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It happens. Business is chugging right along — until it isn’t. You might have a slow month or two when you find it difficult to cover business expenses, including payroll. What then? How can you ensure your staff gets paid and business gets back to normal?

There are, fortunately, different business loans you can use to cover such expenses at times like these. In fact, there are even specific payroll loans to help.

Here’s a closer look at small business loans meant to cover payroll so you understand your options.

What Are Payroll Loans?

Payroll loans is an umbrella term for any type of short-term business financing that can be used to cover expenses that include payroll for small businesses and payroll-related expenses, like health insurance for your staff.

There are many different loan types under this umbrella, including short-term business loans, business lines of credit, invoice factoring, cash advances, as well as working capital loans.

Because payroll loans require a fast funding time, they’re often offered by online, alternative lenders. However, you may be able to get a payroll loan through a bank or credit union. Qualification requirements, interest rates, and repayment terms for a payroll loan will vary by the lender and the amount of the loan.

How Payroll Loans Work

The way payroll loans work will depend on the type of payroll loan you choose. Generally, however, these loans fund quickly (sometimes in just a few days) and have a repayment term of one year or less.

Because these loans are short-term in nature, you may be required to make weekly, or even daily, payments to the lender. Payments will usually consist of principal and interest, and the repayment schedule will continue until the end of the loan term.

What Can Payroll Loans Be Used For?

Payroll loans can typically be used to cover payroll, payroll taxes, and employee benefits. Before applying for any kind of business loan, however, it can be a good idea to research what you can use that business loan for to make sure you stay within those parameters.

Depending on the type of loan you choose, you may also be able to use a payroll loan to cover other business expenses like inventory and office supplies.

4 Types of Payroll Loans

Payroll financing is generally offered via these four types of small business loans.

1. Invoice Factoring

If you have unpaid customer invoices, you may be able to borrow money against those invoices with invoice factoring.

With this type of financing, you sell your invoices to a factoring company, which then forwards you up to 85% of their value right away. The factoring company then owns the invoices and gets paid when it collects from your customers. Once the factoring company gets paid, you get the remaining value of those invoices, minus a fee. Keep in mind, though, that invoice factoring can cost more than other forms of business financing.

2. Short-Term Loans

If you need cash fast to pay your small business employees, a short-term business loan could come in handy. These are typically offered by online lenders and, once you get approved, funds can be accessed quickly — sometimes on the same day. However, they have short repayment terms, typically three to 18 months, and interest rates tend to be higher than longer-term small business loans.

3. Cash Advances

Instead of getting a loan to cover payroll, you may be able to get a cash advance based on the volume of your credit card receipts. With this type of financing, called a merchant cash advance, the funding provider gets paid back by taking a portion of your future credit card sales each day.

You can usually get approved quickly (often a day or two) with minimal paperwork. But you’ll likely pay for this convenience in higher interest rates.

4. Lines of Credit

Another option to look at is a business line of credit. Rather than getting all your money at once, you can borrow against a line of credit whenever you need cash. You can borrow a little, pay it back, and then borrow again. Terms will vary by lender, but Interest rates on lines of credit can be lower than credit cards.

Pros and Cons of Payroll Loans

If you’re considering a small business payroll loan, weigh the pros and cons.

Pros of Small Business Payroll Loans

Some payroll loans require minimal paperwork as compared to others like bank loans or SBA loans. That means you may be able to apply and get approved within minutes. Many lenders will deposit funds in your bank account the next business day, so you can get the cash when you need it.

Many payroll loans are easier to qualify for than other types of loans, since there are no credit check business loans and other options that look at qualifications other than your credit scores.

And finally, if your struggle to pay staff puts you at risk of losing them, having the funds to keep payroll smooth and steady can help you keep those great hires you’ve invested time and money in.

Cons of Small Business Payroll Loans

Depending on the type of loan you get, you may need to repay it within a year or so, which can cut into your profit margins. It can be a good idea to have a plan for how you’ll pay your loan back as part of your monthly budget.

Likewise, some loans come with higher interest rates, particularly short-term business loans. If you can’t qualify for a bank or an SBA loan, interest rates can rise into the double digits.

And finally, while a payroll loan can solve short-term cash crunches, it won’t be able to help if you have bigger financial issues. Consider it a band-aid, not a long-term solution.

Applying for Business Payroll Loans

Once you’ve explored your options for payroll loans, it’s time to choose the one that’s the best fit for you.

The better your credit, generally the better the terms you may qualify for.

If you have a high credit score, consider a long-term loan from a bank or the Small Business Administration (SBA).

