What Will Be the Most Popular Types of Business Loans for 2023?
Small businesses have made these 6 business financing types the most popular financing options in 2022. Business loans and financing has become very specialized. Finding the right funding for your small business could save you thousands of dollars on interest and financing fees.
Getting a small business loan can be a daunting process for many small business owners. In addition to meeting the qualifications, the paperwork and process of applying for a small business loan can overwhelm a business owner. Traditional bank loans are simply out of reach for many business owners, so what can you do to get the needed capital to start or grow your business?
Access to capital is the Holy Grail of starting and growing a business. Entrepreneurs can obtain financing through various means such as: taking-on private or institutional investors, self-financing using personal credit cards and personal savings or obtaining loans from a lending institution. If you’re thinking about the last option (small business loans), a little education and preparation can go a long way.
If taking a loan to support your business is an option, you must decide what type of loan to apply for: the options range from a traditional bank loan to equipment financing, government-sponsored Small Business Administration (SBA) loans to invoice financing loans and other options in-between. Each of these options has unique features, requirements and a set of pros and cons. And of course, the type of loan you choose to apply for will determine your loan amount, repayment terms and interest rate and fees (known as the cost of borrowing).
Let’s take a look at some of the more popular options and loan programs available to small businesses. There are other forms of loans available, but here we will focus on 5 popular small business loan options. Fortunately, companies such as Biz2credit.com and others have streamlined the business loan application process and loan type selection using advanced technology.
Small Business Administration (SBA) Loans
The SBA is a government-sponsored, government-guaranteed loan program designed for small business loans for companies who don’t qualify for a traditional bank loan. The US Government works with banks and other institutions by guaranteeing a loan given by the bank, so the banks are more flexible in their requirements when issuing the loans.
While an SBA loan is one of the top most popular types of small business loans, they are not easy to acquire.
General Qualification Guidelines for an SBA Loan
2+ years in business
640 personal credit score
Approximately $100,000 in annual revenue
Pros and Cons of an SBA Loan
Pros
Cons
Lowest down payments
Lengthy paperwork
Longest payment terms
Longer approval times
Reasonable interest rates
May require collateral
Suitable for a wide range of business purposes
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Term Loan
This is what most people understand about loans, it is a traditional-type loan and it is the most common choice for small business loans. You borrow a fixed or lump-sum amount of money, usually for a specific business purpose and the loan is paid back over the course of the prescribed term (1-5 years) and is mostly at a fixed interest rate.
General Qualification Guidelines for a Term Loan
3-5+ years in business
Significant/steady cash-flow
Strong personal credit
May require collateral
Application ProcessÂ
Applicants may apply for SBA loans at many large or local banks or apply online.
Loan Limits
$25,000-$500,000
Loan Terms
1-5 years
Interest rates
Depending on credit worthiness, from 7% up to 30%
Loan Approval Time
Under a week, usually within 2-3 days
Pros and Cons of Term Loans
Pros
Cons
Set payment structure
Subject to credit approval
suitable for a wide range of business purposes
May have pre-payment penalties
Lower monthly payments than short-term loan
May require collateral
Longer payoff terms than short-term loans
May carry higher interest rates than SBA Loan
Equipment Financing
As the name implies, equipment financing is designed to help purchase or lease (up to 100% of costs) necessary business equipment such as computers, machinery, cars, trucks or other “equipment”.
General Qualification Guidelines for Equipment Financing
1-3+ years in business
Significant/steady cash-flow
Strong personal credit
May require collateral
Application ProcessÂ
Online, through manufacturer/distributor or finance company associated with manufacturer
Loan Limits
Can be up to 100% of equipment value
Loan Terms
1-5 years
Interest rates
Depending on credit worthiness, from 7% up to 30%
Loan Approval Time
Under a week, usually within 2-3 days
 Pros and Cons of Equipment Financing
Pros
Cons
suitable for a wide range of business purposes
Equipment could be obsolete by the time the loan is fully repaid
Limited paperwork
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Equipment serves as collateral
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Business Line of Credit (BLoC)
A business line of credit is a revolving credit line established with a lender for a specified amount (similar to a credit card), the difference being that the borrower has access to cash when needed. A BloC may have a lower interest rate or APR.
