Lending Library

Given the potential impact financing can have on your business, you need to find the best place to get a small business loan. Lendio reviewed the largest SBA lenders and national banks to find the ones with the best small business loan options. Let’s look at some of the prime bank options available to you.

US Bank: Best for smaller loan amounts.

US Bank offers a specialized business “quick loan”, which is a term loan from $5K to $250K with terms of up to 7 years and no origination fee. The loan is “quick” because it can be applied for online. Both unsecured and secured options are available. 

Products offered:

• “Quick” term loan from 5K-250K with terms up to 7 years
• Line of credit up to $250K
• Commercial real estate loans with terms of up to 15 years
• SBA loans

Online application: Yes

Huntington National Bank: Best for underserved communities.

Huntington National Bank is the number one distributor of SBA loans in the U.S. It also runs a program called “Lift Local Business” that supports minority, woman, and veteran-owned small businesses through loans with reduced fees and lower credit requirements.

Products offered:

• SBA loans
• Term loans
• Lines of credit

Online application: Yes- for current customers.

JPMorgan Chase: Best for no origination fees.

Chase offers term loans, lines of credit, commercial real estate, and SBA loans. The bank charges no origination fees on its term loan and has no prepayment penalty on loans less than $250K. 

Products offered:

• Line of credit up to $500K 
• Term loan up to $500K with terms of 1-5 years
• Commercial real estate loans from $50,000 with terms of up to 25 years
• SBA loans

Online application: No

TD Bank: Best online application options.

TD Bank is the 2nd-largest SBA loan distributor in the U.S. and offers an online application for any of its loan products for amounts less than $250,000.

Products offered:

• Line of credit from $25K-$500K
• Term loan from $10K-$1M with terms of 1-5 years
• SBA loans
• Commercial real estate loans of up to $1M with 5-year terms

Online application: Yes

Wells Fargo: Best for unsecured lines of credit.

While Wells Fargo offers fewer loan products to small businesses than other banks, it offers multiple unsecured line of credit options with no fee. For businesses with less than two years of business, they can apply for an unsecured line of credit of up to $50K. For those with two years in business or more, Wells Fargo offers a line of credit of up to $150K.

Products offered:

• Line of credit
• SBA loans

Online application: Yes

PNC Bank: Best for unsecured loan options.

PNC Bank offers multiple unsecured loan products including an unsecured line of credit and an unsecured term loan. The unsecured line of credit and unsecured term loan are both available for amounts from $20-$100K.

Products offered:

• Unsecured line of credit from $20K-$100K
• Secured line of credit from $100K
• Unsecured term loan from $20K-$100K with 2-5 year terms
• Secured term loan from $100 K with 2-7 year terms

Online application: Yes - for existing customers for limited loan products.

BayFirst National Bank: Best for fast SBA loans.

BayFirst, the third-largest SBA lender in the U.S. offers a specialized SBA 7(a) loan called “BOLT”. The loan is available for up to $150,000 with a 10-year term. The streamlined online application process can you get funded as quickly as six days.

Products offered:

• SBA loans

Online application: Yes

Bank of America: Best for building credit.

Bank of America offers a secured business line of credit to business owners with six months in business and $50K annual revenue. The credit line’s purpose is to help the business owner build business credit, so the lines start as low as $1000 and are secured by a refundable cash deposit equal to the line amount. Once the business has established its credit history and reached a revenue of $100K/year, the business can graduate to a larger unsecured line of credit.

Products offered:

• Secured line of credit from $1K
• Unsecured line of credit from $10K
• Unsecured term loan from $10K with 1-5 year terms
• Commercial real estate loans from $25K with terms of up to 15 years
• SBA loans

Online application: Yes

Eligibility criteria for bank business loans.

While some banks will have specialized products with more flexible requirements, the most common eligibility criteria for a bank business loan are:

• 700 credit score
• 2 years in business
• $100,000 annual revenue

Other lender options.

Community banks

Community banks have a smaller footprint than banks listed above, but your local community bank may have more flexible options and a more personalized customer experience.

Online lenders

Online lenders don’t offer bank accounts. Instead, they focus solely on lending. These lenders offer several alternative financing options like business cash advances and invoice factoring that can be easier to qualify for in addition to term loans and lines of credit.

Microlenders

Nonprofit lenders offer loans of less than $50,000 called microloans. Microlenders often have less strict eligibility requirements and frequently cater to specific locations or underserved groups.

Learn more about how to get a business loan.

Methodology

Lendio based its selection on the following criteria:

• The largest number of SBA loans originated according to SBA data.
• Largest national banks by assets held according to federal reserve data.
• Loan products the bank offers according to the bank’s website.
• Special features such as an online application, unsecured loan, or faster processing times as identified by the bank’s website.

One key aspect that small business owners encounter when applying for Small Business Administration (SBA) loans is the SBA guarantee fee. This fee is a critical component of the loan process, yet it can cause confusion and questions among entrepreneurs. In this guide, we'll explain everything you need to know about it, including its implications, to help you make informed financial decisions for your business.

What is the SBA guarantee fee?

Unlike origination fees that are usually charged on traditional business loans through banks, a guarantee fee is charged to cover the costs if a business defaults on a loan. Although guarantee fees are charged to lenders, they will typically pass guarantee fee costs on to borrowers. Borrowers will then be responsible for paying the guarantee fee.

