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8 Business Loan Options Small Business Owners Need to Know - YouTube
Channel: Fundera by NerdWallet
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are you considering getting some
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financing for your business if so this
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video should make it a lot easier if
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you've started the process
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you realize that business funding is a
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lot more complicated than consumer
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lending
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say if you've gotten a mortgage or an
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auto loan before so we're going to take
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some time with this video
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to break down all the different products
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on the market that you might find as a
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business owner
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my name is meredith wood i'm
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editor-in-chief at fundera and i spend a
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lot of time
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walking through business loans with
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business owners to help them understand
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the differences
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of what it could mean for their business
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so i'm going to do the same with you
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today
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and if you have any questions about
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anything in this video feel free to
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leave comments as you're watching
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because we're always happy to answer
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them and help clarify anything
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that we talk about during the video
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so to jump right in the thing to know
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about the business lending market is
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it's not what it was 10 years ago
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there's now a ton of products that you
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can find online through online or
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alternative lenders so we're going to
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talk about both those today
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and what it can mean for your business
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so the first product i want to talk
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about is the one you're probably most
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familiar with
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which is the bank loan or bank line of
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credit they are by far the most
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affordable product on the market for
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small businesses
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now that being said bank loans and lines
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of credit can be very
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hard to qualify for in terms of
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eligibility they can also take
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quite a bit of time if you're
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considering getting funding for your
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business and you need it in the next
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couple weeks a bank loan or line of
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credit might not be your best option
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but if you have the time it's definitely
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something for you to consider
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so what are the requirements for a bank
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loan you're going to want to have a
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minimum credit score of 700
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a minimum revenue requirement of two
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hundred thousand dollars annually
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and a time in business of over two years
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so what do bank loans look like the term
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is usually five to ten years in range
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the interest rates are less than 10
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percent and it takes about one month to
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get this loan
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so the process of applying for a bank
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loan is certainly not an easy one
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there's going to be a lot of documents
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required
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every bank is going to ask for something
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different but if you're approaching the
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process and you want to be prepared
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here's what you should expect to have on
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hand what do you need to apply for a
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bank loan
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your resume for anyone who owns more
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than 20 percent of the business
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a business plan business tax returns
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personal tax returns your financial
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statements
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your bank statements an explanation of
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what you'll use the loan for
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a debt schedule a statement of
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collateral if you're going to use some
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and you might be asked for some legal
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documents like articles of incorporation
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licenses or more bank loans and lines of
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credit are great products for business
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owners while they can be tough to
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qualify for it can take some time
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if you're eligible for one it's a
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product you should absolutely consider
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the next product we want to talk about
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is an sba loan sba loans are long-term
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loans that are partially guaranteed by
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their government
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sva loans are similar to a bank loan and
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that they're they're longer term loans
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they have
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really great interest rates that start
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in the single digit range
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and there's something that can be really
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affordable for business owners who are
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both eligible and again
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have the time to apply for this type of
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funding
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so what are the eligibility requirements
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for sba loans
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the minimum credit score is about a 640
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plus
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the minimum annual revenue is 150 000
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and you'll need about a time in business
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over two years
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so what do sba loans look like well the
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loan amount is usually five thousand to
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five million dollars in range
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the term is about 10 years and we're
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talking about sba
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7a loans right here the interest rate
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right now in winter of 2019
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is 8.25 percent and up and you can get
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these loans in as fast as three weeks
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if you're watching this at a later date
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those interest rates might be different
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because these rates are based on the
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market as we all know fluctuates
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so that's something you want to double
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check on the sva site before you apply
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so what do you need to apply for an sba
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loan
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a driver's license avoided business
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check your bank statements
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a balance sheet your profit and loss
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statements
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your business tax returns personal tax
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returns
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a business plan a debt schedule and a
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personal financial statement
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so the next product we want to talk
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about is a long-term loan offered
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through online lenders
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these are loans that again should feel
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very familiar because they're a
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traditional term loan that you already
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know because of a mortgage or an auto
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loan
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but they're offered through these
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alternative lenders which make the whole
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process
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quite easier and in some cases the
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eligibility requirements can be a bit
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looser
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so what do you need to qualify for a
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long-term loan
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you'll need a credit score of 650
