When lenders see strong personal credit, it highlights for them that you’re a trustworthy borrower. One way to help build and maintain a good personal credit score is to pay your credit cards and other outstanding debts on time.

5. Take the time to build credit

Trying to figure out how to apply for a small business loan with bad credit and no collateral can be frustrating. Building credit may take a while, but it’s usually worth the effort. That’s because a strong credit history can help you get favorable rates and terms on future loan products.

For starters, you can aim to work with vendors and suppliers who will report your business dealings to the major credit bureaus. Paying your outstanding balances and invoices on time can also potentially help you establish and build better business credit. But keep in mind that not all companies will report on your behalf, and try to choose judiciously.

If you’re able to wait to apply for a loan, delaying your application could be an opportunity to continue paying down other debts and credit cards, or make any other regular payments that show a stable financial history. By taking the time to build a good track record, you can prove your dependability as a borrower and potentially improve your chances of being approved for more favorable loan products in the future.

6. Diversify your credit

Creating a good credit mix is an important step in building good business credit. A mix of credit means that you have varied lines of credit, credit cards, loans, and other products. Once you’ve established good business credit, having a well-rounded credit mix can help you maintain or potentially build your credit score, so long as you’re responsibly making payments on each account.

Another factor to keep in mind is your credit utilization ratio. This is how much available credit you’re using. Maxing out every line of credit may present a negative picture of your business, while using around 25% of your credit typically suggests that you’re a responsible borrower.

Recommended: How to Build Credit Over Time

Preparing Documentation

When you’re planning to apply for bad credit business loans, it may help to gather the following documents:

•  Personal and business credit reports

•  Business bank and financial statements

•  Legal documents related to your business

•  Business and personal tax returns

•  Personal identifying documents

•  Business plan

Some lenders may not require all of these documents, but having them all ready in case they’re needed can be helpful. In fact, some lenders may even require additional documentation. And while you’re gathering this paperwork, it can also be a good opportunity to assess your business’s financial status, too.

Applying for Bad Credit Business Loans

Now that you’ve taken steps to prepare, you’re also equipped with knowledge that can help you make a decision on which loan products and lenders suit your business needs. Consider the following factors when comparing your business loan options:

•  When you need funding by

•  The documents needed to apply

•  Interest rates and terms and fees

•  The length of application and approval time

•  Required personal and/or business credit ratings

•  Whether you have collateral to offer

When you’re applying for a business loan with bad credit, banks and other traditional lenders may be more likely to lend to you if you’re able to back the loan with collateral. If you don’t have any collateral to offer, it may be worth reviewing alternative lenders, who may be more likely to have funding options for companies with less-than-stellar credit.

Recommended: Unsecured Business Line of Credit

Types of Alternative Bad Credit Business Loans

Besides the traditional term loans, there are other financing options available to you, even if you have low credit or no credit.

Secured Business or Personal Credit Cards

When you get a secured credit card, you have to provide a security deposit to open the card. That deposit acts as collateral in the event you default on your payments. This lessens the risk for the credit card company, and therefore improves your chances of getting approved.

If you are looking for a startup business loan with bad credit and no collateral, opening a secured personal or business credit card may be an option to consider. If you make payments on time for a certain period, your creditor may even offer you an unsecured card to help build up your credit rating further.

Recommended: Unsecured Business Loans

Peer-to-Peer (P2P) Lending

Peer-to-peer lending lets borrowers and investors connect directly, eliminating the need for a financial institution to facilitate the loan process. Borrowers who are trying to get unsecured business loans with bad credit or whose business is new may find more financial options to choose from in this category than from other kinds of lenders.

Borrowers and lenders use P2P networks to find each other based on business needs, purpose, and qualifications. Fund transfers and payments go directly through the P2P platform for a simple, manageable process. Because you work with an investor directly, there may be more emphasis placed on your business’s purpose and long-term goals.

Equipment Financing

Equipment financing can help you purchase necessary equipment, machinery, and other items for your business. Equipment financing may be a viable loan option for a business with a low credit score or limited collateral because the equipment itself acts as collateral. In other words, if you default on your payments, the lender can claim the equipment to recoup its losses.

Equipment financing can help you purchase big-ticket items without the financial strain of paying a lot of money all at once. The terms on loans like these may range from a few months to 10 years, and generally vary based on the lifespan of the equipment.

Invoice Factoring

A short-term financing option known as invoice factoring lets you sell your invoices to a factoring company, which assumes responsibility for collecting payments from your customers. Typically, B2B companies or operations with irregular billing cycles rely on this type of financing.

Businesses may use invoice factoring as a quick way to supplement cash flow or when they need a bad credit business loan. Since the factoring company is responsible for collecting payment from your customers, it’s important to partner with a company that’s reputable and uses fair collection practices.

Inventory Financing

Inventory financing helps a business maintain cash flow while it’s purchasing additional inventory, typically in preparation for a seasonal spike. That new inventory serves as collateral, and lenders offer financing based on a percentage of its value. This can be a good option if you don’t have collateral and need funds to stock up on inventory.

Microloan

Microloans are loans offered by nonprofit and peer-to-peer organizations for smaller loan amounts, typically less than $50,000. If you require just a small amount of financing and don’t qualify for a larger loan, a microloan may help you get the funding you need to cover basic startup costs and other business expenses.

Since newer, smaller businesses often seek microloans and haven’t yet established business credit, it’s helpful to have an established personal credit history to help the lender make its financing decisions.

SBA microloans are also available and may have advantages like longer terms and better interest rates, but they require a strong credit rating.

Merchant Cash Advance

A merchant cash advance is not actually a loan, but a way for a small business (“merchant”) to get a cash advance for business expenses in return for a portion of its future credit/debit card sales. Merchant cash advance companies purchase a business’s future sales at a discount and, in return, offer quick financing.

A business owner trying to get an unsecured business loan with bad credit may find that merchant cash advances are an option for quick cash, but they do often come with high interest rates and fees.

Additionally, since merchant cash advances are not technically loans, companies don’t receive the same governmental oversight and regulation as traditional lenders. If you decide to go with this option, research the different merchant cash advance companies carefully to ensure that the one you choose operates in a fair and trustworthy manner.

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 I get a business loan with no collateral?

Yes, there are some business loan options that don’t require collateral, particularly from online lenders. However, that’s not the case for all small business loans. Some will require collateral to qualify, especially if you don’t have strong credit. There are also other lending options that essentially have collateral built into their structure, including equipment financing and secured credit cards, which you may want to consider if you have no other form of collateral to offer.

Can I get a business loan with bad personal credit?

