If you need a small business loan, you have a seemingly endless number of options to choose from. National banks, regional banks, credit unions, online lenders, microlenders, and the Small Business Administration (SBA) are all ready to help you secure funding. The application process, borrowing requirements, repayment terms, and speed of funding will all vary depending on the lender you work with. Some lenders require solid credit scores, collateral and strong revenues, while other lenders can approve loans with average credit scores and limited cash flow.
Which begs the question: What is the easiest business loan to get?
This Balboa Capital blog article has the answer. We dive deep into the most popular types of business loans that are out there. You will learn what makes each loan different so you can pick the easiest loan option for your small business… one that saves you time so you can focus on running your business.
Secured business loans.
Banks, SBA-approved lenders and other types of lenders offer secured business loans which, in most cases, have lower interest rates (fixed or variable) and lengthier payback terms. Secured loans are seen as less risky to lenders because they are collateralized. As a result, lenders are more willing to charge lower interest rates. Secured business loan amounts typically range between $25,000 and $5 million and have terms ranging from 1 to 25 years.
A secured business loan requires some form of collateral, such as a personal guarantee or a home, vehicle, business equipment or other valuable asset. In the event that you default on a secured business loan, or stop making payments altogether, the lender can legally recoup its losses by seizing control of your collateral.
Applying for a secured business loan can be time-consuming because it requires quite a bit of paperwork and financial information about your business. Your loan application will need to include things like your personal and business financial statements, personal and business income tax returns, profit and loss (P&L) statements, and projected revenues, among others. If you are applying for a bank loan, you might need to be a customer and have a business banking account. Do not expect to receive a quick approval decision after you submit your application. Approval decisions from traditional lenders and SBA-approved lenders can take weeks or even months.
Unsecured business loans.
An unsecured business loan does not require any collateral, which reduces the risk for the borrower. As a result, this type of loan will most likely have a higher interest rate than a secured business loan. Unsecured loans are a popular choice among small business owners nationwide because they can be obtained relatively quickly, even with a subpar credit rating. Unsecured business loan amounts typically range between $3,000 and $250,000 and have terms ranging from 3 to 24 months.
Some lenders require a personal guarantee for their unsecured loans. A personal guarantee, like the name implies, is a legal contract that requires the small business owner to repay the loan if their business is not able to do so. Most lenders that require personal guarantees will also include loan interest and any ancillary loan-related fees in the personal guarantee contract. Lastly, it is not uncommon for lenders to place a blanket lien on a company’s assets. This means that all of the company’s assets become collateral in the event that the loan is not repaid.
Applying for an unsecured business loan is fairly simple and straightforward, and most lenders have online applications that can be completed in under five minutes. Because no collateral or extensive financial statements are required, it takes less time for your lender to review your application and provide you with a pre-approval decision. Since your lender can approve your application in a swift manner, you can get funding faster than you might imagine.
Short-term business loans.
This type of loan will come in handy if your small business needs immediate funding to fill cash-flow gaps, purchase much-needed supplies and inventory, or jump on a time-sensitive business opportunity. Although short-term loans are faster and more convenient than other types of loans, you will end up paying a higher interest rate. That said, the term length is much shorter, usually between 3-18 months, so you will be able to repay the loan much quicker. Moreover, repaying a short-term loan can actually help give your credit rating a nice boost.
Short-term business loan amounts range between $3,000 and $250,000. The application is similar to that of an unsecured loan application, regardless of the lender you select. You will need to provide essential information about you and your business, and collateral is rarely needed. Decisions are made quickly, and loans are delivered in under a week.
The SBA’s 7(a) loan program is ideal if you need a loan to buy an existing business, refinance debt, or make a large capital equipment investment or technology refresh. SBA 7(a) loan amounts range between $125,000 and $5 million, and the repayment periods are 5 to 25 years. The SBA does not provide loans; it guarantees them. In order to apply for an SBA loan, you will need to locate a participating SBA lender in your city or town that offers 7(a) loans.
If you are considering an SBA loan, be prepared to complete a substantial loan package that includes over a dozen business-related documents along with your loan application. SBA loan applications go through multiple steps before being approved. After you gather your company’s documents and complete your loan application, you will need to send it your lender for review and underwriting.
Upon approval, you will receive a loan commitment letter. If you like what you see and decide to move forward, your lender will finalize everything and close your loan. The entire process, from application to funding, can take up to two months.
It goes without saying that your small business will require more money to cover for any number of business-related expenses or emergencies. When that time comes, it is important to do your research and pick the best business loan for your particular needs and budget. As you can see from the loan descriptions above, some business loans are easier than others when it comes to applying and qualifying.