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minimum annual revenue of 120
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000 and a time in business of over three
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years
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what do long-term loans look like the
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term is one to five years
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the loan amount is usually to five
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hundred thousand dollars
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the interest rates are between seven and
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thirty percent
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and you can actually qualify for this
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loan and as little as two days
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what do you need to apply for a long
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term loan a driver's license
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avoided business check bank statements a
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balance sheet
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your profit and loss statements your
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business tax returns and your personal
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tax returns
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the next product i want to talk about is
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a short-term line of credit these are
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somewhat similar to short-term loans in
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this sense that you can get them just as
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quickly and with the similar eligibility
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requirements
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when you need money very very quickly it
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will definitely put you in a position
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where you're not getting the most
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affordable financing for your business
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but if you have a line of credit for
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your business you have those emergency
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funds to go to if there is something
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last minute that you need so if you're
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looking for traditional term loans right
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now know that it's actually a smart
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thing to possibly get
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a line of credit alongside a term loan
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for your business
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so what are the requirements for a line
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of credit they can definitely vary
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greatly by lender
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but typically you'll want to have a
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minimum credit score of 550
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a minimum annual revenue of a hundred
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thousand dollars and a time in business
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of over six months
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what do these lines of credit look like
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the loan amount ranges from 500 to 1
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million dollars
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the term can be six months to two years
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the interest rate can be about seven to
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twenty five percent
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and you can actually qualify for lines
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of credit on the same day you apply
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the one thing i want to talk about the
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interest rates here is you only pay
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interest on what you use for your line
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of credit
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so that's something to consider as
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you're thinking about what this could
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cost your business
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what do you need to apply for a line of
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credit again this varies greatly by
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lender
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but typically you'll need a driver's
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license avoided business check
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bank statements a balance sheet your
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profit and loss statements
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a business tax return and a personal tax
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return now there are some line of credit
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lenders that will ask for much less than
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this
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so don't be shocked if you go to apply
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for a line of credit and you don't see
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all these documents on there but we'd
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rather be more prepared than less
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prepared
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now let's talk about invoice financing
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invoice financing is something that has
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been around for quite some time but i
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would say in the past
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handful of years it's sort of gotten a
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makeover you have
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invoice factoring invoice financing and
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the difference there is that with
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factoring these people are buying your
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actual
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outstanding invoices from you and then
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they're in charge of pursuing any
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outstanding debt on that
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with invoice financing the invoice more
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so acts as collateral
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for any financing you receive what do
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you need to qualify for invoice
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financing
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a minimum credit score of 500 there's no
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minimum revenue requirement
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and a time of business and 3 plus months
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you'll see the eligibility requirements
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are looser here
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because it's really more about your
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clients and their ability to pay back
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than your own
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what does invoice financing look like as
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a loan product
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well the maximum loan amount is usually
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up to 100 of an invoice's value
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the term is until the customer pays the
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invoice and the interest rates are
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really a flat
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fee upfront let's say three percent and
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then a specified
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percent interest per week the invoice is
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outstanding so if it's one percent
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that means you pay one percent every
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week the invoice is outstanding until
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it's paid back
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and you can qualify for invoice
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financing in as little as one day
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what do you need to apply for invoice
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financing a driver's license
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voided business check bank statements
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outstanding invoices
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your accounts receivable aging and your
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accounts payable aging
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there are some lenders will require less
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than this if you're able to hook up your
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accounting software to their systems in
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order for them to find this information
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automatically
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all right we're getting close to the end
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here i promise i have three products
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left and they're definitely ones you're
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going to want to learn about so stick
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with me
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the next one i want to talk about is
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equipment financing as you'll see we're
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sort of in this realm now where we're
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talking about
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things that can specifically
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collateralize funding for your business
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so if you're looking for funding right
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now because you're trying to buy a piece
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of equipment say
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a new oven for your restaurant this is
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the type of funding for you to consider
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because
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the equipment you're looking to purchase
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will actually collateralize the loan
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which as you can imagine makes it a bit
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easier to qualify for
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and helps with the pricing what do you
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need to be eligible for equipment
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financing
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a minimum credit score of 630 a minimum
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annual revenue of 130 000
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and a time in business of at least two
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years
