Business Loan Reviews

Introduction to Business Loans

Whether you want to fund your startup, expand your small business, or secure your company against financial instability, a business loan can be the solution.

Loans can also be useful in building up your credit score and making you eligible for larger loans in the future.

Whatever your reason for considering a business loan, it is best to understand how they work and what exactly owners are required to do – preferably before you approach a lender. That is exactly what our small-business loan reviews help you with. Our expert reviewers can guide you toward the loans and lenders that best match your needs and goals.

Types of Business Loans

Equipment Loans

One of the most common financing arrangements for businesses of all types and sizes, equipment loans help you improve, upgrade, and expand your company’s operating capabilities without putting too much strain on your cash flow.

New machinery, computers, and vehicles necessary for establishing or expanding your business can be too expensive to buy outright, which is exactly why equipment financing leases and loans have become such a popular solution.

Equipment loans have a huge advantage compared to other business lending options because the equipment itself usually secures the loan. If at some point you are unable to make the payments, the equipment will get collected by the lender as collateral.

Add to this the fact that financing loans require little or no capital and that you gain full ownership of financed equipment once the loan is paid off, and you can see these loans have become such a popular choice for many business owners.

There are also a few potential downsides to equipment loans. First, taking out a loan will cost more in the long run than if you had bought the equipment outright. Second, most of the best small-business loan providers will cover only 80-90% of the cost, so you will always be expected to pay 10-20% yourself. Last, interest rates on equipment financing vary a lot, ranging from 8% to 30%.

You will most likely need a personal credit score of at least 600 to be eligible to take out the loan.

Lines of Credit

A line of credit differs from standard loans in that it can be reused and repaid multiple times. Borrowing limits are smaller, however, and you need to make your payments on time without exceeding your credit limit.

With a line of credit, you can keep reusing and repaying the lender’s funds as often as you’d like, as long as you make payments on time and don’t exceed your credit limit. If you scroll through our detailed business loan services reviews you will see that lenders usually allow you to repay your full balance early to save on interest costs.

Banks and lenders will also require you to have strong revenue numbers, and your business will have to be at least two years old to be eligible for a line of credit. You’ll probably need a credit score of 500.

Larger lines of credit are often secured, so if you fail to make payments the lender can use your inventory or receivables as collateral. Smaller lines of credit are usually unsecured. The upper limit is typically about $500,000 with an interest rate of approximately 8% and repayment terms with maturity of one to two years.

Working Capital Loans

These can be the best small-business loans when you are financing the everyday operations of your company, such as payroll or rent. Working capital loans are well-suited for businesses that experience highly cyclical or seasonal sales, companies that don’t have stable revenue levels throughout the year.

For example, some manufacturing companies work all year to produce goods for the Christmas holiday season. A working capital loan can help them finance manufacturing activities until the next holiday season.

Missing payments may hurt your credit score, which can be damaging because high credit scores are usually required for getting an unsecured working capital loan.

Criteria for Determining Eligibility

Years in Business

One of the most common requirements in the eyes of many small-business lenders has everything to do with how long your business has been operating. Most companies will qualify for a small-business loan after a minimum of two years of continuous operation, but this is not always the case.

Owners of newer businesses can seek alternative lenders that have a minimum requirement of one year, while others can get loans from larger lending institutions by demonstrating their company’s potential in the application.

Personal Credit Score

While some small-business loan companies may not find your personal credit score relevant to how well your business can fulfill its credit obligations, most of these institutions do consider it when reviewing your loan application.

There are three major credit bureaus and all of them use a 300-850 scale to rank your credit rating, even though the scores that you get usually vary at least a little.

A rating below 600 will mark you as a high-risk borrower by all lenders, meaning that you will have fewer options – and your interest rates will be higher too. A good score falls somewhere between 680-719. That’s where most people in the US are.

Scores of 720 and higher are considered exceptional. A score like that will allow you to pick and choose among the widest range of loan options.

Business Revenue

Another major requirement for getting a business loan is annual revenue, which you get by calculating your total income from all revenue streams for a single business year. As you read through our business loan reviews, you will notice that different lenders have different requirements.

In general, you will need about $50,000 in annual revenue for a short-term business loan. Medium- and long-term loans of a year or longer might require a minimum of $100,000. If you take a secured loan, the minimum annual revenue might jump to $250,000 for a loan of $250,000.

Collateral

If you take out a secured loan, you will be required to put up company assets such as inventory and equipment as collateral so your lender can seize them if you are unable to pay off the loan on time.

Because they face less risk of losing the loan amount, top business lenders will always give the lowest interest rates on collateral loans. Rates can also be raised if the lender assesses that the risk of default is higher than the worth of your assets.