Your Guide to Different Types of Business Loans?
I know seem common sense to generalize business loan in all aspect of business funding since for name sake it caters to businesses. What is a business loan? A business loan is broadly used by business owners when attempting to borrow or acquire capital. However, it’s important to understand that all types of loans involve a borrower and a lender, also known as a creditor and debtor for simplicity. But, there’s more to just that…
As a borrower, it’s easy to “bank hop” but how do you determine lender’s credit requirements before you apply? You can call or you can apply online. If you need funding hope that lender will do used equipment, offer $0 down, or cater to new or established company? Applying everywhere can be consuming and confusing especially if funding needs are not a cookie cutter. If you approach the wrong lender who doesn’t offer the program you need, you might have to start over, leading to “bank hopping.” This is a time-consuming process where business owners apply to multiple places in search of the right loan. If you land to a lead generation website, your data could be sold to more than handful of brokers, who knows. Why are we bringing this up? Well…
Liberty Capital have been serving the industry for over 20 years. We’ve seen customers, banks and lenders come and go. We know what is best for our clients to not get trapped. by guiding you to the right loan without all the promises People fall for the teaser marketing that never happens.
Let us help you find the ideal funding option efficiently, saving you time and effort without sacrificing our competitive rates. Liberty Capital Group, Inc. offers a range of financing solutions tailored to meet the diverse needs of business owners from bad to good credit to new and old companies, we’re small and self-funded so we’re more relatable.
Navigating these options alone can be daunting for many small business owners who are typically uninformed of all types thus can easily be steered the wrong way. I’ve heard it many times over the year, but it’s hard to say “I told you so.”
Not every lender offers the same loan. Not every broker offer the same lender. Some lenders provide loans that others won’t, and their credit requirements vary. For example, one lender might offer loans to those with lower credit scores, while another only works with borrowers who have excellent credit.
Some lender will lend to 500 credit score with revenue than to a guy with 800 credit score without revenue and collateral.
Business Loan Requirements and Guidelines
Factoring | Small Business Loans | Large SBA | ||
Credit Score | Credit Score | Credit Score | Credit Score | Credit Score |
Time in Business Any | Time in Business | Time in Business | Time in Business | Time in Business |
Monthly Revenue | Monthly Revenue | Monthly Revenue | Monthly Revenue | Monthly Revenue |
Loan Amount | Loan Amount | Loan Amount | Loan Amount | Loan Amount |
Rates: 1% – 5% | Rates: WSJ Prime + 2-5% | Rates: 8% – 36% | Rate: WSJ Prime + 2-5% | Rates : WSJ Prime + 2-5% |
| Benefits: Perfect credit not required. Consistent, fast, reliable. | Benefits: Low APR, Fixed or variable rate. Start Up Financing. Commercial property financing. low down payment. | Benefits: Lowest interest rate to buy equipment than MCA ,Tax deductible and depreciation benefits, Own the equipment outright. Monthly payment. | Benefits: Lowest interest rates of all types, Longer terms, Can borrower larger amount. | Benefits: Investment 4+ Unit Commercial Real Estate is still booming. Earn equity on property, Built in collateral |
| Drawbacks: Customer may rather deal directly with business, Depending on the situation can be a higher cost. | Drawbacks: Longer application process, Require a personal guarantee or collateral and down payment. | Drawbacks: Equipment can become outdated. Higher down payment for bad credit. No early payoff discount. | Drawbacks: Application is time consuming, Long time to approval and funding, Down payment required. | Drawbacks: LTV is never 100%. Must include plans to build a structure. Longer application process. |
| Apply Now | Apply Now | Apply Now | Apply Now | Apply Now |
Invoice – vendor verified, revenue based. | Full financial package + year-to-date financials | 1-2 years tax returns (only if request is over $75,000 | 3 years tax returns | Borrower Financial Statement (PFS) |
AR Aging Report | 680 FICO score | 650 FIco | personal financial statement | Personal Tax Return(s) |
P&L | higher requirements. Net worth is a must. | 3 months business bank statements | year-to-date financials | Business Federal Tax Return(s) |
One (1) year tax return (most recent)’Six (6) months Bank Statements | 2-3 years personal and business tax returns. Plus, P&L and BS | Invoice or Quote for equipment to be financed, depending on the funding amount, financials will be required. | Down payment, collateral both and also full financials no matter what they say about express. It’s all full financial package. | Business Financial Statement(s), networth, experience full package. |
Traditional Loans vs. Alternative Loans
Top Traditional Business Loan Types |
1. Business Term Loans – Description: A lump sum of cash provided upfront, which is repaid with interest over a set period. Ideal for businesses looking for a specific amount of funding for major purchases or expansion projects. It’s also available for operating capital. – Who It’s For: Established businesses with good credit and a proven track record of revenue. Requirements: Strong Credit, Financials and Healthy Bank Accounts. |
2. SBA Loans – Description: Government-backed loans with low-interest rates and favorable terms, designed to support small businesses. These loans are partially guaranteed by the Small Business Administration, reducing the risk for lenders. – Who It’s For: Small businesses with a solid credit history and the ability to meet SBA’s stringent qualification requirements. Requirements: Strong Credit, Financials and Healthy Bank Accounts.