Yes, there are options for securing business funding, even if you have bad credit. While many lenders look at your personal credit to help determine your eligibility and loan terms, some alternative lenders and online business loans may be available to people who are still building their personal credit. Lenders offering certain other products, like merchant cash advances and invoice factoring, will also consider individuals with bad credit.

Are any banks easier to get a business loan at than others?

Banks differ in their evaluation criteria. However, since interest rates began to rise, U.S. banks have been tightening their criteria. They have typically expected higher credit ratings, longer time in business, and more income generated every month before giving a term loan.

Are all business loans based on credit scores?

Credit score is one thing banks look for. Banks also examine business revenue, cash flow, outstanding debt, unused credit lines, and the length of time in business.

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSB0224021

A long-term business loan is one that typically covers a repayment period of 3 to 10 years.

In some ways, spreading out payments over longer periods of time gives you more flexibility and more manageable payments, but there are downsides to a long-term business loan as well.

Regardless of whether you need short- or long-term financing, it’s important to understand the differences and the numerous options available. This can help you make the wisest financial decisions for small business financing.

What Is a Long-Term Business Loan?

A long-term business loan, while usually covering 3 to 10 years, can extend as long as 25 years. In contrast, short-term business loans typically have terms that are less than three years. Repayment terms vary depending on the product, but typically installments are made more frequently than with a long-term small business loan and may carry very high interest rates.

How Do Long-Term Business Loans Work?

Among the various types of business loans, long-term loans have terms that may vary slightly depending on the lender’s eligibility requirements and the borrower’s needs.

Some lenders may offer equipment loans or other specialty financing that have terms specific to the loan’s use. Other long-term small business loans may have terms dependent on the borrower’s qualifications and loan amount.

The money you borrow from the lender, plus interest, is to be paid back in-full by the end of the specified term, usually in monthly installments.

The following are a few common characteristics of long-term business loans:

•  Higher loan amounts than short-term business loans

•  Lower interest rates compared to short-term financing

•  Collateral is often needed

•  Qualifications will vary by lender but generally include an established business history, a strong credit history, and proof of financials

Long-Term Business Loans Uses

When it comes to planned uses for business loans, small businesses typically choose long-term financing to cover larger investments that support the growth of the business. Since long-term business loans have longer repayment terms, they aren’t typically used for emergency expenses or cash flow issues.

Long-term small business loans may be useful for the following purposes:

•  Real estate purchases

•  Building renovations

•  Equipment financing

•  Debt refinancing

•  Purchasing another business

Recommended: LLC Business Loan

Who Is Eligible for a Long-Term Business Loan?

The biggest differences between short-term and long-term business loans are the eligibility requirements. Since long-term loans may be for larger sums of money and require payments over a longer period of time, they equate to more risk for lenders.

Because they present more risk, long-term business loans may be more difficult to qualify for than short-term financing options. Generally, lenders want to see proof that your business is capable of taking on long-term payments. That means that you may need to provide more documentation that shows your business’s credibility as a borrower than you would for a shorter-term loan.

While eligibility requirements for long-term loans vary based on the financial institution, businesses that meet the following criteria have the best shot at long-term business loans:

•  Established for more than two years

•  Strong business and personal credit

•  Proven track record of generating revenue

•  Collateral to offer

•  Borrowers who own a large percentage of their business

Lenders will also generally assess your debt-to-income (DTI) ratio to evaluate how much debt you are carrying in proportion to your annual revenue. Carrying a large sum of debt may affect your ability to qualify for a long-term small business loan.

Typical Rates and Fees for Long-Term Small Business Loans

Rates and fees vary depending on the type of long-term loan you choose and what the lender determines you’re eligible for, but typically, the annual percentage rate (APR) is lower for long-term loans vs. short-term loans.

Banks are known for having lower rates, as are SBA loans, for well-qualified borrowers — while online lenders typically have higher interest rates in comparison.

In addition to the interest rate, there may be fees associated with your long-term business loan:

•  Application or origination fees: Charge for processing your application and setting up the account.

•  Underwriting fees: Help cover costs of verifying documents and credit reports.

•  Prepayment penalties: Some lenders may charge fees if you pay back the loan early.

•  Service fees: Cover ongoing costs related to your account.

Who Offers Long-Term Business Loans?

You may associate long-term business loans with traditional banks or credit unions, but there are a growing number of alternative lenders who offer online business loans. Banks and credit unions may be able to offer better rates and terms to well-qualified borrowers, but usually have more stringent loan qualifications than online lenders.

Common Long-Term Business Loan Terms

Business loan terms vary depending on the type of lender, loan amount, what the funds are being used for, and borrower qualifications. Generally, long-term business loans range from 3 to 25 years, though some terms may be shorter or longer. Loans through the SBA often have the longest terms, while alternative lenders typically have terms of less than five years.

Pros and Cons of Long-Term Business Loans

Lenders offer financing that can be useful for a number of small business investments, but there may be times when a short-term option may be preferable to a long-term loan. Before making any final decisions on whether to choose a long-term small business loan or short-term financial product, check out some pros and cons for long-term financing.

Pros of Long-Term Lending Options

Longer loan terms make for lower payments

Borrowers may consider a long-term business loan because they typically offer lower installment payments than a short-term loan. Even if you borrow a significant amount of money, you may be able to work with the lender to choose a loan repayment term that can accommodate your business’s needs. Of course, longer terms mean paying more in interest over the life of the loan.

Lower interest rates

Choosing a long-term business loan doesn’t guarantee a lower interest rate, but in general, long-term business loans offer better rates than short-term loans for well-qualified borrowers. Interest rates may also be impacted by the borrower’s credit history and other factors. Securing favorable rates can help lower your monthly payments or make the loan less expensive in the long-term.

Monthly payments

Not every lender will have the same repayment schedule, but long-term small business loans are typically paid in monthly installments. In contrast, short-term loans may have repayment terms that require borrowers to repay weekly or biweekly, depending on the loan product. Monthly installments can give borrowers more flexibility with cash flow since they don’t need to make payments as frequently.

Lower fees

Recommended: Typical Small Business Loan Fees

Cons of Long-Term Business Loans

Longer approval process

Lenders may also take longer to review applications for long-term loans. If you need funding quickly, a long-term business loan may not be ideal since time to funding could be longer than your business can withstand.

Need strong credit

Long-term small business loan lenders typically require borrowers to have a strong credit history, generally a credit score of around 600 or higher is preferred. If you have less than stellar credit, it may be difficult to secure a long-term business loan, especially from a bank. Online lenders may offer more options for long-term business loans for bad credit, but interest rates are often higher than those available from traditional lenders.