The SBA guarantee fee is a fee that the Small Business Administration (SBA) charges on the guaranteed portions of SBA 504 and 7(a) loans, but not on SBA microloans. The SBA guarantees between 75% and 90% of each loan issued, meaning the guarantee fee does not apply to the total approved loan amount, but only to the guaranteed portion.

SBA guarantee fee costs.

SBA guarantee fees are based on the guaranteed amount on your SBA loan and your repayment term. It is important to note that guarantee fees change each fiscal year. The tables below reflect the SBA guarantee fees for the 2024 fiscal year (October 1, 2023, through September 30, 2024) per SBA loan type.

SBA 7(a) loan guarantee fees range from 0.00% up to 3.75%.

*The SBA guarantees a maximum of $3.75 million on 7(a) loans.

For the 504 loan program, the SBA establishes distinct guarantee fees each year. This program features a unique funding structure, involving contributions from the borrower, a Certified Development Company (CDC), and a third-party lender. SBA guarantee fees are applied solely to the CDC portion of the loan.

There is no guarantee fee on SBA 504 loans for the 2024 fiscal year. However, with this loan type, lenders can charge the SBA's annual service fee (0.364% for the 2024 fiscal year) to borrowers.

How are SBA guarantee fees calculated?

Calculating the SBA guarantee fee can seem complex, but once understood, it becomes more manageable. Here is a simplified process:

1. Identify the guaranteed portion: Determine the amount of the loan that the SBA guarantees. This typically ranges between 50%-90% of the entire loan, depending on the specific SBA loan program.
2. Apply the fee structure: Using the fee rates provided by the SBA, which vary depending on the size and term of the loan, calculate the fee charged on the guaranteed portion.
3. Total loan cost: Add up the fee amount and any additional associated loan costs to understand the total cost of the loan.

It's critical to note the fee is based on the guaranteed portion of the loan, not the total loan amount, which implies that the actual amount paid can be less than the full percentage of the entire loan.

Reach out to your SBA lender for assistance if you are having difficulties calculating potential guarantee fees. You can also check out the SBA’s online calculator which could be helpful to you.

Are there additional SBA loan fees?

Beyond the guarantee fee, small business owners should be aware of other potential charges associated with an SBA loan. This includes origination fees, packaging fees, closing costs, and service fees. Some of these costs are paid upfront, while others may be annual or ongoing over the life of the loan.

It's important to get a complete breakdown of all fees from your lender when considering an SBA loan, so there are no surprises later on. Being informed allows you to better compare your financing options and make the most financially sound decision for your business.

Conclusion

For small business owners accessing capital through SBA loan programs, understanding the SBA guarantee fee is fundamental. It's just as important to plan for this expense as it is to forecast other business costs. Always make sure to assess the full picture of loan costs and discuss any fee-related questions with your SBA-approved lender.

With careful consideration, the SBA's programs can be a powerful tool in growing and sustaining your business. Your efforts to comprehend the fee structures will position you to make well-informed financial decisions that keep your business's bottom line healthy. Remember, staying informed about the costs of borrowing is essential in the stewardship of your enterprise.

The 3 Cs – character, collateral, capacity – summarize the elements that a financier uses to underwrite a loan. This technique of assessing the client comprises both qualitative and quantitative measures.

Character

Character refers to the borrower’s reputation. The shareholders who are going to guarantee the loan and the management of the business will all come under scrutiny to determine if they are reliable and will repay the funds.

The lender will usually look at the credit history of the business owner to gauge honesty and reliability. Considerations may include:

• Whether or not they pay bills on time.
• Whether or not they’ve used credit before.
• How long they’ve been in business, and what positions they held before starting the business.
• How long they’ve lived at their respective addresses.

Lenders will also look at the credit scores of the owners of the business. This score is numeric, typically between 300 and 850, gleaned from the info in your credit report. High scorers generally have a lower risk. Each lender has its own standards, but many of them use credit scores to assist them in making their evaluations. It all depends on the level of risk they find suitable for a particular credit product.

Credit scores are weighted as follows: 35 percent payment history, 30 percent amount owed, 15 percent length of credit history, 10 percent new credit, and 10 percent types of credit in use. 

Collateral

Collateral is any asset used to secure the loan. Savings, real estate, inventory, accounts receivable, and equipment are all assets that could be used as collateral.

The lender asks for collateral because, in the event of insolvency, it can be sold or collected to generate funds to pay the loan. Since in the experience of most lenders asset classes such as prepaid amounts, goodwill, and investments will not raise any significant amounts, they are generally not considered for collateral.

If you’re using a property as collateral, its location and quality, and its adaptability are some of the features your future lender will look at.

Capacity

Most commercial credit officers refer to capacity as cash flow, and it represents the ability of the company to repay debt. Since a big down payment will reduce the risk of default, the lender will consider any capital the borrower puts into a potential investment. In short, the lender is looking at how much debt the borrower can comfortably handle. The following are usually requested from the borrower for the lender to evaluate cash flow/debt service:

• Business tax returns
• Historical financials, such as the balance sheet and profit & loss statements, interim financials, and/or projections
• Personal financial statements for each guarantor
• Rent rolls for leased property

If you’re considering a business loan, understanding the 3 C’s will give you a high-level understanding of what a potential lender will look for. Visit this post for more in-depth information on business loan requirements.