If your credit’s less than stellar, there are options, though they may cost more. Look to merchant cash advances, short-term loans, and lines of credit.

Recommended: Agriculture Business Loans

Payroll Loan Requirements

Once you’ve landed on the best fit, review the requirements to make sure you meet them. These may include the following:

Business Credit Score

If you have a business credit card and have established a credit history through your business, then your company has a business credit score that is separate from your personal credit score. Generally, the higher your business credit score, the more likely you are to get a business loan from a bank with attractive rates and terms.

Business History

Banks typically want to see that you have been in business for at least two years, since this indicates that you have a successful business model. Online and alternative lenders may have less stringent requirements for length of time in business.

Debt to Equity Ratio

This is the ratio of your existing debt to your business equity. It’s okay if you are carrying some debt, but banks typically like to see a healthy balance between debt and equity. Generally, a debt-to-equity ratio of around 1 or 1.5 is considered good, but this will vary depending on the industry.

Business Plan

Banks and other lenders will often want potential borrowers to submit a plan for how they will use the funds from the loan, even if you only plan to use the money for payroll. A business plan shows that you have fully thought through how much you need, how you will use the capital, and how you will pay it back.

Collateral

With some business loans, you will need to put up an asset to secure the loan, called collateral. The asset could be real estate, equipment, vehicles, or other tangible assets owned by you or your business. If your business cannot repay the loan in full, the lender can seize the collateral to recoup its losses.

What Are Other Small Business Loan Options?

It can be smart to be aware of all your financing options, whether you need to cover payroll or another business expense.

Inventory Financing

If you buy and sell products, you likely spend a large portion of your money on inventory. Did you know that you can use the inventory you’re buying as collateral for a loan to purchase the inventory? Lenders will give you a percentage of the value of your inventory as a loan. Be aware that, should you not be able to pay it back, the lender can take the inventory to cover your debt.

Equipment Loans

Just as inventory financing uses inventory as the collateral, equipment loans use the equipment you’re buying as the collateral for the loan. This often means you can get a low interest rate. Equipment loans can be used to buy computers, heavy machinery, or company vehicles.

Recommended: Invoice Factoring

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 SBA loans be used for payroll purposes?

Yes, the Small Business Administration (SBA) has several loans that can be used for payroll and other business expenses, including the 7(a) loan and microloans.

What does it take to qualify for payroll loans?

That will depend on the type of payroll loan you plan to apply for. If you opt for a short-term business loan from an online lender, you will generally need a personal credit score in the 600s, have been in business for at least one year, and be able to provide proof of business income.

How exactly do payroll loans work?

How payroll loans work will depend on the type of loan you’re seeking. However, they generally work like any other type of short-term business financing. A lender forwards you a lump sum of capital that you pay back (plus interest) in installments, which may be daily, weekly, or monthly, over the loan’s term. In this case, the money you borrow is used for the specific purpose of paying your employees.

Photo credit: iStock/sasirin pamai

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.

SOSB-Q224-1880441-V1

If you’re a small business owner, you’ve likely put time and effort into building your business credit. Unfortunately, negative information can land on your business credit report through absolutely no fault of your own. This could be due to honest mistakes (even typos) or, worst-case scenario, fraud or identity theft.

To make sure your business credit reports accurately reflect your company’s financial activity, it can be a good idea to regularly check your reports from the three commercial reporting agencies (Experian®, Equifax®, and Dun & Bradstreet®) and, should you find any inaccuracies, dispute them as soon as possible.

Read on to learn how to get copies of your business credit reports, what to look for when you do, and how to dispute any misinformation you find.

Do Credit Reporting Agencies Make Mistakes?

Like consumer credit reporting agencies, business credit reporting agencies do sometimes make mistakes. In some cases, it’s a mistake they’ve made (such as misspelling your name or address); in others, the incorrect information comes from a creditor, vendor, or supplier reporting activity for you.

You might see an account you’ve closed still appears, or an outdated balance.

Or you might see an account that doesn’t belong to you. This can happen if a credit bureau mixes up your business name with a similar one and adds data for that business to your report.

An unfamiliar account can also be a sign of identity theft, which, unfortunately, is not uncommon for businesses.

One reason is that the business credit bureaus are allowed to sell business credit reports to anyone willing to pay for them. Information about your business may also be publicly available via your Secretary of State’s website. Thus, it’s not hard for a fraudster to get hold of your company’s information (such as EIN, business name, and address), and then use it to open accounts in the name of your business.

How to Check Your Business Credit Report

To check your business credit, follow these three simple steps.