More Documentation to Prove Creditworthiness

In addition to credit scores, lenders likely want to see more documentation that shows your business’s credibility. They may want to see profit and loss statements, bank statements, tax returns, and other proof of revenue and business history.

Total Cost Can Be High

It’s important to note that while interest rates may be relatively low on long-term small business loans, interest will accrue over the life of the loan, which can be expensive. Consider the total interest you will be charged over the life of the loan to evaluate.

Long-Term vs. Short-Term Business Loans

Now you know the pros and cons of a long-term business loan, but how do they compare to short-term financing? See below for a breakdown of long- vs. short-term business loans so you can make the right choice for your needs.

Types of Long-Term Business Loans

Under the umbrella of long-term business loans, there are a number of options offered by lenders and the U.S. Small Business Administration (SBA) to assist businesses as they scale and grow. Below are common types of long-term loans for small businesses.

SBA loans

These highly sought-after loans are backed by the U.S. Small Business Administration and offered by banks and other approved lenders.

For borrowers that qualify, an SBA loan can be an option to consider if you’re in need of a long-term small business loan. However, getting approved for an SBA loan can be a long, competitive process because of their favorable rates and terms.

The SBA 7(a) and SBA 504 loan programs offer long-term financing for qualified small businesses. Depending on the amount of funding you need and what it will be used for, one program may be more suitable for your needs than the other:

•  SBA 7(a): Long-term small business loans that can be used for nearly any business-related purchase. The maximum loan amount is $5 million, and loan terms may extend up to 25 years, depending on what the funds will be used for.

•  SBA 504: Small business loans aimed at helping businesses renovate or modernize their operation. The funds can be used for purposes like purchasing new land, remodeling, or buying new equipment. The maximum loan amount is $5 million and loan terms can extend up to 25 years.

Term Loans

A term loan is a type of long-term business loan. With a term loan, your business receives a fixed amount of money for which the lender sets a specified repayment schedule. You pay back the amount borrowed plus interest in installments over the agreed-upon term. The business loan term is based on a borrower’s qualifications, loan amount, and other conditions set by the lender.

Recommended: Understanding Term Loans

Business Line of Credit

A line of credit can be used by businesses of all sizes to help manage cash flow and other working capital expenses. A creditor gives you access to funding up to an approved amount, with interest charged only on unpaid balances.

Repayment terms for a business line of credit differ from traditional loans because borrowers are not charged interest on the whole amount they’re approved for; you only pay interest on what you spend, similar to a credit card.

Some lines of credit end once the entire amount is borrowed and paid back in full, while others are known as revolving credit. With revolving lines of credit, the approved credit limit replenishes after the balance is paid in full, allowing borrowers to have access to funds for extended periods of time.

Equipment Financing

Long-term equipment financing can be an option to consider for well-established businesses that want to invest in equipment. This may include machinery, vehicles, medical devices, and office equipment. With this type of loan, the equipment itself acts as collateral.

Loan terms can range from several months to 10 or more years. They may match the amount of time a business expects to make use of the equipment. The potential benefit of purchasing expensive equipment with a five-year business loan, for example, comes if your business can still get the items it needs to function and grow without the financial stress of a large, one-time purchase.

Commercial Real Estate Loans

A commercial real estate loan allows you to purchase a building or other property that’s to be used for business purposes. This may include office space, a retail shop, factory, or warehouse.

The property being purchased acts as collateral, which can be beneficial to businesses that don’t have other forms of collateral to offer. The loan amount you’re approved for will depend on the loan-to-value (LTV) ratio: the size of loan compared to the value of your property.

Commercial real estate terms will vary based on factors including the loan amount, borrower qualifications, and lender requirements.

A commercial real estate loan can help businesses grow by enabling borrowers to purchase the space they need to increase production and sales. Similar to equipment financing, these long-term business loans allow business owners to make large real estate purchases without the financial strain of paying for the property all at once.

Recommended: Business Expansion Loans

Applying for a Long-Term Business Loan

Preparation is key when learning how to apply for a business loan. Lenders typically require extensive documentation as part of the application and approval process, so it may be helpful to have a game plan as you are preparing to apply.

Generally, you will need to take the following steps to prepare and apply for a long-term business loan:

1. Understanding Qualifications

As you start to research lenders, take note of their minimum qualifications. Businesses that may be eligible for long-term business loans will typically:

•  Be well-established and in business over two years

•  Have strong personal and business credit histories

•  Be able to show proof of annual revenue

2. Checking Your Business and Personal Credit

This could help you determine what you may qualify for, which can be particularly important for long-term business loans that may require a higher credit score than some shorter-term financing options.

Recommended: How to Check Your Credit Score for Free

3. Preparing Documentation

Applying for a long-term small business loan will usually require more documentation than a short-term business loan. Lenders may ask you to provide documents like:

•  Personal and business tax returns

•  Personal and business credit scores

•  Profit and loss statements

•  Business licenses, permits, or other legal documentation

•  Personal and business bank statements

•  Proof of collateral

4. Choosing a Lender

Compare lenders based on factors including how much funding you need, your business goals, and your qualifications as a borrower. To help get organized and start narrowing down your options, it may be helpful to answer the following questions:

•  How much financing do I need?

•  What is the money being used for?

•  How soon do I need funding?

•  Can I honestly afford a long-term loan?

5. Applying

After you’ve chosen a lender for a long term small business loan, you would fill out the application and provide any required documents. Some lenders may allow you to prequalify for a loan, by performing a soft credit pull, which won’t typically impact your credit scores. When applying, lenders may perform a hard credit pull, which may impact your credit score.

Additional Funding Options for Small Businesses

If you’re looking for additional financing options for business-related expenses, the following options may be worth considering for a long-term small business loan.

Microloan

Typically, microloans are offered by nonprofit organizations and peer-to-peer lenders for smaller loan amounts. If you only require a small amount of financing and don’t qualify for a larger loan, a microloan may help you get the funding you need to cover basic expenses. SBA microloans are also available and may have advantages like longer terms and better interest rates than other short-term lending options.

Peer-to-Peer (P2P) Lending

Peer-to-peer lending removes the financial institution that typically facilitates the loan process, allowing borrowers and investors to connect directly. Borrowers may find more favorable rates and simpler terms than other lending options.

Online P2P networks help match borrowers and investors based on your business needs and purpose. After the loan is approved, money transfer and payments occur directly through the P2P platform.