Even if you don’t know what ACH stands for, you’ve probably taken advantage of ACH transfers. If you’ve received your paycheck as direct deposit, sent a few bucks to a friend through Venmo, or paid your power bill online, you’ve used ACH.

ACH payments, which launched in 1974, have become such a common part of modern life that most people don’t even think about the mechanism that moves money in and out of their bank accounts.

For small businesses, understanding the basics of ACH is important on two fronts: you can make and receive payments through ACH, and ACH is a common method funders use to collect repayment of a business cash advance.

What are Automated Clearing House (ACH) transactions?

ACH is an acronym for “Automated Clearing House.” Essentially, it is the method banks use to send money between accounts electronically.

ACH is maintained, developed, and administered by the National Automated Clearing House Association (NACHA), a nonprofit funded by the financial companies that use ACH.

Used by millions of companies, the federal government, and all banks, the amount of money that moves through NACHA’s network is staggering. In 2019, some 24.7 billion payments were processed through the ACH network, a figure that has grown by more than 1 billion payments every year since 2014.

Not only are bill payments, salaries, and charitable gifts sent through ACH—Social Security, tax refunds, and other government benefits are deposited through ACH as well. Because of this, the federal government regulates the ACH network along with NACHA. NACHA estimated that the total value of all payments processed through ACH in 2019 was more than $55.8 trillion.

How do ACH payments work?  

While the result of an ACH transaction is similar to writing a check, the process is different.

ACH transactions are instructions to move money electronically from one bank account to another. These transactions can either be initiated by the person sending the money (credit) or the person receiving the money (debit). They are processed in batches and the transfer of funds takes place between banks.

Before banks are contacted, authorization must be provided by the people involved. To receive a direct deposit as an employee, for example, you must sign an agreement with your employer. To pay a bill through ACH, you must authorize the transaction first. Oftentimes, you agree to the transaction once, and then the direct deposits or automatic payments continue until you want them to stop.

In all ACH transactions, instructions are sent from an originating depository financial institution (ODFI) to a receiving depository financial institution (RDFI), which are usually both banks—sometimes even the same bank. The instructions from the ODFI can be to either request or deliver money.

How does ACH work for employee direct deposits?

If an employee agrees to be paid through direct deposit, the employer’s bank is the ODFI in this instance. The employer shows the ODFI that the employee approved the transaction. The ODFI verifies this information and submits it to the ACH network. The ACH network routes the transaction to the RDFI of the employee. The RDFI makes the money available by crediting it to the employee’s bank account; at the same time, the ODFI is debiting money out of the employer’s bank account. Finally, the ACH network settles the transaction with both banks.  

The process sounds complicated, but because it is automated and electronic, it usually only takes 1 to 2 business days.

How to pay employees using ACH.

To set up direct deposit for your employees, you should talk to your bank (i.e., the ODFI in this case) about what information they need and how much it will cost you.

Interested employees will agree to direct deposit and provide you with a bank account and routing numbers. You then provide this information to the ODFI.

When payday comes, you submit your payment files to the ODFI. The ODFI then submits the transaction to the ACH network, which results in your employees receiving funds in their accounts soon after.

Depending on your agreement with your bank, you will be charged a flat fee or a percentage based on the amount moved through the ACH network.

How does ACH work for accepting payments?

The system is the reverse when a person is paying a company like a consumer buying a product through Square or paying an insurance bill online. The ODFI would be the insurance company’s bank. The money would flow from the RDFI to the ODFI.

How to accept ACH payments.

To accept electronic payments for your goods or services, talk to your bank. Banks, credit card processors, and merchant account providers all offer various ACH services that vary in cost.

Especially if your operation is very small, new, or both, a popular way to accept ACH payments is Square, Venmo, or other mobile payment processors. Many businesses opt for these new payment processors because the fees are easy to understand, and it allows them to provide for customers who want to pay with plastic.

How funders use ACH payments.

Many funders who offer a business cash advance will utilize ACH to receive repayment on the advance. This is why you may occasionally hear this type of funding referred to as an “ACH loan.” 

A business cash advance provides access to money upfront based on expected future revenue. The funder will then set up an automatic withdrawal via ACH of a preset amount on a daily or weekly basis.

Difference between ACH payments and wire transfers.

Wire transfers are another common way to send money between bank accounts, but these transactions are different from ACH payments in several ways. ACH payments only work within the United States, while wire transfers can be sent around the world. Wire transfers are immediate, which can be beneficial but has also made this method of payment popular with fraudsters. The cost of wiring money is typically quite high, too, compared with the relatively slight cost of ACH transfers.

You may also hear about Electronic Fund Transfers (EFTs), a blanket term that encompasses ACH payments, wire transfers, and pretty much any time money is exchanged electronically. All transactions that require a PIN code are EFT, too, including using an ATM or paying with a debit card at a grocery store.

Why use ACH?

The benefits of ACH are pretty clear: it’s fast, accurate, and relatively cheap. Because it is utilized by the US government and all the major banks, ACH is highly regulated and secure. 

The fees range depending on your bank and how much money you process through ACH, but they are generally less expensive than what credit card processors charge. The low fees and overall convenience are major reasons why many businesses turn to ACH.

