A term loan is considered to be one of the most common loans available to business owners. It is a lump sum payment and it requires you repay regularly in installments for a certain period of time. Term loans are quite popular and for several reasons. There are several benefits that you can get when you get a term loan. First is that the process is simple. You can apply online and in just a matter of 48 hours or less, you will already know whether your loan application is approved. Once your loan is approved, you can already get the funding in just 7 days. In terms of interest rates, terms loans offer lower interest rates. When you pay your term loan on time, it can boost your credit score.
To apply for a term loan, you need to submit the following:
How do you qualify for a term loan? The eligibility criteria depend on the lender. But most lenders will require that the business have 2 years or longer operating history. Lenders also look at the annual sales and it should be at least $100K and with positive net income.
Although a merchant cash advance is not really a loan, this is another financing option among business owners. It works as an advance on the credit card receipts by the business. An MCA enables a company to get an advance based on the credit card payments that the business has received. The downside of getting a merchant cash advance is that the interest rates are higher compared to other loan options. Before you even decide, it is crucial that you understand the complete terms being offered. With merchant cash advance, you will have to pay around 20% to 40% more of the amount you borrowed.
The application process is not as tedious and complicated as the other loan options. Albeit the higher rates, some business owners prefer this option because the application process is fast.
SBA loans are backed by SBA making these loans less expensive to get. This type of loan is guaranteed by the government and it allows you to have flexible terms and lower interest rates. Depending on your business requirements and financial needs, there are several SBA loans which include the 7a flagship loan program, 504 loan program, microloans, and SBA disaster loans.
How about the repayment terms? It varies depending on where you intend to use the money. For daily operations and working capital, it is 7 years. For new equipment purchases, it is 10 years and for real estate purchases, it is up to 25 years.
The process can be quite a long one since they are strict when it comes to granting SBA loans. To apply, you need to submit the following documents:
Now, what if you have a poor credit score? Does that mean that you can no longer get a loan? Yes, you can still get a loan. But if you want to get loan from a bank, it will be too difficult for you to qualify since banks require borrowers to have a credit score of 600 or even more. Your choices are limited.
You should know if you can qualify given your credit score
If your credit score is way below 500, it can now be too challenging for you to acquire funding. Most lenders are adamant to provide funding to personal and business borrowers who have poor credit scores unless you are able to show and convince them that you can pay back your loan.
Joshua is a financial lawyer who plans on writing a book about his experience on debt collection laws and lending terms and conditions. He is currently one of the senior partners at his law firm but wants to take more time off for his writing.