Inventory Financing

Inventory financing is an asset-based business loan used to purchase more inventory, which can help maintain consistent cash flow during seasonal spikes in sales. The inventory itself serves as collateral, and lenders offer financing based on a percentage of that inventory’s value. If you default on the loan, the lender can seize the inventory that you’ve used as collateral.

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 is a long-term business loan?

Long-term business loans are those with longer terms, typically from three to 10 years. The borrower pays back the loan amount plus interest in regular installments over the agreed-upon loan term. Loan terms and interest rates are determined by the lender and can give borrowers the flexibility of manageable payments and favorable APRs.

What are the longest business loan terms?

Long-term business loan terms vary depending on the type of lender, loan amount, what the funds are for, and borrower qualifications, but generally range anywhere from three to 25 years. Loans through the SBA often have the longest terms, with 7(a) loans capping out at 25 years.

How can I get a long-term business loan?

Long-term business loans typically have stringent application requirements due to the increased risk to the lender. Therefore, it may be helpful to build credit and wait until your business is well-established before applying. When you’re ready to apply for long-term business financing, look at lenders’ minimum qualifications, check your business and personal credit score, compare lenders, and gather the necessary documents required for the application.

What are the advantages of a long-term business loan?

Long-term business loans typically have lower interest rates, smaller monthly payments, and longer repayment terms, which can help businesses make large purchases without the financial burden of a one-time payment or short-term loan.

Can you get a 20-year business loan?

If you have excellent business credit and an established business, you would be a candidate for such a long-term loan.

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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.

SOSB0224020

If you own a rental, you might be considering buying more properties. But if you don’t have a lot of cash to make that purchase, should you pursue business financing?

Getting a small business loan to buy rental property can help you grow your business while conserving the cash available in your bank account for renovations, repairs, and business operations.

There are disadvantages to be aware of too.

Lender Options for Rental Property Business Loans

If you’re looking for a loan for a new rental property, where do you begin? First, familiarize yourself with the most common small business loan terms and requirements. There are many lenders to choose from, each offering their own financial products.

Recommended: Small Business Loans for Business Expansion

Loan Types for a Rental Property Business

There are several types of small business loans you may want to consider as you begin shopping for financing for rental property.

Term Business Loan

Banks and real estate lenders offer a variety of options. Some loans are specifically for rental properties, while others are aimed at fix-and-flip investors.

These financing options can include:

•  Short-term business loans to cover day-to-day expenses

•  Long-term business loans for building renovations and real estate purchases

•  Bridge loans to address immediate business needs

Business Line of Credit

A home equity line of credit (HELOC) may be useful if you need capital for renovations now, and more down the road. With a HELOC, you can take out cash up to a maximum draw. Once you repay it, the money is available to borrow again.

Alternative Loans

If you don’t qualify for the above options, you may be glad to know that there are alternatives that can get you access to cash.

Alternative loans can include the following lending products:

•  Merchant cash advances

•  Equipment financing

•  Small business auto loans

Wondering why a Small Business Administration (SBA) loan for rental property isn’t on this list? The SBA specifically prohibits the use of SBA loans for investment properties.

Recommended: Business Consolidation Loans

Interest Rates for Rental Property Loans

So what’s the going interest rate on a small business loan for rental property? They can vary widely, depending on the lender and your qualifications.

It’s a good idea to shop around with multiple lenders and compare rates to ensure you get the best deal.

The Differences Between Rental Property Loans and Conventional Home Loans

You might be wondering how a business loan to buy rental property compares to a personal home mortgage.

How High Interest Rates Are

Lenders specializing in business loans for rental property may be happy to lend to investors like you. But they may also charge you a higher interest rate than they would for a home mortgage.

In fact, interest rates for commercial real estate loans can be one-half to three-quarters of a percentage point higher than your home mortgage. That may not sound like much, but over time, it can really add up.

The reason for the higher rates is that lending to a real estate investor, who may have multiple mortgages at once, is generally riskier than lending to someone who wants to live in his or her home and has only one mortgage.

Recommended: Peer to Peer Business Loans

How Hard They Are to Obtain

For that same reason — the inherent risk that real estate investment involves — rental property lenders may be pickier in offering commercial real estate loans than with personal mortgages. During the application process, you may be asked to provide your credit report, personal income verification, bank statements, and tax returns to show lenders that you’re financially capable of paying the mortgage each month.

You may also be required to offer a larger down payment on the property or to demonstrate greater cash reserves and income to show that you can afford to pay the loan.

Finally, lenders may not be as lenient if you fall behind on payments as they might if you lived in the home carrying a loan.

Recommended: First Time Business Loans

Requirements and Eligibility for Rental Property Loans

There are often more stringent requirements to qualify for a small business loan for rental property. During the application process, you will typically be asked for business entity documents (if your real estate investment company is an LLC or corporation), a voided check, and a scope of work.

Credit Scores

Just as with any business loan (or personal loan, for that matter), your credit score will help determine your eligibility for a rental property loan, as well as what rate you pay. The higher your score, the lower the rate you may be offered.

Some lenders require scores of 620 or higher. Lenders may look at your business score, your personal score, or both. Borrowers who meet a lender’s minimum credit scores for business loans may get approved for financing.

Debt-to-Income Ratio

Another important factor in applying for a rental property loan is your debt-to-income ratio, also known as your DTI. This is the ratio of how much debt you have against your total income. The higher the ratio, the more risk you present to lenders. Most want to see a DTI ratio of 36% or less.

Your Down Payment

Most lenders will require you to make a business loan down payment with your purchase. Some lenders will let you borrow with little to no money down (expect those to charge higher interest rates).

You may be required to put down 20% — at minimum — of the purchase price.

Recommended: Typical Small Business Loan Fees

The Takeaway

Business loans for rental property can be helpful when purchasing your next apartment building investment, but they’re not without drawbacks.

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 small business loan for a rental property?

Yes. There are specific loans designed for real estate investors with rental properties.

What type of loan do I need for a rental property?

There are several different loans available to you for rental property, from standard term loans to lines of credit. After reviewing these options, you can choose one that’s right for you.

Can an LLC get a mortgage?

Yes, a real estate investment company operating as an LLC (or a corporation) may be eligible for a commercial property mortgage.

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.

SOSB0224002

Preparing to open a new restaurant, renovating an existing one, or expanding and opening additional locations all require significant capital. That’s where restaurant loans come in.

With restaurant financing, you’ll be prepared to tackle big projects, major repairs, and purchase necessary equipment to keep your restaurant business thriving, even during seasonal or economic changes.