1. Get Copies of Your Business Reports

To do this, you’ll need to create accounts with each of the business credit bureaus: Experian, Equifax, and Dun & Bradstreet. Unlike consumers, businesses are not entitled to a free credit report once every 12 months. As a result, each bureau will likely charge a fee for getting a copy of your business credit report. You may also have the option of signing up for business credit monitoring that includes unlimited access to your scores.

(One caveat: If you were turned down for a loan, you may be eligible for a free credit report.)

2. Review Each Report Carefully

Make sure your business and personal details are correct; even a misspelled last name can cause issues when applying for credit.

Also, review any debts listed. Make sure only active accounts appear, and that balances are accurate (or close to it; they may take a month or so to update).

3. Dispute Incorrect Information

If you see any errors or indications of fraud on your business credit reports when you review them, you’ll need to notify each commercial credit bureau that is reporting the incorrect data about your company. Below, we detail how to dispute errors with each of the three commercial credit bureaus.

Recommended: Personal Business Loans: Risks, Appeals, and Alternatives

How To Dispute a Credit Score

Correcting business credit report mistakes isn’t complicated, but each credit bureau has a slightly different process.

Experian

Here’s the process to file an Experian business credit report dispute.

If you’re logged into your Experian business credit report, there’s a “Submit Data Dispute” button at the bottom of the report. Use it to report the discrepancy.

Alternatively, you can send an email to [email protected]. Include a note mentioning what the discrepancy is and how it should be updated. It may take 30 days or less, unless the investigation is complex. You’ll be notified once the report is updated via email, and you will get a free business report so that you can confirm the updates.

If you don’t need to report an error but want to update business details like business name, address, number of employees, or executives, you can visit BusinessCreditFacts.com and click “Update my Report” on the right. Search for your business and select it, then update the information in the following form.

Equifax

To file an Equifax business credit report dispute, you can use the data dispute request form at the bottom of your report, or you can email [email protected].

Dun & Bradstreet

If you need to make updates on your Dun & Bradstreet report information, such as business name, address, or leadership, you can file it here.

If you want to dispute something on the report, call customer service at 800-463-6362 to report the error.

Recommended: Business vs. Personal Loans

Why Disputing Business Credit Reports Can Be Worthwhile

Why does it matter if there are discrepancies on your business credit reports? If you plan on applying for business loans, either soon or down the road, these errors may prevent you from qualifying for many business loan types.

If there’s an error on your report where the credit bureau confused your business with one of a similar name, and that business has a lot of debt. Your credit report indicates that you have a high level of debt, which may cause lenders to not want to lend to you. That, or they may charge higher interest than they would otherwise.

If your report is missing details on a trade account you opened with the goal of building your credit, you’ll lose the opportunity for your positive payment history to impact your credit.

Even if a mistake appears minor, like the wrong number of years in business or an incorrect industry code, it’s worth getting it corrected. If your company is classified as belonging to a riskier industry type or younger than it really is, it could negatively impact your business credit scores.

Low business credit can not only negatively affect financing opportunities but also lead to higher insurance premiums and difficulty securing leases for equipment, office space, or retail space.

Recommended: How Blanket Liens Work

Should You Ever Not Dispute a Credit Score Error?

There’s really no reason not to dispute a credit report or credit score error, even if it may be a hassle to do so. Something as simple as your name being misspelled can mean that any accounts you open under your actual name aren’t reflected on the correct report.

When comparing business credit vs personal credit, it is equally important to monitor your business credit as it is to monitor your personal credit, since it impacts your ability to get financing for your business.

Take the time to review your credit reports and report any errors so that your financial opportunities don’t suffer.

The Takeaway

Your business credit report can play a large role in small business loan applications and other types of financing, which is why it’s important to pay attention and actively manage your scores. Any mistakes can damage your credit and make you look less reliable in the eyes of a lender or creditor.

However, your credit scores are just one part of your business’s financial profile. Lenders will typically look at multiple factors — from your annual revenues to your business plan — when you apply for a loan. Plus, there are many different types of small business loans available, so even if your credit scores aren’t excellent, you will likely still have options.

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

Is it worth disputing a business credit report?

Yes. Disputing errors on your business credit report can ensure it accurately reflects your financial activity and may, in turn, help you qualify for better financing offers.

Can you remove negative items from your business credit report?

You can dispute errors and inaccurate information on your business credit report and get them removed. However, you can’t remove negative items that belong there, like liens or bankruptcies.

Photo credit: iStock/Andrii Zastrozhnov

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

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

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

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

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.

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 .

SOSB-Q224-1871666-V1

Successfully getting equipment financing with bad credit isn’t impossible. But just as with any other type of financing when you have poor credit, you may have to alter your expectations and do some extra legwork in order to get approved.

