With unprecedented competition in the lending market, now is a great time for small businesses to get quick business loans with excellent terms. Traditional banks have notoriously been cautious when lending to small businesses. After the financial crisis that began in 2008, the big banks pulled back from small business lending even more. To make up for this, alternative lenders began to step in to help fund small business growth. In a market full of unprecedented financing options for small businesses, traditional lenders have had to improve their offerings to remain competitive. Now, businesses can choose from a variety of different funding options, ranging from Small Business Administration loans to a merchant cash advance.
Whether you decide working with a traditional bank or an alternative lender is right for your company, there are a variety of good options you can explore if you need funding fast.
Small Business Administration loans
Small Business Administration (SBA) loans are loans issued by an individual bank and backed by the United States SBA. Because many banks believe lending to small companies is not worth the risk, the government created these loans to encourage banks to help small companies in the interest of economic development. Becayse they are backed by the SBA, the lenders are guaranteed to get their money back even if the borrower defaults.
SBA loans are great for borrowers who have been unable to get a traditional bank loan. The application process, though, can be tedious and requires extensive documentation, including a business plan, personal and business financial statements, and past tax returns. Companies with a history of responsible credit and a good strategy for financial growth are usually approved.
The SBA loan application process typically takes more than 60 days. in the current market climate, however, some lenders are able to process SBA loans within a month.
Related: Compare Small Business Loan Offers
Fund with term loans
Term loans allow your company to borrow a fixed amount of money that will be paid back over a specified period. Short-term loans are often used to fund items with a quick return on investment (ROI), such as purchasing inventory or hiring seasonal staff, so they usually require that the loan be paid back within three months to a year. On the other hand, long-term loans are used to fund larger projects that can take more time to make a return, like renovating a building or buying updated manufacturing equipment. Because of this, borrowers are allowed to repay long-term business loans over a duration of 1 to 5 years.
Banks have been offering term loans for years, but alternative lenders have streamlined their application process and made it easy for businesses to compare offers online. This increased competition means better rates on quick business loans for small businesses, including those companies that might not have been able to get a loan in the past. Also, online lenders can fund loans in a matter of days, a process that used to take much longer. Thus, more business can get the money they need with a quick turnaround.
Merchant Cash Advances
Merchant cash advances (MCAs) are loans available to companies that accept credit card payments. Borrowers receive money upfront and lenders are then repaid by taking part of the borrower’s daily credit earnings until the loan is paid off.
A merchant cash advance is an excellent way for businesses to get a loan even if they don’t have the best credit history or possess any valuable assets to use as collateral. MCAs are funded very quickly and they feature a simple application process. Also, they can be particularly useful for businesses that experience seasonal ups and downs because MCAs take a percentage of the business’ credit card earnings as payment, not a predetermined amount. Do be aware that MCAs involve fees for the borrower, and these can vary depending on the lender.
This article was originally published on LendingTree.com on Nov. 7, 2016.
Content sponsored by LendingTree.