There are a number of different small business loans, so we’re here to walk you through the essentials of:

•  What restaurant loans are

•  Typical loan terms, rates, and amounts

•  Different types of restaurant loans

•  Applying for a restaurant business loan

What Are Restaurant Loans?

Restaurant loans are financing designed to meet the specific needs of starting, renovating, or expanding a restaurant business. With necessary capital in the form of short- or long-term business loans, restaurant owners can confidently pursue their business and financial goals.

Restaurant business loans are offered in a variety of forms, including traditional business loans at a bank, peer-to-peer (P2P) business lending, and short-term business loan options like merchant cash advances and business lines of credit.

Recommended: Loans for Business Expansion

Common Reasons for Restaurant Financing

The restaurant industry is competitive and requires innovation, creativity, and an entrepreneurial spirit to maintain growth — and of course, capital to support you every step of the way. Here are a few of the primary reasons business owners seek out restaurant loans:

•  Starting a new restaurant: Includes lease, furniture, equipment, payroll, marketing, and any other expenses associated with starting a business.

•  Restaurant repairs: Kitchen equipment must be serviced and repaired frequently, particularly appliances in high demand like dishwashers, refrigerators, ice makers, and stoves.

•  Opening new locations: Like starting a new restaurant, you’ll need restaurant financing to pay for everything from equipment to payroll.

•  Expanding or remodeling an existing location: Costs associated with construction, design, permitting, and to supplement cash flow during construction.

•  Updating restaurant equipment: Financing to replace old equipment.

•  Rebranding: As your business grows and changes, you’ll likely need to rebrand to stay relevant to customers. This may include design costs, website build/updates, interior design, marketing materials, and advertising.

•  Working capital expenses: Any costs associated with typical business operations and maintaining cash flow during slow seasons.

•  Emergency expenses: May include repairs, equipment purchases, or costs associated with the restaurant being closed for any amount of time.

•  Hiring additional staff or third parties to assist with business operations: During times of increased business, you may need to hire more staff to help with managing aspects of your business, like daily operation, finances, taxes, design, or construction.

•  Technology investments: This may include building a new website or updating an existing one, purchasing software to help manage business operations, or implementing a new point-of-sale (POS) system.

Now that you have an idea of what you can use restaurant funding for, let’s take a look at common rates and terms for restaurant financing.

Restaurant Business Loan Amounts, Rates, & Terms

Since restaurant loans are used for so many different reasons, it can be challenging to predict what the rates and terms will be.

To make it simple, we’ll go over some typical rates, terms, and amounts for the following common restaurant loan categories:

•  Restaurant loans for start-ups and expansion

•  Working capital loans

•  Equipment or inventory purchases

Restaurant Loans for Start-ups and Expansion

Starting or expanding any type of business will likely require a combination of personal funds and loans, and restaurants are no exception. Investing in a new restaurant start-up and helping it grow takes significant capital, which may include long-term business loans and shorter-term financing for cash flow.

If you’ve created a solid business plan, have a good credit rating, and have positive financial history, particularly in the restaurant industry, a traditional bank will likely offer the most competitive rates and terms.

Another great option for qualified borrowers is an SBA loan for a restaurant start-up or other significant restaurant investment. As a government-backed loan option, SBA loans offer some of the most competitive interest rates and terms, with loan amounts up to $5 million on their standard SBA 7(a) loan program. Established restaurateurs can also benefit from an SBA loan.

Common terms for long-term restaurant loans for startups are:

Rates: Depends on the type of loan and lender

Terms: Up to 25 years

Loan amount: Up to $5 million for SBA; each lender will vary, but banks could offer up to a few million depending on eligibility

Loan requirements: Stringent requirements for banks and SBA loans; alternative lenders may have fewer requirements, but offer less financing

Recommended: Secured Business Line of Credit

Restaurant Loans for Working Capital

Working capital includes many of the smaller, everyday expenses associated with running a business. This may include monthly bills, rent, payroll, repairs, inventory, and any other expenses associated with daily business operations.

Many business owners receive working capital loans to maintain cash flow during seasonal fluctuations, economic changes, or any time business slows down.

Working capital loans can be obtained through a variety of lending sources, including banks, online lenders, and credit card companies. A business line of credit is one of the most common forms of working capital loans, as business owners can access cash quickly up to an approved amount. If it’s a revolving line of credit, restaurant owners can continue withdrawing up to their limit on an ongoing basis. If the balance is paid in full each month, there’s no interest added.

Other forms of working capital loans include inventory financing, merchant cash advances, and invoice factoring.

Rates and terms vary greatly depending on the type of working capital restaurant loan, but here are some general terms to be aware of:

Rates: Depends on the type of loan and lender

Terms: Generally, less than 3 years

Loan amounts: Up to $500,000, depending on the lender

Loan requirements: Varies depending on lender, but typically a good credit rating and some business financial history will help you obtain a working capital loan more easily.

Restaurant Equipment Loans

Whether you’re opening a new restaurant or managing an existing one, equipment will always be an important part of your restaurant business. And due to the frequent use of many appliances in the kitchen, upgrading and repairing equipment may happen frequently.

Equipment loans are a great choice when you need restaurant financing specifically for equipment like ovens, refrigerators, stoves, and other large appliances. Many lenders offer business loans for equipment with fixed payments and interest, paid over a set amount of time.

The equipment you purchase often acts as collateral for the loan, meaning you don’t have to provide additional collateral, which may be an advantage for business owners who don’t have valuable assets to offer.

When searching for lenders and equipment loans, rates and terms will vary, but you can expect to find the following ranges:

Rates: Depends on the type of loan and lender

Terms: Up to 5 years

Loan amount: Varies depending on type of equipment and lender

Loan requirements: Strict for banks and SBA loans; may be more lenient for alternative lenders

Types of Restaurant Loans

Now that you know more about what you can use restaurant loans for, let’s break down the different loan options, who they might be good for, and what to be aware of when choosing certain types of restaurant funding.

Online Loans From Alternative Lenders

What is it: Short- and long-term restaurant business loans that are offered by online lenders as opposed to traditional banks or credit unions.

Why choose it: If you need quick funding for restaurant repairs, working capital, or new equipment, online and alternative lenders typically have a quick application and approval process, and may have fewer eligibility requirements than a bank.

Keep in mind: Restaurant loans from alternative lenders are convenient and typically have less strict qualification requirements than traditional lenders. In turn, interest rates tend to be higher.

Business Line of Credit

What is it: A restaurant business line of credit is a common form of restaurant financing that can help manage cash flow, cover restaurant repairs, or purchase restaurant equipment. Borrowers can withdraw up to a certain limit assigned by the lender. Interest is typically applied to balances that aren’t paid off each month. Restaurant lines of credit can be revolving or terminated when the balance is paid in full.