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what does equipment financing look like
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the maximum loan amount is up to 100
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percent of the equipment's value
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the term is the expected life of the
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equipment interest rates range from
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three to thirty percent
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and you can actually qualify for
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equipment financing in as little as two
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days
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what do you need to apply for equipment
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financing a driver's license
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avoided business check your bank
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statements your business tax returns
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and the quote for the equipment you're
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financing
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i want to talk to you about a merchant
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cash advance
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tread carefully here these products are
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the most expensive product on the market
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and if you are currently looking at it i
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want to make sure i emphasize
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you want to check all your other options
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before this is something you consider
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so with a merchant cash advance lenders
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actually purchase
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a portion of your daily credit card
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sales and that's how the loan is paid
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back
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and the good thing about this is that
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when cash flow is great
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you'll pay back more and cash flow is
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slow you'll pay back
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less but obviously you're essentially
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giving over a portion of your cash flow
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every day which can be really tough for
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businesses
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what do you need to qualify for a
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merchant cash advance a minimum credit
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score of 550
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a minimum annual revenue of a hundred
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thousand dollars and a time in business
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of at least two years
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so what does a merchant cash advance
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look like well the maximum cash advance
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amount
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is from twenty five hundred dollars to
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one million dollars
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the term is paid daily via your merchant
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account
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and the factor rate starts at 1.14 but
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can get
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much more expensive and you can qualify
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for merchant cash advances in as little
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as two days
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what do you need to apply for merchant
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cash advance a driver's license
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avoided business check bank statements
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business tax returns
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credit card processing statements and i
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want to be clear
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making sure you've also gotten offers
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from everywhere else before you apply
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for this product like i said this
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product can get
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very very expensive so you want to check
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the aprs on this you
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understand how much it's going to cost
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your business the last thing i want to
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talk to you about is a business credit
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card and you're probably like
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what why are we talking about business
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credit cards and we're talking about
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business loans and it's because a lot of
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new business owners especially don't
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realize they can actually use
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a credit card to help finance your
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business you spend so much as a business
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owner and if you think about the cash
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back offers that some card providers
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offer or the travel rewards you can get
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it's essentially money you're leaving on
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the table if you aren't using a great
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credit card
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of course using a credit card requires a
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lot of discipline and that's something
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that you absolutely need to adopt as a
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business owner because
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credit both personal business is going
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to be instrumental for your business
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going forward from
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getting financing to a trade line and
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all sorts of other things
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what are the requirements for a business
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credit card minimum credit score starts
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at 580 and the higher your credit score
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goes the more options and better options
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you'll have
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there's no minimum revenue requirement
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and no time in business requirement
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what does a business credit card look
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like well the credit limit will depend
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on your own credit worthiness
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the term is month-to-month payments
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which you probably know from your own
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consumer credit cards
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and the interest rates will vary by the
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card but the nice thing is you can be
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instantly approved for business credit
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cards
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what do you need to apply for a business
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credit card your business name
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your tax id number whether that be your
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social security number
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or your ein depending on the type of
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business you have
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you'll need to give them your business
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entity information your estimated
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monthly spend
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your monthly revenue and other business
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information depending on the provider
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applying for a business credit card
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should be a pretty easy process but of
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course if you have any questions
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providers are great about providing a
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lot of information up front so you know
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what you're getting yourself
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into that was a long list but this is
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what i'm telling you the business loans
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market is so
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much more complicated and diverse than
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we find on the consumer side and you've
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done
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yourself an awesome thing here by
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watching this video and being introduced
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to everything that is out there because
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what's most important is that you get
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into the right
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loan for your business and right can
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mean a lot of different things it can be
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most affordable it can be quickest it
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could be fastest payback period it could
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be lowest monthly payments
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the right thing for your business is
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ultimately up to you
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so if you have any questions visit
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fundera.com right below
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or you can leave questions or comments
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and we're happy to answer them for you
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just know we're here to help you through
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this process but hopefully it all
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appears a little bit less intimidating
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after watching this
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thanks for sticking with me on this i
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hope it was helpful and
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more to come in the future
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