Additionally, ACH will make a huge dent in the amount of paper your business has to handle. Maintaining a check registry has long been a headache for most small business owners, while the automation and simplicity of ACH make payments much more streamlined. And no one has ever lost an ACH payment in the mail.

The drawbacks of ACH

By automating your payroll with ACH or enrolling in repeating payments, you may feel like you have less control of your cash outflows.

As a practice, you should always pay close attention to your bank accounts, even if you use ACH often. Automated payments can overdraw your account. You might also continue paying for services that you stop using if the payments are automatic and you stop paying attention.

Keep in mind that ACH payments can only happen between 2 bank accounts based in the U.S.

You must also consider the costs involved with ACH, even though they are typically lower than most other electronic payment options.

How much will it cost?

The cost of using ACH transfers will depend on the financial institution, how much money you are transferring, and how regularly you transfer money. Banks may also charge rates that are different from mobile payment processors like Square, so you should do some research on what options are available to you.

Many ACH processors will charge a flat fee on every transaction, often between $0.25 and $0.75, although some processors charge as much as $1.50 per transaction. Other companies will charge a percentage on each transaction, usually between 0.5% and 1.5%.

ACH transfer fees are almost always lower than credit card processing fees, which can range from 1.5% to 4% on each transaction.

Is ACH secure?

Because it is regulated by federal law, ACH transfers are one of the most secure ways to move money between bank accounts. To prevent fraud, NACHA requires a significant amount of identifying information from every person, business, and bank involved in the ACH process.

With such safety, speed, and convenience, it makes sense that so many small businesses adopt ACH processing into their banking practices.

Starting a new business can be an exciting journey, but it also comes with its own set of challenges. One of the biggest hurdles can be securing the right funding to get your startup off the ground. As a small business owner with poor credit, it can be even more difficult to find the financing you need. However, there are still options available to you. In this article, we’ll explore the possibilities of getting a startup business loan with no credit check or poor credit, as well as alternative forms of financing to consider.

Getting a business loan with no credit.

Getting a business loan with no credit.

When you apply for a business loan, many commercial lenders will review your credit history to get a sense of how you’ve handled debt in the past. Reviewing previous credit history and checking your credit scores helps lenders predict risk. The problem for many entrepreneurs is that their new business hasn’t yet had a chance to establish a track record when it comes to managing credit obligations. 

If a lender’s usual qualification metrics are based on longevity (aka time in business and length of credit history), they need to take a different approach for startups. Rather than look at business credit, a lender may focus on your personal credit score and overall business experience instead. 

This alternative approach to risk assessment can work because a business owner’s personal credit scores can also provide a lender with valuable predictive analytics. At its core, a credit score (both business and personal) is a formula that lenders use to predict whether you’ll repay the money you borrow as promised. And that key information—the likelihood of repayment—is what a lender really wants to know when you apply for a loan.

The best small business loans with no credit check.

The best small business loans with no credit check.

There are many loan products available to small business owners. Yet entrepreneurs with low credit scores or those who prefer to avoid a credit check for other reasons often find the most success with invoice factoring, ACH loans, or business lines of credit. 

The qualification criteria for the three financing options above depend less on your credit scores and more on other factors. This doesn’t mean you will receive an automatic approval even with a very poor credit score. But if you have experience in your industry and some positive credit history, you may have a fighting chance at qualifying.

Below are some important details to consider regarding these three financing options:

1. Invoice factoring

With invoice factoring, the majority of lenders do not have a minimum credit score requirement. As a result, your application for funding from a factoring company may not involve a credit check at all. Here’s an overview of how this financing option works. 

Invoice factoring involves selling your company’s outstanding B2B invoices to a financing company for cash. In general, a factoring company might advance you 70% to 90% of the value of your invoices. The factoring company then works directly with your client to collect the money owed when the invoice due date arrives. Once it collects the funds, the factoring company will return the remaining balance to you, minus a factoring fee (often 3% to 5%).  

Lenders don’t typically check your credit when you’re seeking financing through an invoice factoring arrangement. Instead, the credit of your customers could matter. With this type of financing, a factoring company will collect payment from your customers, not you or your business. Therefore, your customer’s creditworthiness could impact your ability to qualify for financing and the fees a lender charges you as well. 

2. Business cash advance

A business cash advance (sometimes called a merchant cash advance) could be another financing solution to consider if you need business financing for bad credit or no credit. Most lenders that issue cash advances require a minimum credit score of 500 to 625. (These lenders often perform only a soft credit inquiry that won’t impact your credit score.) However, a handful of cash advance providers may not require a credit score review at all. 

Cash advances are so popular among entrepreneurs because of their rapid funding speed. Once a lender approves you for a cash advance you can often receive your loan proceeds within a couple of days. This funding agility can present a substantial advantage for a small business in the startup phase.

Of course, just as with ultra-fast sports cars, you are likely to pay a premium for the speed of cash advances. On either a daily or weekly basis, the lender will take an agreed-upon amount from your bank account as an ACH deduction. The amount you can borrow tends to be lower than the loan amounts you might receive via other financing options. But many small business owners feel that the trade-off is fair, thanks to cash advances' convenience. 