Why choose it: Restaurants who experience seasonal fluctuations, cyclical sales, or have emergency expenses might find a business line of credit helpful. Business lines of credit may be easier to get because loan amounts are smaller and credit score requirements are frequently more lenient.

Keep in mind: Opening a business line of credit can come with additional fees and costs that may contribute to the overall cost of the loan. If you need a larger sum of cash for restaurant renovations or expansion, a business line of credit likely won’t offer adequate funding.

Equipment Loan

What is it: An equipment loan is financing for the purchase of necessary restaurant equipment. This can include everything from basic kitchen equipment to dining room furniture. They are often short-term loans to be paid off within a few years, or the life of the equipment.

Why choose it: Restaurant equipment loans are helpful when you need valuable equipment but don’t want to use up cash reserves. The equipment you purchase acts as a form of collateral, which may help you secure a better interest rate.

Keep in mind: If you don’t have a strong credit score, lenders may also require a personal guarantee on the equipment loan. A personal guarantee gives a lender permission to seize a business owner’s personal assets in the event that they default on the equipment loan.

Peer-to-Peer Loan

What is it: Peer-to-peer (P2P) business lending facilitates the lending process between business owners and private lenders, eliminating the need for a financial institution to act as a middleman. Restaurant owners and lenders can quickly connect using online platforms that allow for faster turnaround on funding.

Why choose it: Borrowers who cannot get financing from traditional lenders may be able to secure cash quickly to cover a variety of restaurant-related expenses.

Keep in mind: Loan amounts are typically smaller and interest rates higher, compared to a traditional bank loan.

Recommended: Loans for Business Acquisition

SBA Loan

What is it: SBA loans are offered through approved SBA lenders, including banks, credit unions, and online lenders for nearly any business-related expense. The SBA 7(a) loan program offers restaurant owners the ability to secure up to $5 million in financing at lower interest rates. These SBA loans give small business owners flexibility to use funds for a variety of working capital expenses.
For restaurant owners who need faster funding, the SBA Express program offers a faster turnaround time for review, with responses coming within 36 hours, and a maximum loan amount of $500,000.

Why choose it: Offers access to low-interest, fixed-rate restaurant loans, which can help cover short- or long-term expenses. Small loans of $25,000 or less do not require collateral.

Keep in mind: Typically, SBA loans are more difficult to qualify for so it’s important to have strong credit, proof of revenue, and a business plan for your restaurant that you can show to potential lenders.

Traditional Bank Loan

What is it: A traditional bank loan is one obtained from a traditional lender, such as a bank or credit union, rather than online or other alternative sources. They are called “traditional” because bank loans are considered one of the original sources for business financing.

Why choose it: If you are a restaurant owner with a high credit rating, a solid business plan, significant business history, and proven revenue, you may be a good candidate for a restaurant loan from a bank. Banks typically offer lower interest rates and higher loan amounts to qualified borrowers.

Keep in mind: Traditional lenders typically have stringent eligibility requirements, including minimum annual revenue, high credit score, and more than a year of business history.

Working Capital Loan

What is it: A working capital loan is any type of restaurant loan that covers operational expenses like payroll, monthly bills, and repairs. Restaurant businesses may rely on working capital to manage cash flow fluctuations due to seasonality and other factors.

Why choose it: For restaurants with unpredictable cash flow, working capital loans can help pay for small expenses related to repairs, equipment, payroll, or supplies.

Keep in mind: There are unsecured and secured (collateral required) working capital loans, but unsecured may require higher credit rating and may have higher interest rates.

Commercial Real Estate Loan

What is it: Commercial real estate loans (CREs) are used by business owners for the purchase, refinance, or renovation of a commercial property, like a restaurant.

Why choose it: CRE loans can provide long-term restaurant financing for qualified restaurant owners who need significant funds for purchasing or renovating property associated with their business.

Keep in mind: Eligibility requirements are typically stringent for CREs because of the higher loan amounts. Lenders may require a high credit rating, significant business history, and a debt service coverage ratio of 1.25 or greater.

Recommended: Loans for Veterans

Franchise Loan

What is it: Franchising loans are used to purchase rights to a franchise name, brand, or specific product(s) from a franchisor. In addition to typical business startup costs, franchise loans can help cover costs unique to franchises, such as training and marketing.

Why choose it: Useful for business owners who are looking to open a restaurant franchise to pay for typical start-up costs and working capital. Some franchises may already have relationships with lenders, potentially making the loan application process easier for borrowers.

Keep in mind: Lenders may require a high credit rating and a down payment to secure the loan. Some may also require collateral, while others may consider the equipment and location as collateral.

Merchant Cash Advance

What is it: A merchant cash advance offers restaurant businesses money up front in return for repayment that’s taken as a percentage of the borrower’s future credit card sales. Automatic withdrawals are often set up to directly debit the borrower’s bank account on a daily or weekly basis.

Why choose it: If you have bad credit or a newly established restaurant and few loan options, merchant cash advances may help with covering short-term, small expenses.

Keep in mind: Merchant cash advances tend to be some of the most expensive funding options available, with APRs in the triple digits. Merchant cash advance companies also operate in an under-regulated space, meaning borrowers need to be extra vigilant about who they work with to ensure a fair partnership.

Recommended: Emergency Business Loans

Applying for a Restaurant Loan

Whether you’re seeking a loan from a bank or an alternative small business loan, you can follow these common steps to prepare and apply.

1. Determine how much funding you need, for what, and when
The amount of restaurant funding you need, what for, and when play a role in the type of restaurant loan you apply for.

For example, if you simply need quick funding to cover a repair or emergency expense, you may consider applying for a business line of credit. In contrast, if you need a loan to purchase an existing restaurant or to renovate, you may consider a long-term loan from a traditional bank or a commercial real estate loan.

2. Determine your qualifications as a borrower

Lenders have their own eligibility requirements, which vary depending on the type of restaurant loan you apply for. Before choosing a lender and applying, check eligibility requirements and make sure your business meets them.