A Bloc can generally be used for any reason at any time according to the terms of the arrangement.
General Qualification Guidelines for a Business Line of Credit
1 year in business
$50,000+ in annual revenue
Application ProcessÂ
Applicants may apply for business line of credit at many large or local banks, credit unions or apply online.
Loan Limits
Broadly speaking between $10,000 and $1 million+
Loan Terms
Generally from 6 months to 5 years
Interest rates
Similar to Term Loan – Depending on credit worthiness, from 7% up to 25%
Loan Approval Time
Hours to a few days
 Pros and Cons of a Business Line of Credit
Pros
Cons
Only pay interest on funds drawn
Might need to provide updated documents upon each draw
Capital is available when needed
May require collateral
Suitable for a wide range of business purposes
Higher rates for lower credit scores
Invoice Financing
Invoice financing, also known as “accounts receivable financing” is a financing arrangement that in essence helps you collect (borrow) money against outstanding invoices and pay your lender a fee for that service. It is technically not a loan, but selling your accounts receivables to support cash-flow. Invoice financing has become very popular, mainly due to the large (and growing) number of firms engaged in this type of lending. This type of financing is similar to a merchant cash advance where the business owner receives a lump sum payment for a percentage of future credit card sales. These types of loans have become popular for businesses that have a large number of outstanding invoices with higher sales amounts.
General Qualification Guidelines for Invoice Financing
6+ months in business
$50,000+ in annual revenue
Application ProcessÂ
Applicants may apply through financial institutions that specialize in factoring
Loan Limits
Broadly speaking between 50% to 90% (85% is common) of the total (collectable) invoice amounts
Loan Terms
This type of funding generally uses a “factor fee” which is generally percentage of the receivables percentage/weeks outstanding
Interest rates
When client pays their invoices you receive the remaining amounts (not advanced, known as the “reserve amounts”) less applicable fees.
Loan Approval Time
Hours to a few days
Pros and Cons of Invoice Financing
Pros
Cons
No need to wait for invoice payment
Can have higher fees than traditional financing
Invoices serve as collateral
Fees based on time for invoice to be paid off
Based on credit of the invoiced business
Costs can be variable
Merchant Cash Advance (MCA)
A merchant cash advance is similar to invoice factoring in that it involves “selling” receivables to a finance company. In the case of a merchant cash advance, your company is selling your future revenue not yet earned. As we learned above, invoice factoring involves selling invoices (and revenue) your company has already earned and booked.
In a merchant cash advance you agree to receive a lump sum payment in return for a percentage of your future sales. Traditionally, an MCA was designed for companies that conducted a lot of sales through credit card and debit card sales. Typical businesses that utilize an MCA include restaurants and retail businesses.
Repayment is made directly as a percentage from the borrower’s credit card merchant services account on a daily or weekly basis. An MCA lender will need to see a history of transactions to determine eligibility for your MCA. They are likely to ask for at least one year of bank statements and require access to your merchant services account from your credit card processor. Merchant cash advances are known to be the most costly types of financing and should be used as a last resort when capital is needed in an emergency.
Since an MCA will reduce the amount of cash you retain from sales going forward, it will dramatically reduce immediate cash flow. In addition, MCA’s often carry additional fees and are fairly short-term.
A merchant cash advance is one of the most popular types of small business loans, it is the least desirable for business owners because of the high costs.
General Qualification Guidelines for a Merchant Cash Advance
1 year in business
$50,000+ in annual revenue
Application ProcessÂ
Applicants may apply through financial institutions that specialize in merchant cash advances.
Loan Limits
Broadly speaking between 50% to 70% (60% is common) of the future revenue amounts.
Loan Terms
This type of funding generally uses a “factor rate” which is generally percentage of the future revenue and is usually a short-term repayment cycle up to 18 months.
Interest rates
Factor rate is used to determine “borrowing costs” and cost of capital. This is among the most expensive funding options.
Loan Approval Time
Hours to a few days.