Keep reading to learn more on how you can increase your chances of getting equipment financing with bad credit.

How to Get Equipment Financing with Bad Credit

If you have bad credit, the following options may help you secure equipment financing:

1. Start with Existing Bank Relationships

Established businesses may begin the search for equipment financing with a bank or lender they already work with. Even when looking for poor credit equipment financing, potential borrowers may consider starting their search for any kind of small business loan at the institution they already have a relationship with.

Depending on the financial institution, there may be certain programs that offer rate discounts or other perks to existing customers, even if you have bad credit. When shopping for equipment financing with bad credit, it’s worth it to start your search with your current bank.

2. Consider Equipment Leasing

Another option for getting the equipment you need for your business is to lease it rather than purchase it. While an equipment loan may require a sizable down payment, it may be possible to finance the entire cost with a lease.

Be aware of the interest and other requirements when leasing equipment. Some leases may require a maintenance package or have a high interest rate. These fees and added costs can sometimes make leasing equipment more expensive than purchasing it.

3. Offer Additional Collateral

When applying for equipment financing with bad credit, consider offering additional collateral. Even with good credit, lenders may require a downpayment of 20% in addition to the equipment serving as collateral. But equipment financing for bad credit may come with stricter requirements. Some lenders may accept additional collateral — such as other hard assets like real estate — to help secure the loan.

Just remember that any collateral used could be seized and liquidated by the lender if you default on the loan, even if it’s personal property like your home or savings account. Carefully review your business financials to make sure you’re comfortable with your ability to repay the loan, otherwise you may put more at risk than just the equipment you’re financing.

4. Increase Your Down Payment

Another way to make your application more attractive to lenders is to make a larger down payment. This may only work for businesses with large cash reserves, but it could be a work around to get equipment financing with bad credit.

Also, a larger down payment results in a lower loan balance, which could mean a smaller monthly payment and less interest paid over the course of the loan. Review the loan terms, fees, and interest rates closely to evaluate how a larger down payment could impact the overall cost of your loan. While not every business will be able to pull this off, it does offer benefits for those who can.

Recommended: How to Dispute a Business Credit Report

5. Update Your Business Plan

Depending on the lender you apply with, you may need to submit a business plan as part of your application. A strong business plan can highlight your business acumen and could help you demonstrate how the equipment purchase will help grow the company.

A business plan contains several elements, including an overview of the company and structure, market analysis, operations, and financial projections. Provide in-depth data to show the lender that there’s a market need for your product or services and that you’re successfully managing both operations and business cash flow. You could also include a section outlining your funding request, especially if you’re applying with a traditional bank or lender.

6. Get Your Company Financials in Order

No matter what type of lender you apply with, you’ll most likely need to submit your company financials. You may also need to provide some documentation on your personal finances, as well. Consider pulling together the company’s recent tax returns, plus bank statements from the last several months.

Your application for business equipment financing with bad credit may be strengthened if you are able to demonstrate a strong cash flow. It can help show lenders that your company has the money to make the required monthly payments, even if your credit history either isn’t established or has some blemishes from the past.

7. Use a Cosigner

Adding a cosigner to your equipment financing application may also help you qualify for a loan. Generally, a cosigner is someone who has a strong credit score and stable income. Applicants with lower credit scores may have a better chance of being approved for equipment financing when applying with a cosigner and may even qualify for more competitive loan terms, such as a lower interest rate.

The downside, of course, is that the cosigner has equal responsibility for the equipment loan as you do. If you are late on payments or end up defaulting, that negative activity will impact your cosigner as well.

8. Apply with Online Lenders

It can be difficult to meet the equipment financing standards of a traditional bank when you have bad credit. Online lenders, on the other hand, may have more flexible lending requirements.

Because these lenders may have less strict requirements, such as a lower minimum credit score, they may offer less competitive rates and terms than traditional lenders. You can usually apply online and get a quote (and potentially approval) within minutes.

As you are shopping around for quotes, double check how a preapproval impacts your credit score. Many online lenders only perform a soft pull in the early stages, allowing you to shop around and compare offers before committing to one lender. But if they do a hard credit pull, it could impact your credit score.

Recommended: What Can a Business Loan Be Used for?

The Takeaway

It’s possible to finance equipment purchases if you have challenged credit, but you will have to do your homework and be realistic with expectations.

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 equipment financing with bad credit?

Yes, it is possible to qualify for regular equipment or heavy equipment financing with bad credit. You may need to spend more time finding lenders who are willing to work with businesses that have lower credit scores. Expect higher interest rates and stricter collateral requirements. Some business lenders may require a lien on the business and a personal guarantee on top of making a significant down payment and using the equipment as collateral.

