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The business term loan is typically provided by an online lender with fast funding versus other business financing products. There are many different options to choose from when deciding which business loan is best for your business. Term loan is known for quick application and fast funding process. It’s important to choose the right product depending on your and businesses needs. There are four main options in this category a term loan, a line of credit, revenue advance and invoice factoring.
Whether you’re using the financing to purchase inventory, equipment or just general expansion these loans are a great option. They are very similar to a traditional term loan with a predetermined rate and the payment schedule but just with a shorter repayment term. These loans typically range from $5,000-$1,000,000 and terms from 3 to 18 months. Because these loans require little documentations and can be funded within 24-48 hours, the rates are higher and typically start at around 10%. At Creditfy, we require the last three months bank statements and a credit application to get your business pre-approved.
The funding process is very simple. For a smaller loan you would need as little as a driver’s license and voided check to get funded. For a larger loan, typically over $150,000 you would need additional documents. Lenders require Tax Returns, year-to-date Profit and Loss statement and Balance Sheet statement. Most businesses will qualify for these loans since the minimum requirements are set low. You would need a minimum FICO score of 500, $10,000 in monthly revenue and at least 6 months in business. You can apply for some of these loans in a matter of minutes and some of these lenders will have an offer for you within a few hours. These lenders take the stress out of getting a business loan and make the process easy!
The structure of a business line of credit is very similar to a credit card. A lender will approve you for a maximum line of credit amount. You can decide to take the full amount or a portion of it. One of the nice parts about a line of credit is that you only pay interest on what you use. Generally as you pay down the balance that you’ve withdrawn the available credit increases.
With line increasing, it allows you to come back and pull more funds from the line in the future. You don’t have to wait on a lender’s approval process. These lines of credit are generally between $5,000-$500,000 and the terms range from 6 to 12 months. The minimum requirements are typically a 600 FICO score, one year in business and at least $15,000 in monthly deposit volume.
A revenue advance or cash advance is structured very similarly to a loan but it’s not a loan it’s an advance. The lender purchases your future receivables and you pay them back either daily or weekly for a projected term. A merchant cash advance is like a revenue advance but instead of the lender purchasing your total future receivables they are just purchasing a percentage of your credit card sales.
An example of this is a lender giving you a $100,000 advance in return for 15% of your credit card sales over a projected term of 12 months for example. One of the benefits of this product is that the repayment amount fluctuates with your sales as the lender is taking a percentage and not a fixed amount. This can be extremely helpful for businesses during their slow season.
A merchant cash advance is a specifically suited for certain industries such as restaurants or retailers. A revenue advance and merchant cash advance are some of the most common ways that small business get funding. Similar to a term loan the application process is easy, and you can be funded within 24-48 hours. The minimum requirement are also low and some lender that will approve as low as a 500 FICO, $10,000 in monthly deposit volume and 6 months in business.
This financing is used to solve a very specific situation when you need a loan as a bridge while waiting on invoices to be paid. The lender will advance you a fix percentage of the invoice amount due, this can typically range from between 60%-90% of the invoice amount due. You are essentially selling the invoice to the lender. They will work with your client or customer to get paid. Your advance will accumulate interest for the amount of time that your invoice is outstanding.
Once your customer pays the invoice the lender will deduct an interest that you accumulated and will send you the remainder of the amount due. This is typically one of the lowest cost ways to get funding as the lender has the invoice as collateral. The lenders review these deals a little differently and are more interested in the creditworthiness of your customers than you. This type of financing is great for construction companies. For example, business that may have to wait 30, 60 or 90 days to be paid on a project.
There are so many different options available for financing your business. It sometimes can be overwhelming with all the choices. Business term loan versus other business financing is not an easy decision. We’re here to help and guide you in the right direction. The first step is to understand the use of funds and what situation you are trying to solve. For example, if it’s because your customers are slow paying you and you need some funds to bridge the gap for 30 days. Invoice financing could be a good option versus having the opportunity to purchase inventory at a discount where a short term loan or line of credit is likely a better solution. By reading this article you’re already making good progress to choosing the best option for you. The next step is to start the application process to get the funding your business needs to grow.