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3. Business Lines of Credit – Description: A flexible financing option that allows businesses to draw from a predetermined credit limit as needed, only paying interest on the amount used. Great for managing cash flow fluctuations or unexpected expenses. – Who It’s For: Businesses looking for a safety net to cover short-term cash flow gaps or emergencies. Requirements: Strong Credit, Financials and Healthy Bank Accounts. |
4. Equipment Financing – Description: Loans specifically designed to purchase new or used equipment. The equipment itself serves as collateral, often leading to lower interest rates and easier qualification. – Who It’s For: Businesses needing to acquire or upgrade equipment without a significant upfront cost. Requirements: Strong Credit, Financials and Healthy Bank Accounts. |
Top Alternative Business Loans |
1. Merchant Cash Advances (MCA) – Description: A lump sum of cash provided in exchange for a percentage of future sales, typically repaid daily or weekly based on credit card transactions. Quick and easy to obtain, but often with higher costs. – Who It’s For: Businesses with steady credit card sales but poor credit or limited collateral. |
2. Invoice Financing (Factoring) – Description: Advances cash against outstanding invoices, providing immediate funds without waiting for customers to pay. The lender collects directly from the invoiced clients. – Who It’s For: Businesses with slow-paying clients and a need for quick access to working capital.
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3. Business Credit Cards – Description: Offers revolving credit up to a certain limit, ideal for covering everyday expenses or smaller purchases. They often come with rewards programs or introductory 0% interest rates. – Who It’s For: Small businesses looking to manage cash flow with a flexible and accessible credit option.
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4. Microloans – Description: Small loans, usually under $50,000, designed for startups or micro-enterprises. They typically have shorter repayment terms and higher interest rates than traditional loans. – Who It’s For: Startups or small businesses that need smaller amounts of capital and may not qualify for larger loans.
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5. Bridge Loans – Description: Short-term loans used to bridge the gap between a current need for funding and a future anticipated influx of cash. These loans are often used for real estate transactions or to cover temporary cash shortfalls. – Who It’s For: Businesses that need immediate funding to cover a gap while waiting for longer-term financing or sales proceeds.
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6. Revenue-Based Financing – Description: Provides funding in exchange for a percentage of future monthly revenue. Payments fluctuate based on the business’s performance, providing flexibility. – Who It’s For: Growing businesses with consistent revenue but limited access to traditional loans due to poor credit or lack of collateral. |
7. Personal Loans for Business – Description: Personal loans used for business purposes, based on the borrower’s personal credit history rather than the business’s creditworthiness. – Who It’s For: Entrepreneurs or small business owners with strong personal credit but limited business credit history.
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8. Collateral-Based Loans – Description: Loans secured by personal or business assets, such as property or equipment. The collateral reduces the lender’s risk, making it easier for borrowers with less-than-perfect credit to qualify. – Who It’s For: Businesses or owners with valuable assets willing to use them as collateral for lower interest rates or easier qualification. |
Top 10 Business Loans for Business Owners.
1. Equipment Finance Agreement
– Purpose: To finance outright any business-related equipment.
– Features: Typically secured by the equipment itself, with fixed interest rates and repayment terms that match the useful life of the equipment.
– Benefits of equipment finance agreement: Enables businesses to acquire essential machinery and tools without large upfront costs. Unlike Fair Market Value or Dollar Buyout Leases, Equipment Finance Agreement (EFA) doesn’t have any end of term buy out options. You automatically have ownership of the asset upon completion of the agreed term. However, lender still files UCC-1 filing and if titled equipment they would put a lien on the title.
2. Line of Credit
– Purpose: Provides access to a line of credit that businesses can draw from as needed for various purposes.
– Features: Revolving credit, like a credit card, with flexible repayment terms. Interest is paid only on the amount used and time borrowed.
– Benefits: Ideal for managing cash flow, covering short-term expenses, or handling emergencies. Peace of mind is priceless for small business owners. However, you hardly get the benefit of an increase of line of credit. Typically, they normally do not increase your credit limit.
3. Term Loan
– Purpose: To borrow a term loan to finance specific large projects or investments.
– Features: Lump sum disbursement with fixed or variable interest rates and a predetermined repayment schedule. Predictable payments and terms.
– Benefits: Offers predictability with fixed payments and is often used for expansions, renovations, or substantial purchases. Use on a per project or venture basis without giving out equity or profit. Combined with a line of credit, you will have a powerhouse of funding source. Use Term loan for fixed investments and use line of credit for cashflow flexibility and peace of mind.