What equipment loans can I get with a 500 credit score?

It is possible to find a lender who specializes in working with business owners who have credit defined as “fair” or “poor.” Give yourself time to explore options so you don’t take an offer with bad terms simply because you’re in a time crunch.

What is no credit check equipment financing?

In theory, no credit check financing refers to a lender that doesn’t look at your credit report when making a decision on your application. In reality, however, a reputable lender will have to pull your credit report, either for your business, your personal history, or both. So-called no credit check financing may come with very high interest rates or large penalties, so review the loan terms carefully.

Photo credit: iStock/PixelsEffect

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.

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 .

SOSB-Q224-1871696-V1

If you’re thinking about getting a loan to launch or expand your business, you may want to keep in mind that small business loans often require a down payment.

While the idea of having to come up with money in order to borrow money may sound like a catch-22, down payments are a way of lessening risk for the lender. Down payments can also benefit borrowers by improving the loan terms and lowering the overall cost of the loan.

Not all business loans require a down payment, however. Whether you’ll need to put money down — and how much — will depend on a number of factors, including the loan servicer, the type of loan, how much you are looking to borrow, and your credit profile.

Here’s what you need to know about business loan down payments and how much you may need — or want — to put down in order to get the right financing for your business.

What Is a Business Loan Down Payment and When Is It Due?

A business loan down payment is cash a borrower must pay up front in order to receive the proceeds of the loan. Typically, the down payment will be a certain percentage of the loan’s principal (amount of the loan). There are many different types of small business loans, and each has unique requirements for if and how much of a down payment may be required.

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

How Do Down Payments for a Business Loan Work?

Down payments for small business loans work similarly to down payments for other types of loans. When you get a mortgage to buy a house or arrange financing to purchase a car, for example, you typically need to make a down payment. Let’s say you purchase a car for $25,000 and a 10% down payment is required. That means you have to come up with $2,500 cash to get the loan. The lender loans you the rest — $22,500, plus fees.

A down payment on a business loan means you’ll need to pay a certain percentage of the total loan amount, say 10% or 20%, up front. After you’ve made your down payment, you’ll then receive the remaining 80% or 90% of the loan, often in one lump sum.

What Are the Maximum and Minimum Business Loan Down Payment Amounts?

Down payment amounts can vary widely depending on the type of loan, the lender, and borrower’s qualifications. They can be as little as 3.5% or as high as 50%.

5 Factors That Determine the Size of a Down Payment on a Business Loan

In some cases, a business loan will have a predetermined down payment. In others, the down payment amount will vary depending on several factors. These include:

1. Credit History

Down payment requirements are often lower for borrowers with high credit scores and solid credit histories, since they represent less risk to the lender. In some cases, these borrowers may even qualify for no-down-payment offers. Borrowers with low scores will likely be required to pay a higher down payment.

Recommended: Uses for Business Loans

2. Lender Policies

Some lenders may automatically require a down payment for specific loans or loans that exceed a certain amount, while others never require money down. It can be worthwhile to shop around and compare the various options for small business loans since one lender may ask for less of a down payment than another.

3. Collateral

If the loan is a secured loan, meaning you put up collateral for it, you may not be required to make a down payment or you may need to put less down, since that collateral lowers the risk for the lender.

4. Type of Business Loan

Different types of loans have different deposit requirements. A bank term loan, for instance, will often require a 10% to 20% down payment, whereas a construction loan may require 25%-plus down. Business lines of credit and invoice financing, on the other hand, require no down payment.

Recommended: What to Know About Short-Term Business Loans

5. Business Loan Purpose

The purpose of your small business loan can also affect the size of your down payment. If you plan to use the funds in a way that is likely to increase your company’s revenues, the lender may feel comfortable with a smaller (or no) down payment.

Why Do I Need to Make a Down Payment?

Requiring a down payment is one of the tools lenders use to manage their risk. By investing your own money, you’re showing the lender that you’re serious about the loan and likely to pay it back. In other words, you’re putting “skin in the game.” In addition, should you fail to fully repay the loan, the lender will at least have that money to lessen its loss.

Down payments aren’t just good for lenders, though. They also benefit you as a borrower. By putting up a down payment, you’re able to lower the total amount of money that you will pay interest on. A down payment can also help you get a lower interest rate. Together, this can lead to a lower monthly payment and make the loan more affordable over the long term.

Are Down Payments Always Required on Business Loans?

