All business loan products are not created equal. There are business loan products that work well for startups that won’t make sense for established businesses and vice versa. There are also business loan products that are limited to established businesses that startups won’t qualify for. Whatever stage of business you are in, it’s important that you know which business loan products make the most sense for your business so you don’t waste your time applying for funding that you can’t get. In this blog I discuss the different business loan products that are appropriate for startups and established businesses. Knowing what business loan products to apply for may increase your chances of getting approved the first time you apply.
Startup Business Loan Products
These startup business loan products are ideal for new businesses that have been operating for less than one year and have under $100,000 in revenue. I strongly suggest you apply for these before applying for anything else (if you are going after debt financing).
- Microloans – These are small loans (usually up to $50,000) that are available to startup business owners. The SBA (Small Business Administration) suggests that first time entrepreneurs start with microloans to capitalize their business. The criteria to get a microloan is often less stringent than traditional small business loans. Less than perfect credit is accepted.
- Unsecured Business Lines of Credit – This is revolving debt. Startup business owners that want to obtain an unsecured business line of credit to capitalize their business will need an excellent credit to qualify. If you qualify, you may be able to obtain up to $250,000.
- Equipment Financing – Equipment financing is fairly easy to obtain if your personal credit is decent (it doesn’t have to be perfect). I’ve helped startup business owners obtain up to $100,000 in equipment financing.
Business Loan Products for Established Businesses
These business loans products are best for established businesses that have been operating for at least one year and have over $100,000 in revenue. I strongly suggest these business loan products if you are applying for debt financing.
- Unsecured Business Lines of Credit – Established businesses can also obtain up to $250,000 in unsecured business lines of credit if the owner has good personal credit.
- Equipment Financing – Established businesses can also obtain equipment financing. However, depending on the revenues of the company, more than $100,000 in equipment financing can be obtained.
- Traditional Unsecured Business Lines of Credit – Traditional unsecured business lines of credit are larger credit lines than regular unsecured business lines of credit. You have to be in business at least two years and generating at least $400,000 in revenue to qualify.
- Secured Business Lines of Credit – This type of business loan product is almost the same as unsecured business lines of credit however, pledging collateral is required to be approved.
- Unsecured Business Loans – The criteria for approval for unsecured business loans is usually the same unsecured business lines of credit.
- Term Loans – Term loans are basically traditional small business loans. You are typically required to have decent credit and/or generate a minimum amount of revenue annually to qualify for term loans. You might also be required to pledge collateral to obtain a term loan. (Terms loans that don’t require collateral to be pledged are unsecured business loans).
- Accounts Receivables Financing – This is considered “alternative financing” because it’s typically not offered by traditional banks. Accounts receivables financing is based on your outstanding invoices. In short, if you have $100,000 in outstanding invoices that won’t be paid to your company for up to 90 days, you may be able to obtain up to 95% of that money within the next two weeks. Approval for accounts receivables financing is based on how long you’ve been in business, how much revenue your company generates annually, the amount of your outstanding receivables, how long it takes your clients to pay their invoices, the business creditworthiness of your clients, and your business industry.
- Merchant Cash Advances – This is also considered alternative financing because it is not offered by traditional banks. Merchant cash advances are advances on future credit cards sales or checking account deposits. This type of financing is easy to obtain if you have been in business for at least one year and meet the minimum monthly revenue requirements. However, it is a very expensive business loan product. I strongly suggest you seek other types of business loan products if you can qualify. Merchant cash advances are only best for businesses with a high volume of daily credit card sales or deposits (e.g. restaurants).