This type of financing is less risky for lenders, so the terms are often more competitive than other types of loans. However, secured financing means the bank can repossess the collateral if the borrower defaults. Getting a business loan is more challenging for startups than for established businesses—but it’s still possible. Once your business loan application is approved, you’ll receive a loan agreement from your lender. Many business owners have one or more business credit cards in their wallets, especially first-time business owners needing quick cash.
Business lenders often charge origination fees ranging from 3% to 5% of the total loan amount to cover the costs of handling paperwork and verifying application information. Others also charge prepayment penalties for borrowers who pay off their loans early or late payment fees for those who miss their due date. These fees can increase the overall cost of borrowing, and some How Can I Get a Business Loan lenders eliminate them to remain competitive. Small Business Administration and extends business loans up to $5 million to eligible applicants. Funds can be used to cover working capital, equipment purchases and business expansion expenses, and interest rates range from 2.25% to 4.75% plus a base rate. NerdWallet strives to keep its information accurate and up to date.
When considering a new business’ application, financial institutions must instead base lending decisions on business plans, revenue projections and other theoretical information. Term loans are one of the most common types of small business loans and are a lump sum of cash that you repay over a fixed term. The monthly payments will typically be fixed and include interest on top of the principal balance. You have the flexibility to use a term loan for a variety of needs, such as everyday expenses and equipment. There are several types of SBA loans, including traditional loans and lines of credit.
Secured and unsecured loans
Business loans can be more difficult to qualify for because your lender will check your business credit score and credit history. If that alone doesn’t qualify you, you might have to provide a personal guarantee, as well. That means that if your company can’t repay the loan, you’ll be obligated to do so.
Loan Underwriting Process: Some Final Thoughts
Do you want a loan with fixed payments and a long period of time to pay back? Would you be better off with a line of credit you can pull from as needed? Does your credit and business situation put you in a good position to qualify for competitive loan options? If you’re a business owner, there may be times when you need an infusion of cash to cover business operations, buy equipment, make upgrades, or to start the business in the first place. That’s why it’s important to know how to get a business loan in case you ever need one. As of October 2023, SBA loans have interest rates between 11.50 to 16.50 percent, and you can secure loan amounts up to $5 million.
This short-term loan is considered a useful option for small businesses. With a line of credit, you’re given a certain amount of cash which you can draw from. You only repay the amount you draw and that’s the only amount you pay interest on. The specific steps to get a startup business loan may vary by lender, but you’ll often take these steps.
Likewise, a loan calculator can see if your monthly loan payment will fit in your business budget, or if it’s worth shopping around for a better interest rate. Use our best small business loans guide to discover the best lender for you. If any of these apply to you, you may be one of the small business owners in a prime position for a business loan. Borrowing limits often range from $2,000 to $250,000, though some lenders offer as low as $1,000 and others go up to $500,000. You’ll only pay interest on the amount you borrow, typically at an annual percentage rate anywhere from 10% to 99%. If you’re looking for a flexible borrowing solution from an online lender, you might prefer a business line of credit.
Likewise, lenders might want more documentation if the information they’ve initially asked for doesn’t give enough of a picture of the borrower and the potential risk they’re weighing. Check out a commercial loan calculator to get a more accurate total cost. Keep in mind that many loan providers take the cost of your loan fees out of the loan they give you. So if you get approved for $10,000, but $500 of that amount is in fees, you’ll only get $9,500. In that case, fees shouldn’t affect the total amount you pay for your loan .