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3. Business lines of credit

Lenders are likely to review your credit when you apply for a business line of credit (LOC). However, some lenders will only perform a soft credit inquiry to assess your business LOC application. (Remember, soft credit inquiries do not have any impact on your credit score, unlike hard credit inquiries that have the potential to impact your credit score.) Other lenders may perform a soft credit check for the pre-approval process and follow up with a hard credit inquiry at the time of funding. 

A business line of credit is similar to a business credit card in several ways. An LOC comes with a credit limit, often ranging from $1,000 to $500,000. Depending on the lender, you may have access to the funds within one to two weeks. The financing typically has a one- to two-year maturity.

Perhaps the best feature of a business LOC is its flexibility. If your restaurant needs a new fryer, buy it. If you need to hire employees, go for it. If you want to bulk up your inventory, do it. Nearly any expense that goes toward starting and sustaining your business is fair game.

Like credit cards, this type of financing also gives you access to revolving credit. This differs from most loans, which provide you with a lump sum of money upfront. With an LOC, you simply use the credit line whenever necessary. There’s no pressure to spend it, and you’ll pay interest only on the funds your business borrows.

Work to bolster your credit score.

Work to bolster your credit score.

It’s true that invoice factoring, ACH loans, and sometimes even business lines of credit can provide financing even when your credit is unimpressive. But that’s no reason to accept the status quo. You should put effort into improving your credit. 

Working to earn better credit could open doors to you in the future. Not only can good credit help you qualify for more loan products, but it may also help you receive more favorable interest rates and repayment terms from lenders.

Paying credit obligations and vendor accounts on time is the best way to improve your business credit scores. (And, of course, you’ll want to make sure those accounts report to the credit reporting agencies.) 

To maintain a stellar payment history, sign up for automatic payments whenever possible. If you can’t sign up through the payee, consider adding them to your banking system. At the very least, set up a regular calendar reminder so you won’t be forced to rely solely on your memory.

Alternative financing options

Alternative financing options

1. Crowdfunding – Crowdfunding is a way to raise money online by collecting small amounts from numerous people. 

2. Family and Friends – Small business owners can borrow from family and friends, but there are risks. If the business fails or the loan can’t be repaid, important relationships may suffer. 

3. Grants – Small businesses and startups may find it appealing to apply for grants as they don't need to be repaid. Although challenging, winning a grant isn't impossible.

4. Angel Investors –An angel investor funds small businesses in exchange for equity. It's a good option when businesses need more funding than they can get from friends and family, but not enough to attract venture capitalists.

5. Venture Capitalists – Venture capitalists provide funding to startups and receive a percentage of the company’s equity in return. Venture capitalists are typically looking for businesses with high-growth potential and a solid business plan. 

The U.S. Small Business Administration offers a few different real estate loans to help business owners purchase, renovate, and build properties that support their companies. There are two primary SBA commercial real estate loans to choose from: the 7(a) loan and the 504 loan. Each one is designed for different purposes and has its own terms and eligibility requirements. Read about both options so you can pick the right one for your small business. 

SBA 7(a) loans.

SBA 7(a) loans are a versatile source of funding for small business owners that can be used for real estate. Here's how they work.

Eligibility

For-profit companies that meet the SBA's definition of "small business" may apply for a 7(a) loan. In addition to demonstrating the need for financing, the owners must be financially invested in their companies and have tapped into other resources before applying—including their personal assets.

When using an SBA 7(a) loan for real estate, you must meet the following occupancy requirements, depending on the loan purpose:

• Existing real estate purchase: Property must be at least 51% owner-occupied
• New real estate construction: Property must be at least 60% owner-occupied

Use of loan funds.

SBA 7(a) loans can be used for a variety of reasons, such as working capital, inventory, and debt refinancing. For real estate-related financing, you can apply to use the funds for any of the following:

• Purchasing or leasing land
• Improving street or parking
• Purchasing, building, or improving a building

Repayment terms

Small businesses may borrow up to $5 million with a 7(a) loan, with payments spread out over up to 25 years. Interest rates are based on the current prime rate, plus an additional percentage ranging from 2.75% to 4.75%. You'll also need to make a down payment, which is set by your lender in your loan offer. This ensures you have a vested interest in keeping up with your loan payments over time.

SBA 504 loans.

504 loans from the SBA are designed to help with large asset purchases, including real estate. It has a few key differences when compared to a 7(a) loan.

Eligibility

Small businesses can apply for the 504 loan if the business has a tangible net worth of under $15 million and has had an average net income of under $5 million (after federal taxes) for the previous two years.

The 504 loan comes with the same owner-occupancy requirements as the 7(a) loan: existing real estate purchases must be at least 51% owner-occupied, while new construction must be at least 60% owner-occupied. 

Use of loan funds.

504 loans can be used for purchases, construction, or improvement projects. Eligible projects include:

• Purchasing existing buildings or land
• Purchasing or building new facilities
• Improving or modernizing existing facilities, land, streets, utilities, parking lots, and landscaping

Repayment terms

With a 504 loan, you can borrow up to $5 million for most purchases, or up to $5.5 million for eligible energy efficient or manufacturing projects. These real estate loans come with a 25-year repayment term. Interest rates are tied to the five-year and 10-year U.S. Treasury issues, with a pegged rate above the current rate. 