No. Not every lender requires a down payment on a business loan. Some will offer no-money-down loans as an enticement to bring in new business, but will have strict requirements for who qualifies for those loans.

Online business loans and term loans generally do not require a down payment, though they may require collateral.

Some of the most desirable business loans on the market, however, are offered by the Small Business Association (SBA), and these typically require a 10% to 20% down payment. While it may seem like a hefty amount to plunk down, it can be well worth it since you can often get a long-term, low-interest rate loan in return.

Most larger business loans — including commercial mortgages, commercial auto loans, and equipment loans — also require down payments to get approval for funding.

Required Down Payment by Loan Type

With so many different types of business loans, it can be confusing to know which require a down payment and which do not. For some loans, a down payment is always required, but may vary based on the borrower’s profile and loan amount. For other loans, a down payment may not be required at all.

Here, we break it down by different types of loans.

Commercial Mortgage Down Payments

For many businesses, commercial real estate is one of the biggest purchases they will make. Due to the size of the purchase, most business real estate loans require a down payment. How much they will require will depend on the lender.

Commercial mortgages offered through government-sponsored programs, including the SBA and the Department of Housing and Urban Development (HUD), generally offer some of the best financing options.

If the property will serve a governmental purpose (such as a healthcare facility or public housing), your chances of scoring good terms tend to be even better.

Here are some examples of commercial mortgages and the down payments they may require.

Commercial Vehicle Down Payments

If you need a vehicle to conduct business or deliver goods, you’ll likely be in the market for a small business auto loan. Some lenders specialize in providing business auto loans and fleet financing. For heavy-duty vehicles (weighing 2.5 tons or more), you will typically need to use an equipment loan.

In some cases, lenders are willing to finance a new vehicle with no down payment because the vehicle serves as collateral for the loan. Whether a downpayment is required and how much it will be often depends on the buyer’s profile.

Here are some common types of commercial vehicle loans and possible down payments they may require.

General Purpose Business Loan Down Payments

There are a variety of general business loans you can use to hire staff, invest in marketing, buy inventory, or cover other business expenses. This includes traditional term loans, lines of credit, and government-sponsored lending programs.

Whether you are required to make a down payment on a general business loan will depend on the type of loan and your qualifications. Some of the most sought-after general business loans are SBA loans, which have stringent qualifications and, in most cases, require a down payment.

Here’s a look at common general business loans and the down payments they may require.

Down Payments vs Collateral

Down payments and collateral are similar, but also have some key differences.
A down payment is a cash payment you make to the lender before you receive the loan. If you default on the loan, you forfeit your down payment.

Collateral is an asset you put up against the loan. This means you give the lender the right to take the asset if you are unable to pay the loan. Collateral could be a vehicle, piece of equipment, inventory, or real estate. Collateral allows you to keep more liquid capital in your business, but comes with the risk that you could lose the asset.

Both down payments and collateral serve the same purpose — they lower the lender’s risk.
Some loans require one or both, while some require neither. Generally, if a loan requires either a down payment or collateral, it will have a lower interest rate.

Pros and Cons of Putting the Minimum Down

If you are required to make a small down payment for a business loan, should you pay the minimum or should you make a larger down payment? Let’s look at the benefits and drawbacks of paying only the minimum.

Pros

Having any kind of down payment means you’ll need cash upfront before you even get the loan. By paying the minimum, you may find it easier to come up with the down payment, particularly if you don’t have a lot of cash on hand.

By only paying the minimum, you may also be able to come up with the down payment faster, which means you can get the loan sooner.

Cons

The smaller the down payment, the larger the balance — and the more total interest you’ll end up paying on the loan. As a result, you may end up with a larger monthly payment than you’d like.

By paying just the minimum, you may also end up paying a higher interest rate than if you offered a higher down payment.

Recommended: Business Loan Interest Rates

Should You Pay the Minimum Down Payment?

Once you establish how much you are required to have as a down payment for the business loan you’re planning to apply for, you may actually want to consider paying more. Why? The less money down you offer, generally the higher your monthly payments and higher the overall cost of the loan.

Lenders typically offer lower interest rates on business loans with higher down payments to incentivize a borrower to pay more up front. If your business can afford to make a greater contribution to the down payment, it can reduce the overall interest costs of the loan.

This can be a smart move if your business has an uneven cash flow, yet you have a lump sum available now. This can lead to lower payments when you may have less cash available.

On the other hand, if cash is tight right now, but you are confident you can pay the larger monthly payment, you might go with just the minimum required.

What if You Can’t Afford a Down Payment?

If you can’t afford the down payment on a small business loan, you’re not necessarily out of financing options.

