What are the Best Business Funding Options for Your Business?
What are all the different types of business funding options?
There are several different types of business funding options out there.
The best way to start figuring out which choice is right for your business is to figure out what’s available. Did you know that traditional bank loans are not your only option?
Types of Business Funding Options
There are many more, including:
- SBA loans
- 401(k) financing
- Merchant Cash Advances
- Equipment Financing
- The Credit Line Hybrid
- Traditional Lines of Credit
Let’s dive in to each one and figure out which one is best for your business right now
Business Funding Options: SBA Loans
Guaranteed by the federal government. Issued by participating lenders, usually banks. They offer a lot of the perks of traditional loans, such as lower interest rates and favorable terms. Due to government guarantee, lenders are able to offer them to those with a lower credit score than would typically be required.
Eligibility for SBA Loans
Lenders and loan programs have unique eligibility requirements. In general, eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates. Hence even those with bad credit may qualify for startup funding.
Normally, businesses must meet size standards, be able to repay, and have a sound business purpose. The lender will provide you with a full list of eligibility requirements for your loan. See www.sba.gov/document/support–table-size-standards.
More About Eligibility for SBA Loans
General eligibility also includes:
- Being a for-profit business – the business must be officially registered and operating legally
- Doing business in the US – the business must be physically located and operating in the US or its territories
- Having vested equity – the owner must have invested their own time or money in the business
- Exhausting other funding options – the business must not be able to get funds from any other financial lender
Ideal credit scores for an SBA loan are 680 or above. There are a number of SBA loan programs, each one designed to work for different needs and situations. Some of the most common SBA loan programs include:
- 7(a) loans
- 504 loans
- Disaster loans
- Express loans
These are just a few the of the options available. Find out more at SBA.gov.
SBA loans each have a specific purpose. For example, if your business has suffered due to a natural disaster, you need a disaster loan. If you need $50,000 or less, a microloan may be the best option. But the 7(a) loan program is the most versatile.
SBA 7 (a) Loans
This the SBA’s most popular loan. The SBA guarantees 85% for loans up to $150,000, and 75% for loans greater than $150,000. The SBA makes the lending decision, but qualified lenders may be granted delegated authority to make credit decisions without SBA review.
SBA 7(a): Terms and Qualifying
The maximum amount on offer is $5 million. You will have to provide Articles of Organization, business licenses, documentation of lawsuits, judgments and bankruptcy or other pertinent documentation. Lenders are not required to take collateral for loans up to $25,000. For loans in excess of $350,000, the SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount.
SBA 504 Loans
The SBA 504 loan program is an economic development loan program that offers small businesses an avenue for business financing, while promoting business growth, and job creation. This program provides approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization.
Use it to buy currently existing buildings, construct new buildings, and more. See sba.gov/offices/headquarters/ofa/resources/4049.
SBA 504: Terms and Qualifying
For corporations, anyone with a 20% ownership stake (or more) must fill out the application. This includes swearing they are not under indictment for any criminal offense. In general, the SBA provides 40% of the total project costs, a participating lender covers up to 50% of the total project costs, and the borrower contributes 10% of the project costs. Under certain circumstances, a borrower may be required to contribute up to 20% of the total project costs
Who Do SBA Loans Work Best For?
These loans work well for those that are not in a hurry to get funding
The approval and funding process can take a while, especially with the government red tape required for the government guarantee. If you can wait, meet all the requirements, and want a more traditional type of loan, SBA loans are an option.
Business Funding Options: 401(k) Financing
If you have an eligible 401(k), you can use those funds to get money for your business. You can even still earn interest on your account, and there are no tax penalties. Personal credit doesn’t really matter much. Interest rates are usually low.
This is not a loan. You will not have to pay an early withdrawal fee or a tax penalty. You put the money back by contributing, just like with any 401(k) program. This means you won’t lose your retirement funds. This is a 401(k) Rollover for Working Capital program. The IRS calls it a Rollover for Business Startups (ROBS).
Per the IRS, a ROBS qualified plan is a separate entity with its own set of requirements. The plan, through its company stock investments, rather than the individual owns the trade or business. Therefore, some filing exceptions for individuals may not apply to such a plan. This type of financing isn’t a loan against, your 401(k), so there’s no interest to pay. It does not use the 401(k) or stocks as collateral. Instead, this is simply a movement or change of custodian.
401(k) Financing Details
In fact, they are often less than 5%. Close and fund fast. Can usually get up to 100% of what’s “rollable” within your 401(k). This type of loan works well for anyone that has an eligible 401(k) account. Your 401(k) will need to have more than $35,000 in it. The 401(k) you use cannot be from a business where you are currently employed. You cannot be currently contributing to it.
Business Funding Options: Merchant Cash Advances
Businesses that accept credit cards as a form of payment may qualify for a merchant cash advance. This means your business must have a merchant account in order to be able to accept credit card payments. Your business must bring in $100,000 or more per year in credit card sales. Typical approval is equal to one month’s credit processing volume. The minimum credit score is 500.
Merchant Cash Advances: Terms and Qualifying
A lender will review 3 months of bank and merchant account statements. They are looking for is consistent deposits. And they want to see deposits showing revenue is $50,000 or higher per year. They will also verify time in business of 6 months or more.
Lenders are also looking to see that you don’t have a lot of Non-Sufficient-Funds (NSFs) showing on your bank statements. They want to see you don’t have a lot of chargebacks on your merchant statements. And they want to see that you have more than 10 deposits in a month going into your bank account.
In essence, they want to see that you manage your bank and merchant accounts responsibly. And they want to see that have a decent number of consistent credit card transaction deposits each month.
Business Funding Options: Equipment Financing
Equipment financing is when you use a loan or lease to purchase or borrow hard assets for your business. It is a business financing option you can use to buy any physical asset. Physical assets can include items such as a restaurant oven or a company car. You will predictable amounts every month. You can build business credit on a program such as this.
Equipment Financing: Terms and Qualifying
All terms are for equipment financing through Credit Suite. Companies must have at least one year in business. You can get approved even with challenged credit. You won’t need financials to secure equipment financing. Approvals take as little as 24 hours.
Business Funding Options: Credit Line Hybrid
A credit line hybrid is a form of unsecured funding. Our credit line hybrid has an even better interest rate than a secured loan. Get some of the highest loan amounts and credit lines for businesses. Get 0% business credit cards with stated income. These report to business CRAs. You can build business credit at the same time. This will get you access to even more cash with no personal guarantee.
Credit Line Hybrid: Terms and Qualifying
You need a good credit score or a guarantor with good credit to get an approval (a FICO score of at least 680). No financials required.
Who Does the Credit Line Hybrid Work Best For?
This is a good option for virtually everyone. Because even if you have bad credit, you can get funding by using a credit partner. Works especially well for those who need to build business credit. See www.creditsuite.com/business-loans.
Business Funding Options: A Line of Credit from Fundbox
Fundbox will connect directly to your online accounting software. That’s all you need to do. You can get invoice financing or a line of credit. See fundbox.com.
Fundbox: Terms and Qualifying
Get a revolving line of credit for up to $150,000. Fundbox will auto debit your weekly payment from your bank account. You don’t need to show a minimum personal credit score, and you don’t need to show a minimum time in business.
Business Funding Options: Takeaways
There are a ton of choices for business financing. These merely scratch the surface. Contact us today to learn more.