The business owner is typically responsible for 10% of the costs as a down payment. Another 40% is borrowed from a Certified Development Company (CDC), and the remaining 50% is borrowed from a bank or credit union.

SBA 7(a) vs. 504 loans.

Both the SBA 7(a) and 504 loans can be used for real estate, however each has its own different perks and drawbacks. While the SBA 7(a) program offers broader versatility in how funds can be utilized without necessitating specific job creation or community development criteria, the SBA 504 loan program may provide advantages such as the possibility for greater loan amounts and more favorable interest rates.

See a full comparison between the two loan types here.

Which SBA real estate loan option is right for your business?

Choosing between the SBA 7(a) and 504 loan programs for real estate purposes depends on several factors unique to your business needs and objectives:

• Type of real estate purchase: If you're looking to purchase or refinance owner-occupied commercial property, the 504 loan offers benefits specifically tailored for real estate projects. However, if the property acquisition is part of a broader business financing need, the 7(a) might be more appropriate.
• Project size and scope: For larger projects that significantly contribute to local economic development, the 504 program is designed to support major investments in real estate and equipment. Smaller or more general real estate needs may be better suited to the 7(a) program.
• Loan terms and interest rates: The 504 loan program typically offers lower interest rates and longer repayment terms, especially for real estate purchases, making it a cost-effective option for substantial long-term investments. Consider your business's capacity for repayment when choosing.
• Down payment requirements: The down payment for a 504 loan is usually lower than that of the 7(a), making it more accessible for small businesses with limited upfront capital but solid growth potential.
• Economic development and job creation: If your project will contribute to job creation or meet specific public policy goals, the 504 loan provides not just funding but also potential community development benefits, which could influence your decision.

Evaluating your business's financial needs, growth projections, and the specific requirements of each loan program will help you make an informed decision about which SBA real estate loan option is right for you.

How to qualify for an SBA real estate loan.

Qualifying for an SBA real estate loan involves several key steps and criteria that potential borrowers must meet to be eligible for financing. Whether you're considering a 7(a) or a 504 loan, the basic qualifications include:

• Business size and type: Your business must meet the SBA's size standards, which vary by industry. Generally, it should be a for-profit enterprise and operate within the United States.
• Creditworthiness: Applicants should have good credit scores and a history of financial responsibility, both personally and in business. The SBA and lenders will review your credit history, including your business credit report and personal credit score.
• Down payment: While down payment requirements can be more favorable for SBA loans compared to conventional loans, borrowers should be prepared to make a down payment. The specific amount varies, with 504 loans typically requiring at least 10%.
• Operator requirement: For most real estate loans, the SBA requires that the business occupies at least 51% of the property for existing buildings or 60% for new constructions.
• Financial statements: Applicants must provide comprehensive financial statements, demonstrating the business's profitability and sustainability. This includes balance sheets, income statements, and cash flow projections.
• Business plan: A detailed business plan must be submitted, outlining the business's objectives, market analysis, management team, and how the loan will be used to support growth and stability.
• Collateral: Although the SBA offers a guaranty on the loan, borrowers are still required to provide collateral, which can include business assets, real estate, and personal guarantees.

Meeting these qualifications does not guarantee loan approval, but it is the first step in the application process. It's essential to work closely with an SBA-approved lender or a Certified Development Company (CDC) for 504 loans, who can provide guidance tailored to your business's unique needs and help you prepare a strong loan application.

How to apply for an SBA real estate loan.

Applying for an SBA real estate loan is a comprehensive process that requires careful planning and preparation. Here’s a step-by-step guide to navigating the application process effectively:

1. Determine eligibility: Before applying, ensure your business meets the SBA’s eligibility requirements for either the 7(a) or 504 loan program. This includes size standards, the nature of the business, and creditworthiness.
2. Choose the right program: Based on your business needs, decide whether the 7(a) or 504 loan program is more suitable for your real estate project. Consider factors such as the type of real estate, project size, and interest rates.
3. Find an SBA-approved lender or CDC: For a 7(a) loan, you’ll need to work with an SBA-approved lender. For a 504 loan, you’ll partner with a Certified Development Company (CDC) alongside a third-party lender. Consult the SBA’s website or contact your local SBA office to find approved partners.
4. Prepare your documentation: Gather all required documents, including financial statements, a business plan, ownership and affiliate business information, and any necessary legal documents related to your business and the real estate transaction.
5. Complete the application: Fill out the loan application forms provided by your lender or CDC. Make sure to complete every section accurately to avoid delays in processing.
6. Undergo a loan review: After you submit your application, your lender or CDC will review your documents and may request additional information. This review process will assess your project's viability, creditworthiness, and adherence to SBA requirements.
7. Loan approval: If your application is successful, you will receive a loan approval decision from your lender or CDC. This phase includes discussions on terms, rates, and any closing conditions that must be met.
8. Closing: Once all conditions for the loan are fulfilled and approved, you will proceed to closing, where the loan documents are signed, and the funds become available for use according to the terms of the loan.

Remember, each SBA real estate loan application is unique, and the process may vary slightly depending on the lender, CDC, and specific circumstances of your business and real estate project. It’s advisable to seek guidance from financial advisors or consultants experienced with SBA loans to ensure a smooth application process.

Learn more about how SBA loans can help you grow your business and increase your efficiency.

