Millions of Americans nationwide own small businesses that they rely on for part or all of their income. Even when business is good, they may find at some point that they need additional funds to grow or expand, and when they do, they may shop for small business loans to help them do that.
Small business loans come in many different forms, from many different sources. Banks and credit unions are two popular sources for these loans. SBA loans are also very popular, though it's helpful to understand that these loans are made by individual lenders, not the government. (The government guarantees SBA loans.) Community Development Financial Institutions (CDFI's) also make small business loans, often in underserved communities or to those who traditionally have had trouble getting loans. Finally, some crowdsourcing websites are offering short-term loans to small businesses.
Small business credit cards are also a popular source of financing. They can be relatively easy to get and can offer credit card rewards such as airline miles or reward points for purchases made with the card.
If a business is fairly new, does not have many employees or does not have significant cash flow, lenders will almost always check the credit scores of the owner and sometimes officers, as part of the application process. In addition, most lenders will require the owners of these types of businesses to provide a "personal guarantee," which means if the business defaults, the lender can try to collect from the business owner's personal assets or income.
Applying for a small business loan can be much more involved than applying for a personal loan. For instance, lenders will typically require that current or prospective small business owners supply them with financial information, including business and personal tax returns, cash flow projections and current statements. They may also ask the borrower to document how the money will be used. It's important that you are well- prepared when applying for a small business loan so you have the best shot at getting the lender to say yes. If you can't get a small business loan, but your credit scores are good, you may want to get a personal loan and use it to finance your business instead. Check with your accountant to make sure you take advantage of tax deductions that may be available.
Disclaimer: The person depicted is a model accompanied by a testimonial for illustrative purposes only.
1. FOR LOANS PROVIDED BY PROSPER: APRs presented are estimated and were created based upon information entered by the consumer and through analysis of information publicly available at Prosper.com. The estimated APR presented does not bind Prosper. The range of APR available through Prosper is 6.68% to 35.36% APR. Only borrowers with excellent credit qualify for the lowest rate available. Your actual APR depends upon credit score, Prosper Rating, loan amount, loan term, credit usage and history. All loans are subject to credit review and approval.
2. FOR LOANS PROVIDED BY LENDING CLUB: If you receive a $5,000 36-month loan at an interest rate of 6.03% with a 1.11% origination fee of $55.50, you will receive a loan amount of $4,944.50 and will make 36 monthly payments of approximately $152.18 at a 6.78% APR. In the case of a $15,000 60-month loan at an interest rate of 7.90% with a 3.00% origination fee of $450.00, you will receive a loan amount of $14,550.00 and will make 60 monthly payments of approximately $303.43 at a 9.20% APR. Annual Percentage Rates presented are estimated and were created based upon information entered by the consumer and through analysis of information publicly available at lendingclub.com. The estimated APR presented does not bind Lending Club or any lender originating loans through the Lending Club platform. The range of APR available through Lending Club is 5.99% to 32.99% APR. Only borrowers with excellent credit will qualify for the lowest rate available. Your actual APR depends upon credit score, loan amount, loan term, credit usage and history. All loans are subject to credit review and approval.
3. FOR LOANS PROVIDED BY VOUCH: APRs presented are estimated and were created based upon information entered by the consumer. The estimated APR presented does not bind Vouch. Only borrowers with excellent credit are considered for the lowest rate available. Your actual APR depends upon credit score, loan amount, loan term, credit usage and history. A strong Vouch network may lower your APR. Vouch borrowers must be at least 18 years old, a legal U.S. resident with a verifiable bank account, must have a FICO score of 600 or greater, and must be current on all existing accounts and not in bankruptcy or foreclosure proceedings. All loans are subject to credit review and approval.
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