Pros and Cons of an MCA
Pros
Cons
Quick Cash
Can have much higher costs than traditional financing
No personal credit required
reduces future cash flow
Based on credit of the invoiced business
Costs can be variable and include additional fees
Â
Pros and Cons of an SBA Loan
Pros
Cons
Lowest down payments
Lengthy paperwork
Longest payment terms
Longer approval times
Reasonable interest rates
May require collateral
Suitable for a wide range of business purposes
Â
Term Loan
This is what most people understand about loans, it is a traditional-type loan and it is the most common choice for small business loans. You borrow a fixed or lump-sum amount of money, usually for a specific business purpose and the loan is paid back over the course of the prescribed term (1-5 years) and is mostly at a fixed interest rate.
General Qualification Guidelines for a Term Loan
3-5+ years in business
Significant/steady cash-flow
Strong personal credit
May require collateral
Application ProcessÂ
Applicants may apply for SBA loans at many large or local banks or apply online.
Loan Limits
$25,000-$500,000
Loan Terms
1-5 years
Interest rates
Depending on credit worthiness, from 7% up to 30%
Loan Approval Time
Under a week, usually within 2-3 days
Pros and Cons of Term Loans
Pros
Cons
Set payment structure
Subject to credit approval
suitable for a wide range of business purposes
May have pre-payment penalties
Lower monthly payments than short-term loan
May require collateral
Longer payoff terms than short-term loans
May carry higher interest rates than SBA Loan
Equipment Financing
As the name implies, equipment financing is designed to help purchase or lease (up to 100% of costs) necessary business equipment such as computers, machinery, cars, trucks or other “equipment”.
General Qualification Guidelines for Equipment Financing
1-3+ years in business
Significant/steady cash-flow
Strong personal credit
May require collateral
Application ProcessÂ
Online, through manufacturer/distributor or finance company associated with manufacturer
Loan Limits
Can be up to 100% of equipment value
Loan Terms
1-5 years
Interest rates
Depending on credit worthiness, from 7% up to 30%
Loan Approval Time
Under a week, usually within 2-3 days
 Pros and Cons of Equipment Financing
Pros
Cons
suitable for a wide range of business purposes
Equipment could be obsolete by the time the loan is fully repaid
Limited paperwork
Â
Equipment serves as collateral
Â
Business Line of Credit (BLoC)
A business line of credit is a revolving credit line established with a lender for a specified amount (similar to a credit card), the difference being that the borrower has access to cash when needed. A BloC may have a lower interest rate or APR.
A Bloc can generally be used for any reason at any time according to the terms of the arrangement.
General Qualification Guidelines for a Business Line of Credit
1 year in business
$50,000+ in annual revenue
Application ProcessÂ
Applicants may apply for business line of credit at many large or local banks, credit unions or apply online.
Loan Limits
Broadly speaking between $10,000 and $1 million+
Loan Terms
Generally from 6 months to 5 years
Interest rates
Similar to Term Loan – Depending on credit worthiness, from 7% up to 25%
Loan Approval Time
Hours to a few days
 Pros and Cons of a Business Line of Credit
Pros
Cons
Only pay interest on funds drawn
Might need to provide updated documents upon each draw
Capital is available when needed
May require collateral
Suitable for a wide range of business purposes
Higher rates for lower credit scores
Â
Invoice Financing
Invoice financing, also known as “accounts receivable financing” is a financing arrangement that in essence helps you collect (borrow) money against outstanding invoices and pay your lender a fee for that service. It is technically not a loan, but selling your accounts receivables to support cash-flow. Invoice financing has become very popular, mainly due to the large (and growing) number of firms engaged in this type of lending. This type of financing is similar to a merchant cash advance where the business owner receives a lump sum payment for a percentage of future credit card sales. These types of loans have become popular for businesses that have a large number of outstanding invoices with higher sales amounts.
General Qualification Guidelines for Invoice Financing
6+ months in business
$50,000+ in annual revenue
Application ProcessÂ
Applicants may apply through financial institutions that specialize in factoring
Loan Limits
Broadly speaking between 50% to 90% (85% is common) of the total (collectable) invoice amounts
Loan Terms
This type of funding generally uses a “factor fee” which is generally percentage of the receivables percentage/weeks outstanding
Interest rates
When client pays their invoices you receive the remaining amounts (not advanced, known as the “reserve amounts”) less applicable fees.