If you can’t beat them, buy them. And even if you can beat them, maybe still buy them. 

When it comes to the top dogs, we’ve seen successful competitor acquisitions like Facebook buying WhatsApp, T-Mobile acquiring Sprint, and Amazon purchasing Zappos. But we’ve also seen other not-so-successful competitor acquisitions like when Sprint bought Nextel or when Google acquired Motorola.

When the giants fall, it makes a big bang. However, most of these behemoth companies are still alive and kicking.

For small businesses, the margin of error is much thinner. An acquisition flop doesn’t usually end in a setback—it ends in layoffs and bankruptcy.

But if you get it right, wow, can your small business hit the jackpot. You could score customers, increase revenue, accelerate growth, win top-notch employees, and ultimately secure a more concrete piece of the market.

If you’re considering buying out a competitor, a few critical questions have likely come to your mind. Should you buy out a competitor or crush them instead? If you decide to buy them out, how will you finance the acquisition? What will you need to do to make sure the acquisition ends up a major success rather than an epic fail?

All great questions, and that’s why we put together this definitive guide to buying out a competitor. Read through this guide, and you’ll find all the answers you need to make the best acquisition decisions for your business.

Why should you buy a competing company?

Any merger or acquisition is risky—so why should any business gamble with it?

Well, with great risk comes great reward. Here are a few reasons you might want to buy out a competitor:

• Reduce competition. With the competitor gone, your customers have one less alternative. You won’t have to keep lowering your product prices or paying more in pay-per-click (PPC) bidding wars. You may be able to raise prices for your products (without upsetting customers), or the economies of scale might reduce costs and allow you to lower prices while maintaining a profit.
• Acquire a competitive advantage. If your competitor has intellectual property, digital marketing leverage, or prime real estate that gives them an advantage, you could buy the company and all the assets. This way, you won’t have to use employees and money to build the technology yourself, compete for digital prowess, or fight for locations.
• Accelerate growth. Organic business growth can be painfully slow. By acquiring a company, you could double your revenue, customer base, and team overnight. 
• Grow your team. If your competitor has a group of stellar engineers or salespeople, acquiring their business could get the dream team on your side (if they decide to stay, that is).
• Expand your customer base. Acquiring your competitor gives you instant access to their customer base. If your product is a complement, then there are tremendous cross-sell and up-sell opportunities.

The disadvantages and challenges of a competitor buyout.

Buying out your competitor isn’t all unicorns and rainbows, though. There can be significant challenges and downsides.

Before you rush into anything, be aware of these potential backlashes:

• Loss of key employees. Founders, leaders, and other tenured employees may use a buyout as a catalyst for an exit. You’ll need to have worst-case-scenario plans and resources ready to replace them. The acquired business likely heavily relied on these key players—you can’t just go with the flow if they leave.
• Increased debt. Buying out a competitor isn’t cheap. You’ll likely need to borrow money (sometimes a lot of it), and that will affect your profitability and capacity to invest in other areas of your business.
• Integration conflicts. Integration struggles are real. Some integrations will come Day 1, and others will roll out slowly over months and years. Keep in mind everything that will be impacted: software, personnel, salaries, benefits, processes, offices, titles, culture, and the list goes on. 
• Broken processes. A company’s go-to-market strategy or product road-mapping process may work for their business and employees but not work somewhere else. If you buy out a competitor, make changes very slowly. Forcing a new acquisition to operate exactly as the parent company could break what they’ve built. If it ain’t broke, do you really need to fix it?

None of these consequences should stop you from buying out your competitor, but they are factors you should keep in mind.

When to acquire a competitor.

Deciding to acquire a competitor is a significant strategic move that can redefine your company's future. It's a decision that should be based on a combination of timing, financial stability, and market position.

Timing

Timing is crucial in the acquisition process because it can significantly impact both the cost of the acquisition and its ultimate success. Engaging in acquisition when the market is favorable, such as during an economic downturn when company valuations are lower, can allow for a more cost-effective expansion. Conversely, acquiring a competitor when your company is experiencing robust growth and market share can solidify this leading position, preventing competitors from gaining ground. Additionally, timing can influence the integration process, where market stability can offer a smoother transition and better acceptance from customers and stakeholders.

Financial stability

Financial stability is crucial when acquiring a competitor because it ensures that the acquisition does not jeopardize the acquiring company's existing operations and financial health. A strong financial foundation allows a company to absorb the costs associated with the acquisition, such as the purchase price, integration expenses, and any unforeseen financial challenges that may arise. It also positions the company to leverage additional resources for growth opportunities and to manage the debts more effectively, maintaining investor confidence and market stability throughout the transition period.

Market position

Market position holds critical importance when acquiring a competitor, acting as a litmus test for the potential success of the merger. A strong market position can afford the acquiring company greater leverage in the integration process, enabling it to maximize the benefits of the acquisition, such as expanding its customer base, enhancing product or service offerings, and eliminating a competitive threat. Furthermore, a company with a solid market position is better equipped to weather the integration challenges, such as brand cohesion and customer retention, ensuring that the acquisition contributes positively to its long-term strategic goals.

Top 5 questions to ask before buying out a competitor.

Buying out your competitor could establish you as the top dog, or it could send your business spiraling out of control.