4. Merchant Cash Advance (Future Receivable Sale)
– Purpose: Merchant Cash Advance provides a lump sum payment in exchange for a portion of future revenue or credit card sales. Terms can be daily, weekly and short-term. However, you have quick access fast and renews when it’s paid down.
– Features: Repayment is made through a percentage of daily credit card transactions, with no fixed term. Or, fixed daily or weekly with a fixed term. Terms typically are short and approval is based on you’re the last 3 to 4 months of revenue.
– Benefits: Fast access to capital and repayment is flexible based on sales volume. Yo Credit not a factor. Industry is not a factor for some lenders. Most can qualify with very little documentations. You don’t get what you need if you don’t have credit, collateral, down payment. But, that’s not end all, however. There’s still merchant cash advance. They will lend you base
5. Commercial Loan
– Purpose: General-purpose loan for business expenses, often used for real estate, equipment, or expansion.
– Features: Can be secured or unsecured, with varying terms and interest rates depending on the lender and business creditworthiness. Long-term low-rate loans.
– Benefits: Larger loan amounts with potentially lower interest rates for qualified businesses. Have tight Loan-to-value is in place unlike the other loans that don’t consider collateral.
6. Business Credit Card
7. Invoice Factoring
– Purpose: Converts outstanding invoices into immediate cash.
– Features: The factoring company purchases invoices at a discount, providing immediate funds and assuming responsibility for collections.
– Benefits: Quick access to cash based on accounts receivable, improving liquidity.
– Purpose: To manage everyday business expenses and improve cash flow management.
– Features: Revolving credit with a credit limit, rewards programs, and potential for building business credit and personal credit.
– Benefits: Convenience, rewards, and short-term financing without needing to secure collateral. If not done right could be the catalyst to a bad credit. Bad credit means higher cost of borrowing.
8. Contract Financing
– Purpose: Provides funds based on the value of contracts or purchase orders.
– Features: Financing against the value of existing contracts or future sales, with repayment often tied to the completion of the contract.
– Benefits: Enables businesses to undertake large contracts without depleting cash reserves. No payment. Progress payment.
Well, you’ll be working with them to present current WIP, budgeting and cash flow projection. Advance capital on a per project on a progress pay basis.
9. Equipment Leasing
– Purpose: To acquire the use of equipment without purchasing it outright and with intention to return upon depreciation. Have been exhausted. You have no plan to keep it and you fully finance it using Fair Market Value (FMV). Capital lease or operating lease can be your choice.
– Features: Agreements to lease equipment for a specified period with fixed payments, with options to purchase at the end of the lease. You do no maintenance or repair during the life of the lease.
– Benefits: Lower upfront costs, potential tax benefits, and the ability to upgrade equipment periodically. Avoid obsolescence. Hedge against inflation.
10. SBA and Commercial Loans
– Purpose: Small Business Administration-backed loans for various business needs, including working capital, equipment, and real estate.
– Features: Longer repayment terms and lower interest rates due to government guarantees. Includes popular programs like 7(a) loans and 504 loans.
– Benefits: Harder qualification criteria and favorable terms compared to traditional loans. Must have skin in the game. Need good credit, down payment or additional collateral.
As a business owners would not you need to work with 10 different lenders but only one broker can make it happen to keep your business funding liquid.
Each of these financing options caters to different business needs and situations, providing flexibility and support for various aspects of business operations and growth. Business owners should assess their specific requirements, cash flow, and long-term goals to choose the most appropriate type of financing.
Liberty Capital Group, Inc. can do this under one roof. Over 20 years servicing small business with all types of funding. APPLY TODAY!
What do I need to apply?
No matter what loan you apply for, the process remain the same. We do soft-inquiry to see if you even qualify, then we guide you through the right loan to get the right papers or approval with the least amount of papers and time.
Our initial analysis will determine what is the maximum you can qualify with just application only. Then if you want to get lower rates, full financial is the best way to provide to get the lowest rates. Give the lender warm and fuzzy feelings.
Start here…additional info will be needed no matter where you go but why get papers when we can avoid it.
1. ONLINE APPLICATION: You can fill out our application, upload and authorized us to process your application. We do soft-inquiry, and our lender will do hard inquiries once you are approved for Equipment Financing only.
2. Equipment Invoice or Quote for the truck or equipment you want to buy. Multiple vendors accepted. We’ll lump them into one monthly payment for you. We’ll accept bill-of-sale for some private sale.
3. Banks statements (3-4 months) – Proof income, proof of banking, and proof funds availability in case down payment is needed and to match for ACH Payment Drafting – as an auto pay.
For questions, please don’t hesitate to call 888-789-4365.