One solution is to look for loans that have lower down payment requirements. SBA loans and loans sponsored by government entities can help businesses in a bind since they may require lower down payments than private business loans and offer competitive interest rates.

You can also look into loans that don’t require a down payment, such as online loans and lines of credit. Another option is to borrow less money, since some lenders only require a down payment if you’re borrowing a large amount of money.

If you have some time before you need financing, you can start saving up for the downpayment by transferring extra cash each month into a high-yield savings account, money market fund, or certificate of deposit. Or, you might work on paying off credit cards and debts you currently own.

Once they are paid off, the money you were using to pay balances plus interest each month can now be applied to the down payment.

If a low credit score is the reason for a high down payment, you can work on building your credit profile so you are able to qualify for lower down payments — along with improved interest rates and terms — in the future.

Small Business Loans With SoFi

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 an SBA loan for 0% down?

Yes. The U.S. Small Business Administration (SBA) offers some loans, such as the disaster loan program, that don’t require a down payment. Most SBA loans (including the popular 7(a) loan), however, do require borrowers to make a down payment.

What is the down payment needed to purchase a business?

In order to purchase a business, you typically need to put down 10% to 15% of the total cost of the purchase (which includes all additional costs associated with the sale).

Photo credit: iStock/insta_photos

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.

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 .

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Tax time can be stressful for small business owners. If your company hasn’t made any money yet, do you even need to file this year? Or, if you’re already turning profits, you may wonder how much you can make before you have to start paying business taxes.

The answers to these (and many other) tax questions will depend on how your business is structured, how much it has earned, and what deductions and credits you’re able to take.

Below, we break it all down to help you figure out how much you may owe in taxes for business income earned in 2024.

How to Calculate Your Small Business’ Taxable Income

Whether or not you need to file business income tax returns and how much you need to earn before you pay taxes will depend on your business structure.

Small Corporate Businesses

C corporations in the United States are subject to a flat 21% corporate tax rate under the Tax Cuts and Jobs Act. There is no minimum income you have to meet before your small corporation is taxed. Every dollar it earns (after deductions and credits are factored in) will be taxed at 21%.

Corporate tax rates also apply to limited liability companies (LLCs) who have elected to be taxed as corporations.

Unincorporated Businesses

If your business is structured as a sole proprietorship, partnership, LLC, or S corporation, it will likely be considered a “pass-through” business. That means the income it makes is “passed through” to you and is reported on your personal tax return.

This business income will be combined with any other income (such as wages from a part- or full-time job, rental income, or investment income) on your tax return.

Your filing status, potential itemized deductions, and other allowable deductions will all serve to determine your taxable income and resulting tax bracket.

A tax professional can help you consider all of these factors to estimate what your tax liability might be based upon your estimated business profit. But the following table can help you get a sense of your pass-through income tax rate in 2024:

Recommended: What Is a Stated Business Income Loan?

How Much Can a Small Business Make Before Paying Taxes?

If you operate your business as a pass-through, meaning the income is taxed as part of your personal income, then the tax-free threshold (also called the standard deduction) for 2024 income is $14,600 for individuals and $ $29,200 for married couples filing jointly.

There is no tax-free threshold for corporations — you need to pay tax on every dollar the company earns. Note that small business loans are not considered taxable income.

Zero Taxable Income

If your annual income and business expenses were equal — or, if your business didn’t generate any revenues at all — you may have no income tax liability.

Here’s an example. Let’s say you started a small enterprise in 2024 that earned $5,000 in annual sales revenue. However, you also had $5,000 in annual expenses, which included buying a new computer, advertising, and office supplies. Because these two cancel each other out, no income taxes are owed.

Net Income Formula

Net income (also sometimes referred to as net earnings or net profit) is your company’s total profits after deducting all business expenses.

To find your net income, which is what’s considered taxable, you can use a simple formula:

Gross Income – Expenses = Net Income

Let’s say you made $65,000 in annual sales and total expenses were $17,000 for the year. Your net income would be:

65,000 – 17,000 = $48,000

To lower your net income (which will lower how much you pay in taxes), it’s a good idea to keep track of and categorize business expenses throughout the year. Your business expenses might include expenses related to a home office or work space, the cost of tools or supplies, car or truck expenses, advertising costs, as well legal and accounting costs.

Net income can be positive or negative. When your company has more revenues than expenses, you have a positive net income. If your self-employed tax deductions are more than your revenues, you have a negative net income, also known as a net loss. You won’t have to pay taxes on your business income if you arrive at a negative number representing a net loss.

Recommended: Net Present Value: How to Calculate NPV

Self-Employment Tax

If your business is not incorporated, you may need to file a tax return and pay the self-employment tax if your net income is $400 or more.