Loan Approval Time
Hours to a few days
Pros and Cons of Invoice Financing
Pros
Cons
No need to wait for invoice payment
Can have higher fees than traditional financing
Invoices serve as collateral
Fees based on time for invoice to be paid off
Based on credit of the invoiced business
Costs can be variable
Merchant Cash Advance (MCA)
A merchant cash advance is similar to invoice factoring in that it involves “selling” receivables to a finance company. In the case of a merchant cash advance, your company is selling your future revenue not yet earned. As we learned above, invoice factoring involves selling invoices (and revenue) your company has already earned and booked.
In a merchant cash advance you agree to receive a lump sum payment in return for a percentage of your future sales. Traditionally, an MCA was designed for companies that conducted a lot of sales through credit card and debit card sales. Typical businesses that utilize an MCA include restaurants and retail businesses.
Repayment is made directly as a percentage from the borrower’s credit card merchant services account on a daily or weekly basis. An MCA lender will need to see a history of transactions to determine eligibility for your MCA. They are likely to ask for at least one year of bank statements and require access to your merchant services account from your credit card processor. Merchant cash advances are known to be the most costly types of financing and should be used as a last resort when capital is needed in an emergency.
Since an MCA will reduce the amount of cash you retain from sales going forward, it will dramatically reduce immediate cash flow. In addition, MCA’s often carry additional fees and are fairly short-term.
A merchant cash advance is one of the most popular types of small business loans, it is the least desirable for business owners because of the high costs.
General Qualification Guidelines for a Merchant Cash Advance
1 year in business
$50,000+ in annual revenue
Application ProcessÂ
Applicants may apply through financial institutions that specialize in merchant cash advances.
Loan Limits
Broadly speaking between 50% to 70% (60% is common) of the future revenue amounts.
Loan Terms
This type of funding generally uses a “factor rate” which is generally percentage of the future revenue and is usually a short-term repayment cycle up to 18 months.
Interest rates
Factor rate is used to determine “borrowing costs” and cost of capital. This is among the most expensive funding options.
Loan Approval Time
Hours to a few days.
Pros and Cons of an MCA
Pros
Cons
Quick Cash
Can have much higher costs than traditional financing
Tim Kelly is the Founder of ForexTV. Since its inception in 2003, ForexTV has been a global leader in forex news and has expanded its news coverage to multiple industries. ForexTV is now one of the most recognized brands in global financial news. Mr. Kelly was also the creator and founder of Retirement Intelligence.
Mr. Kelly is an expert in online marketing, search engine optimization, content development and content distribution. He has consulted some of the top brokerages, media companies and financial exchanges on online marketing and content management including: The New York Board of Trade, Chicago Board Options Exchange, International Business Times, Briefing.com, Bloomberg and Bridge Information Systems and 401kTV.
He continues to be a regular market analyst and writer for forextv.com. He holds a Series 3 and Series 34 CFTC registration and formerly was a Commodities Trading Advisor (CTA). Tim is also an expert and specialist in Ichimoku technical analysis. He was also a licensed Property & Casualty; Life, Accident & Health Insurance Producer in New York State.
In addition to writing about the financial markets, Mr. Kelly writes extensively about online marketing and content marketing.
Mr. Kelly attended Boston College where he studied English Literature and Economics, and also attended the University of Siena, Italy where he studied studio art.
Mr. Kelly has been a decades-long community volunteer in his hometown of Long Island where he established the community assistance foundation, Kelly's Heroes. He has also been a coach of Youth Lacrosse for over 10 years. Prior to volunteering in youth sports, Mr. Kelly was involved in the Inner City Scholarship program administered by the Archdiocese of New York.
Before creating ForexTV, Mr, Kelly was Sr. VP Global Marketing for Bridge Information Systems, the world’s second largest financial market data vendor. Prior to Bridge, Mr. Kelly was a team leader of Media at Bloomberg Financial Markets, where he created Bloomberg Personal Magazine with an initial circulation of over 7 million copies monthly.
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