Through a combination of direct offerings and partnerships that alternative lending platforms have, business owners can also be matched with financing products such as SBA (7A) loans, invoice factoring, merchant cash advances and working capital lines of credit. Businesses will also need to meet minimum criteria to qualify for any type of financing provided by the platform, including a minimum annual revenue, credit score and time in business. Rates and cost of capital will vary for all of these financing products. For a business line of credit, for instance, variable interest rates normally apply instead of the fixed rates on term loans. The lender may also charge fees for opening the line of credit and maintaining it over time. Merchant cash advances and invoice factoring are based on a factor rate, not an interest rate. With products such as these, payment terms will also vary. Repayment terms can be weekly or bi-weekly instead of monthly, and payment amounts might change depending on a company’s revenue or its line of usage. This is in contrast to traditional loans which require a large lump sum on a monthly basis and require the borrower to make regular installments, even if their business revenue goes down.
Speed, convenience and ease are all things that business owners care about when looking for financing options. So it’s natural to ask, what is the easiest business loan to get? The answer can be different depending on the business and its goals or needs, but often a short term business loan will be easier than a longer term or government-backed loan, since short term loans typically don’t require as much paperwork or financial reporting. It also depends on the type of credit that a business owner has when applying for the loan. A business owner with bad credit may have more difficulty getting a business loan than a business owner with good credit. Sometimes a personal guarantee or some other collateral may be required to qualify the business owner for a loan, and even then it can come with higher interest rates due to the higher risk being assumed by the lender. But in the long-term benefits for the business of having financing, such as creating a positive credit history, can make the effort worth it in the end.
Qualify Now & Apply Now: Getting Qualified For An Alternative Loan
Qualifying for a business loan depends on your company’s unique situation. Creditworthiness for a business loan is driven by having a strong business, with good revenue, and a plan for how the funding will be used to grow the business.
Term Loans, Credit Cards, Equity Lines Of Credit, and Merchant Cash Advances
Getting Multiple Lines Of Credit Vs. Lump Sum Loans
For businesses that need money fast, the easiest business loan to get is a short term loan or a different type of financing that offers repayment flexibility such as revenue-based financing. These types of financing are definitely easier than getting a longer term or government-backed loan. Short term business loans typically don’t need the same amount or types of paperwork to qualify. Usually 6 months of business bank statements are needed for qualification when you apply online.
Qualify Now & Apply Now: Loan Requirements Overview
The loan requirements for business financing may vary widely, depending on the lender you work with and the type of financing you are applying for. Some of the requirements you’ll need to meet in order to qualify for a loan depends on the lender you are working with. With this in mind, let’s break down the qualifications you’ll probably need for your business loan application:
- Time In Business
Every lender will ask you how long you operated your business. The longer you’ve been in business, the better it is for your application because it shows a lender that your business has had long-term success. Ultimately, the threshold that you should keep in mind is two years. If your business is under two years old, your options may be limited. - Personal Credit Score
Lenders will ask for your personal credit history and financial information to assess the likelihood that you’ll pay back the loan–if your personal finances are strong, lenders assume this means you’ll be able to manage your business finances as well. Your personal credit score will not only influence whether or not you’re approved, but it will also play a role in determining your loan interest rate. Ultimately, the better your personal credit score is, the more loan options you’ll have available to you. You’ll want to aim for a credit score of at least 660. - Business Credit Score
Similar to the way your personal credit score indicates your history as a borrower, your business credit score measures your company’s creditworthiness. Your business credit score is based on your company’s history of payments to suppliers and lenders. Your company’s industry, size, and revenue can also impact the score. Many entrepreneurs are unaware that their business has a credit score–or even that it is a common business loan requirement. There are three main agencies that track business credit, and each has it’s own method for evaluating your business score. Many lenders use FICO SBSS score to evaluate your loan application, as it’s based on a combination of your business credit score from the other three agencies, as well as your personal credit score and business bank statements. - Business Bank Statements
Lenders will use your bank statements to determine if you can afford your loan and will be able to repay it. Bank statements can also give lenders some insight into how well you can manage cash coming into the business. Lenders usually ask for 6 months of business bank statements to support the claims you’re making about your company’s financial history. - Industry
Your industry can affect your eligibility to get a business loan because every industry has a different level of risk. Most lenders have certain industries they won’t lend to. With that being said, in order to ensure you’ll meet a lender’s industry requirement, you’ll want to check with them regarding any ineligible industries before submitting your application. A small mistake could delay your application or even cause a lender to mistakenly reject it. There are two main industry code systems–Standard Industrial Classification (SIC) and North American Industry Classification System (NAICS). - Entity Type
From your lender’s perspective, knowing how your company is organized can give them insight into how you manage and operate your business. Some lenders won’t lend to sole proprietorships and partnerships. Lenders prefer working with LLCs and corporations because these businesses have more legal protections and are less likely to fold if the owner faces a lawsuit or financial setback. - Business Licenses & Permits
Similar to your business entity information, another common business loan requirement is your business license or permit. Lenders want to see proof of ownership and a license to operate a business. Additionally, depending on the size, location, and type of business, you may also need to provide proof of any relevant fire permits, sign permits, zoning permissions, environmental, sales tax and health department permits. - Employer Identification Number (EIN)
Specify your EIN on an application. An EIN is like a social security number for your business. - Proof Of Collateral
Although collateral isn’t always required, you may be asked to put up a fixed asset–like property or equipment–to secure your loan with the lender. Therefore, if you default on the loan, the lender can seize your collateral and use it to make up for some of the money they’ve lost. Not all lenders will require specific collateral. If you are applying for an SBA loan or bank loan, for example, lenders will want to know what kind of collateral your business has to offer, and the value of that collateral. Alternative lenders, on the other hand, usually don’t require physical collateral. They may require a personal guarantee or blanket lien. - Copy Of Your Commercial Lease
If you have a brick and morter business, you should include a copy of your lease along with your other commercial loan documents. A commercial lease proves that your business will be able to use the property for as long as the duration of the lease, no matter what happens to the landlord–and it also reassures your lender that you’ll be able to conduct business to pay back the loan. - Disclosure Of Other Debt
Lenders are very careful about lending to businesses owners who already have other loans, as they don’t want to offer you financing if you can’t afford your current loan payments. - Ownership & Affiliations
When you’re applying for a business loan, you should be prepared to disclose any ownership that you or your partners have in other businesses as well as any affiliations, such as being a board member or consultant in another business. This information discloses any potential conflicts of interest that the lender may have with issuing the loan and any synergies that your business may have with other companies.
As you compare your options and search for the right business funding solution, you’ll want to remember banks and SBA loans will require the most documentation and highest qualifications, but will also offer the most desirable rates and terms. Alternative lenders, on the other hand, will have simpler application processes and more lenient qualifications, but their products will generally have shorter terms, lower amounts, and higher interest rates.
Getting a business loan or other financing online is relatively easy. After you create your company’s financing profile, you’ll choose the lender that’s suitable for you. Be sure to fill out an application and provide financial documents to support your application.
About The Author