Self-employment tax is the equivalent of the FICA payroll taxes (Medicare and Social Security) that you would normally share with your employer if you worked for someone else. Your employer would pay half and you would pay half, but you are the employer if you own a pass-through small business, so you must pay both halves.

Qualified Business Income (QBI) Deduction

In addition to small business tax deductions, the IRS has another little gift for owners of pass-through businesses: the qualified business income, or QBI, deduction. The QBI deduction allows you to deduct up to 20% of your qualified business income on your taxes. Note that sole proprietors, S corporations, and partnerships can’t claim the QBI deduction after 2025 unless Congress extends Section 199A of the federal tax code.

Tax Credit

Another tax tip for small businesses is to look for tax credits you might qualify for. Tax credits are different from tax deductions. Tax credits directly reduce how much tax a business owes dollar for dollar. Tax deductions, on the other hand, are business expenses that decrease how much of a business’s income is taxable. Translation: Tax credits are worth more.

There are a variety of tax credits available for businesses to take advantage of, ranging from providing employees paid family and medical leave, to increasing access for people with disabilities. You can claim business tax credits by filling out the appropriate forms for the credits for which your business qualifies.

If you’re filing as a pass-through business, it’s also key to look into any and all personal tax credits you may qualify for, such as the Child Tax Credit.

Recommended: How Much Do I Have to Make to File Taxes?

How to File Income Tax With a “Doing Business As” (DBA) Name

When choosing a business structure, you may also decide to create a name for your business other than your legal name. If that’s the case, you may need to file a “doing business as” form with your city or state registering your DBA trade name, also known as a fictitious business name.

You can identify your legal name and DBA in the appropriate fields when filing tax returns. A sole proprietorship on Schedule C, for example, may need to include the name of the proprietor, the proprietor’s Social Security number, the business trade name (if applicable), and the employer identification number.

Penalties for Failing to File Corporate Tax Return

No matter how your small business is structured, if you do not file your tax return by the date it’s due, the IRS may enforce a penalty fee. This fee is typically 5% of the taxes you did not pay on time for each month or partial month that your return is late. Generally, this fee will not exceed 25% of your unpaid taxes.

The IRS may also charge interest on penalties, which increases the amount you owe until you pay your balance in full.

Recommended: GAAP vs. Tax Basis

5 Tax Breaks for Small Businesses

Here are some small business tax breaks you can explore:

1. Business Loan Interest Tax Deduction

When filing taxes, you can check whether your business qualifies for a business loan interest tax deduction. If you’ve taken out loans for business purposes, including lines of credit and mortgages on business real estate, or if you’ve used business credit cards, the interest you pay on those liabilities may be tax-deductible.

Recommended: What You Should Know About Short-Term Business Loans

2. Charitable Contribution Tax Deduction

Small business owners who donate money to a qualified charitable organization may qualify for a tax deduction. To claim a deduction for charitable donations on your taxes, you must have donated to an IRS-recognized charity and received nothing in return for your gift.

3. Small Business Cell Phone Deduction

If you use a cell phone for business purposes, you may qualify for a deduction of your cell phone expenses when filing your tax returns. This can include expenses related to making domestic and international phone calls for business purposes.

4. Business Travel Tax Deduction

Small business owners who travel as part of their enterprise duties may deduct eligible travel expenses from their taxable income. This can include business-related transportation expenses, such as flights, rental cars, train fare, parking rates, and tolls.

5. Advertising and Marketing Tax Deduction

Ordinary advertising and marketing costs your business incurs may qualify for an income tax deduction. This can include expenses related to optimizing your company’s website or sponsoring an event.

The Takeaway

How much your small business can make before paying taxes will depend on whether your business is structured as a pass-through entity or a corporation. How much your business earned and spent during the year can also affect the equation. If you’re a small business owner, you may qualify for certain tax breaks that can minimize your tax burden.

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 much money does a small business have to make before filing taxes?

If your small business is not incorporated, you may need to file a tax return and pay the self-employment tax if your net income is $400 or more.

What is a taxable income for a small business?

Taxable income for a small business can include any revenue the business collects, such as fees collected from selling goods or services. In addition to gross receipts or sales, the revenue you collect from interest, rent, royalties, and capital gains may also qualify as taxable income.

How much can a side business make before paying taxes?

Individuals who have earned at least $400 in annual side hustle income may have to report that income to the IRS on Schedule SE. Self-employment taxes may apply if you’ve had net earnings of at least $400 from self-employment during the 2024 tax year.

Photo credit: iStock/amenic181

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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