The following factors may contribute to your eligibility:

•  Your personal and business credit scores

•  Amount of time in business

•  Business finances/revenue

•  Debt-to-income ratio

•  Business bank accounts

•  Collateral offered

•  Down payment

Recommended: How to Check Your Credit Score

3. Choose the restaurant loan that meets your needs

Deciding on the type of loan comes down to a few factors, such as the desired loan term, qualifications, loan amount, and business needs. Common restaurant financing options include:

•  Business line of credit

•  Equipment loans

•  P2P lending

•  SBA loans

•  Traditional bank loan

•  Franchise loans

•  Merchant cash advance

4. Compare restaurant financing companies

Each lender will offer different loan terms, rates, and loan programs, so it’s important to choose the one that aligns with your needs and eligibility. For example, if you have limited business history and poor credit, you will likely find yourself looking into financing through an alternative lender or short-term loan program.

Some factors to consider when comparing business lenders are:

•  Do you need to offer collateral?

•  How long is the loan application and approval process?

•  What is the APR?

•  What is the payment schedule?

•  What is the lender’s reputation?

5. Prepare documentation

Before completing an application for restaurant financing, gather the necessary documentation. This may include:

•  Business financial records

•  Personal and business credit reports

•  Cash flow projections

•  Business plan

•  Identifying information, which may include citizenship

•  Business legal documents

•  Business and personal tax returns

6. Submit application
After you’ve chosen a restaurant lender and gathered documents, follow the lender’s instructions to apply.

Alternatives to Restaurant Loans

As a restaurant owner, you may need additional short- or long-term funding options. The following types of loans may be useful:

Microloans

Microloans are those for smaller loan amounts, typically under $50,000. Business owners may turn to microloans when they cannot access funding from other sources. They are generally offered by nonprofits, government agencies, or individual lenders and can be used for a variety of restaurant related expenses.

Personal Business Loans

A personal business loan is one which can be used for personal or business expenses. If you don’t qualify for another type of restaurant loan, some personal loans can give you the flexibility to use funds in any way that you need.

Recommended: Business Loan vs. Personal Loan: Which Is Right for You?

Inventory Financing

Inventory financing is a short-term loan or line of credit that allows for the purchase of inventory at a later time. Inventory is paid for up-front and acts as collateral for the loan.

Find a Restaurant Loan

Owning and managing a restaurant is a challenging, yet exciting opportunity. There are a number of factors to consider when choosing restaurant financing and SoFi marketplace is ready to help you find the right loan for your business.

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.

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.

SOSB0224024

If you’re a woman looking to start or grow your own business, a small business loan may be the boost you need.

Below, you’ll find information on small business loans for women, getting certified as a women-owned small business, applying for a loan, and alternatives to business loans.

8 Types of Small Business Loans for Women

With so many options, ranging from Small Business Administration loans to merchant cash advances, it can be challenging to know which type of financing is right for your business. We’re here to help.
Check out the different types of business loans for women so you can choose the option that meets your business’ needs.

Recommended: Small Business Grants

1. Business Line of Credit

What is a business line of credit?

Like a personal credit card, a business line of credit gives you access to a set amount of money ($50,000, for example), but you only pay interest on the amount you use.

Typically, you can withdraw and repay as needed if you don’t go over the approved credit limit.

Each creditor has its own way of determining approvals, credit limits, and interest rates. A few factors that might be taken into consideration include:

•  Your business credit rating

•  Your personal credit score

•  The amount of time your business has been running

•  Your business revenue

•  Your business plan

Why choose a business line of credit?

A business line of credit may be a good option for business owners who want cash readily available for unexpected expenses, smaller purchases, or short-term financing.

This funding method offers a balance of flexibility and control so you can spend as you need to and repay only what you use (plus interest).

Keep in mind

Typically, lenders want prospective borrowers to have a strong credit and revenue history. However, if you’ve been in business for only a short amount of time and haven’t built up your credit, you may find it easier to qualify with an online lender as opposed to a bank or credit union.

Online lenders typically have less strict approval requirements, but may also have higher interest rates and lower credit limits.

Recommended: Types of Business Loan Fees

2. Term Loan

What is a term loan?

Why choose a term loan?

Term loans can be a great option for women-owned small businesses in need of a large sum of money. Term loans give you the flexibility to use the funds for any part of your business and pay the money back over a term that fits your company’s growth.

With long-term and short-term options, you can decide what is realistic for your business needs.

Long-term small business loans often have lower monthly payments, but you may end up paying more over the loan’s lifetime because of the accrued interest over the extended repayment period.

Short-term small business loans may result in higher monthly payments, but you’ll likely pay less in interest because of the shorter repayment period.

Keep in mind

Both banks and online lenders offer term loans. While banks typically offer lower annual percentage rates (APRs) for their customers, it can be challenging to get a term loan from one if your business is brand new or if your credit rating is low. Additionally, banks frequently require some form of collateral in case you default on your term loan.

Recommended: Loans for Online Businesses

3. SBA Loans

What Is an SBA loan?

An SBA loan for women may provide lower interest rates, flexible terms, educational opportunities, and business counseling for those who qualify.

You can apply for amounts from $500 to $5 million and use the capital for nearly any business purpose, depending on the type of loan. Here are some loans that women-owned businesses might be interested in:

•  SBA 7(a): SBA 7(a) loans are small business loans for women with established businesses. Financing is up to $5 million for almost any business-related purchase, including property.

◦  Additional options include an SBA 7(a) Small Loan (up to $350,000) or an SBA Express loan, which has a turnaround time of 36 hours for qualified applicants.

•  SBA 504: SBA 504 loans are used to purchase new or existing buildings and land, renovation of existing property, new construction purchases, or refinancing of debt related to the expansion of your business.

Why choose an SBA loan?

SBA loans may offer lower interest rates and longer loan terms compared to other lending options. They may also allow higher borrowing amounts that can be well-suited for larger purchases.

So, if you’re looking to grow your women-owned business and have a strong credit history, an SBA loan may be a great option.

Additionally, if you’re a veteran, the SBA offers many resources and funding options to help get your business up and running. If you qualify, when comparing your choices, make sure you also evaluate small business loans for veterans.

Keep in mind

Qualifications for an SBA loan can be stringent and the application process long and difficult. If you need funding fast or don’t have the strongest credit, this might not be the optimal choice for you.

4. Commercial Real Estate Loan

What is a commercial real estate loan?

A commercial real estate loan funds the purchase of a building intended for use as office space, a retail shop, or any other commercial function.

Why choose a commercial real estate loan?

If you’re growing your business and need more space or you’re expanding into the retail sector, a commercial real estate loan may be an option to consider.

Keep in mind

Commercial real estate loans can look different depending on the lender and the property’s value.

How much financing you receive depends on the loan-to-value (LTV) ratio, which is the size of the loan compared to the value of the property. For example, if you purchase a building for $200,000, you may receive $150,000, or 75% of the total value. The remaining amount needs to be self-funded and acts as a down payment.

In addition to the down payment, you may encounter appraisal, inspection, and local filing fees. It’s a good idea to speak to your lender about the fees and additional expenses to expect so you can accurately gauge whether a commercial real estate loan is right for your needs.

5. Equipment Loan

What is an equipment loan?

Equipment loans offer to finance the purchase of machinery, vehicles, or other business-related equipment. The equipment you’re buying serves as the collateral on the loan.

Why choose an equipment loan?

Both new and established small businesses can benefit from equipment loans. If you need equipment but don’t have the capital to purchase it outright, equipment financing may help.

Keep in mind

These may be helpful small business loans for women who have bad credit, since the equipment acts as the collateral. However, it’s essential to try to make sure your loan term isn’t longer than the equipment’s useful life.

If you’d rather not take out a loan, there are also options for equipment leases.

6. Personal Loan for Business Use

What is a personal loan for business?

Personal loans are based on your personal credit history and may provide funding for your business.

Why choose a personal loan for business?

Personal loans for business may help you obtain startup capital. If you don’t have business credit established but have good personal credit, a personal loan may be a good option.

Keep in mind

Personal lenders may have restrictions on what you can use the money for, including stipulations about business expenses.

Unsecured personal loan amounts are typically smaller than loans secured by collateral, so you might need to combine a personal loan with other financing to make large purchases.

Recommended: Business Loan vs. Personal Loan: Which Is Right for You?

7. Invoice Financing

What is invoice financing?

Invoice financing uses your unpaid invoices as collateral for a cash advance.

Why choose invoice financing?

If you have a business-to-business (B2B) service with irregular billing cycles, invoice financing can help pay for operating expenses as you wait for your customers to submit payments.

A lender advances you a percentage of your outstanding invoice amounts. You can use that money to reinvest in and grow your business more quickly than if you’d waited for your customers to pay.

Keep in mind

If you operate a business-to-consumer (B2C) service, you typically don’t invoice customers and won’t qualify for invoice financing.

Additionally, lenders often charge non-refundable processing and repayment fees for invoice financing.

Finally, if your customers are late on invoice payments, you’re still responsible for paying the weekly fee associated with the invoice amount that hasn’t been paid back yet.

8. Microloan

What is a microloan?

Microloans are usually offered at $50,000 or less by nonprofit organizations and peer-to-peer lenders.

Why choose a microloan?

Microloans can be great options for any business that needs to borrow a small amount of money. In addition, they can be ideal small business loans for women with bad credit.

Because many microloans come from mission-based lenders, you may be able to get specialty funding, such as small business loans for minority women and other underserved communities.

Keep in mind

Compared to the other lending options, microloans may be easier to qualify for, but they also may carry higher interest rates. Learn more about microloans for women.

Get Certified As a Women-Owned Small Business (WOSB)

Anyone can apply for small business loans, but if you want to apply for a business loan specifically designed for women, you must become certified as a women-owned small business (WOSB).

As a certified WOSB, you can compete for government contracts set aside for specific demographic sectors, including women.

The two options for certification are self-certification and certification through an SBA-approved third party. Both options require you to use certify.SBA.gov and have a profile on SAM.gov.

Eligibility requirements for the women’s contracting program are:

•  Your business must be small.

•  Your business must be at least 51% owned and controlled by women who are US citizens.

•  Women need to be responsible for your business’s day-to-day operations and making long-term decisions.

For more information on government contract awards for women-owned small businesses, refer to the Office of Government Contracting.

Applying for Women-Owned Small Business Loans

Applying for a small business loan for women is like applying for any other small business loans, except you have opportunities to apply for ones exclusively reserved for women.

While applications vary by lender, here are steps you can generally expect to follow when applying for a loan for women entrepreneurs:

1.   Become certified as a women-owned small business, as detailed above. Again, this is only needed if you’re applying for a small business loan geared specifically toward women. If you’re applying for a general small business loan or line of credit, you do not need to become certified.

2.   Consider the specific need(s) your company has and why you need the loan. Some lenders may want to know how you plan on using the money and may request a business plan.

3.    Research types of business loans for women, including short- and long-term business loans, business lines of credit, commercial real estate loans, equipment financing, SBA loans, and more.

4.   Investigate your business and personal credit histories to help determine what you may qualify for. Those with strong credit profiles will most likely qualify for the best rates.

5.   Research types of lenders who offer your chosen loan type. Options to consider include:

•  Online lender

•  Bank

•  Credit union

•  Peer-to-peer network

6.   Compare small business lenders. Ensure you meet their minimum qualifications for borrowers and check to see if they offer special programs or perks for women small business owners. Then, look for those that offer loans with the amount, rates, and terms you desire.

7.   Prepare any appropriate documentation those lenders need, like bank statements, legal documents, business expenses, and tax returns.

8.   Apply with the lender(s) that are a good fit for you. Ideally, you’ll prequalify with a variety of lenders and then fully apply to the one(s) that fits you best.

Alternatives to Loans: Small Business Grants for Women

Women-owned small businesses can also obtain funding through grants for women. In contrast to small business loans for women, most grants don’t need to be repaid, which is especially helpful for small business startups.

However, getting grants can be competitive. As you begin your search for grants, here are a few options to consider:

•  State and local grants

•  Nonprofit grants

•  Grants offered by private organizations

You may need to explore a mix of grants and loans to meet the goals of your business.

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 you apply for a small business loan for a woman-owned business?

Think about your business’s specific needs and how much money to apply for. Decide which type of loan and lender aligns with your business’s needs and qualifications. Compare lenders, then prepare documentation and submit an application to your lender(s) of choice.

Are there small business loans for women with bad credit?

Lenders have different eligibility requirements that may factor in both your personal credit score and your business’s credit. Borrowers with bad credit may want to consider microloans, which tend to have less stringent eligibility requirements. Alternatively, women with bad credit can look into small business grants, which don’t have to be repaid.

What are the benefits of small business loans for women?

There are many benefits that small business loans can offer women business owners. Depending on the type of funding you choose, you may be able to quickly get the capital needed to buy or upgrade equipment, purchase property, or get cash advances on unpaid invoices. With different repayment schedules, you can finance your business and pay back your loan on reasonable terms.

Is it easier to get a loan as a woman-owned business?

It’s not easier or harder. Lenders will look at the financial history of the business and the individual when making a lending decision.

Can women get a small business loan?

Yes, women can get a small business loan from banks, credit unions, and online lenders. To qualify, women will have the same requirements as anyone else applying for a business loan, which usually include a strong credit history and consistent business revenue.

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSB0224025