When the timing is right, the most critical factor is not if you should make an acquisition, it’s who you should acquire. Just like when you open a restaurant menu, you don’t want to start salivating over the first thing you see. Especially if you’re at Cheesecake Factory—you have a whole book to read first!

If your industry and market resemble a Cheesecake Factory menu, you’ll want to take your time and consider the options. When dining, there are usually good, better, and best possibilities. When acquiring a competitor, there’s likely a good, bad, worse, and worst option.

To make sure you make the right decision, weigh these 5 critical factors first:

1. What do the financials say?

We’re not just talking about current revenue and expenses. Dig deep into the numbers.

Numbers help you detach emotionally from the acquisition to take a more objective approach. Don’t fear the numbers—embrace them!

Your competitor may be boasting some impressive figures, but a more in-depth look into the financials might reveal that numbers are trending down in the past few years. Or maybe you notice the business is profitable, but expenses are accelerating faster than revenue growth.

You’ll also want to examine the cost of the acquisition. Will your competitor’s revenue offset the price of buying them out? Do they currently have any expensive debts? How long will it take to recoup the cost and start seeing a profit?

Finally, you’ll want to make sure the numbers the business provides are legit. “I’ve lost a lot of money on acquisitions in the past by not making sure that their books, sales, and other systems match up,” said John Rampton, founder of Due. “Have a firm go in and audit everything. Then audit it yourself. Any company that doesn’t allow you to take a look at everything and take the engine apart isn’t worth your time.”

2. How will the customers react? 

Imagine if Pepsi bought Coca-Cola or if Microsoft acquired Apple. How do you think legacy customers would respond? Not well. Not well at all.

Even if all the numbers add up, you’ll still need to consider the emotional impact on customers and employees. Direct competitors, like Nike and Adidas, will have a more difficult time converting customers and employees. Indirect competitors, like YouTube and Vine, would face less of a challenge.

“I like to think about my company and our acquisitions as many chapters in a detailed overarching narrative,” said Rob Fulton, founder of Exponential Black Labs. “Does it make sense to the customer, and do our products and acquisitions flow from one chapter to the next?”

Make sure your competitor’s customers and your customers will be on board with the acquisition. The last thing you want to do is add jet fuel to another competitor’s marketing fire.

3. Do the company culture and values fit?

Typically, when companies look at acquisitions, all they think about is money, money, money. But meshable culture has financial value, too.

Take BerylHealth, for example. A private equity firm tried to acquire BerylHealth for 9x its EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization). CEO Paul Spiegelman declined the deal, but he left with a firm resolve to improve his company’s culture. His focus and investment in culture paid off—2 years later, a company offered 22x the EBITDA to acquire BerylHealth.

“We were able to sell our culture,” said Spiegelman. “They weren’t buying us just for the business we had or the platform we would build for them; they honestly believed in what we had built.”

When you look to acquire a competitor, make sure you’ll be able to integrate the 2 company cultures. If it’s a sizable acquisition, you won’t get away with forcing the acquired employees to fit your mold—you’ll need to reevaluate and realign to make sure the culture fits the new combined business.

Be thoughtful and intentional with this process. “Most leaders want to complete the integration process as quickly as possible in order to reap the financial benefits of the transaction,” said Debbie Shotwell, Chief People Officer at Saba. “This can come back to bite them. I believe in taking a step back, planning, and taking your time with your integration strategy.”

4. Why is the company willing to sell?

If the owner is experiencing a major life event (illness, relocation, retirement, divorce, etc.), then it makes sense to sell the business. If that’s not the case, why are they willing to sell their business?

There are right and wrong answers.

If the company believes in the combined vision and future of your business, then that’s a good reason. If things are slipping and they’re looking to abandon ship, that’s a scary reason.

You need to know precisely why the business is willing to be acquired so you can avoid any unpleasant surprises down the road.

5. What is the market overlap?

You want to acquire a competitor with as little overlap as possible. Your competitor’s clients chose an alternative over you once already, and they may decide to go with another company instead of sticking with you post-acquisition.The best target for an acquisition is a competitor in nearby markets instead of the same market. This play allows you to expand your market rather than force your product or service on customers.

How to finance a small business acquisition.

It’s (almost) never a good idea to buy out a competitor with cash. Business acquisitions are a pricey business. You don’t want all your working capital thrown at the investment, especially after a buy out that will require additional integration costs. 

So, where will you find the money for the acquisition? You have a few options:

• Your business’s capital. Like we said before, it’s not a great idea unless you have mountains of cash sitting idly in the bank.
• Seller financing. The business you’re acquiring provides you with a loan that you pay back over time.
• Small business loan. You find a business acquisition loan to finance the buyout.
• Leveraged buyout. You leverage the new business’s assets to help finance the acquisition, but you’ll usually need to pair this with a loan or seller financing.

As America’s leading marketplace for small business loans, we’re a tad biased, but we believe a business acquisition loan should be one of your top financing considerations.

Using a business acquisition loan.

A business acquisition loan is pretty straightforward—it helps you buy an existing business or franchise.

No stacks of cash, crazy-rich uncles, or convoluted financing schemes required. There isn’t a “business acquisition loan,” per se, but there are small business loan products that work perfectly for acquiring businesses. Here are the top 4 options.

1. Business term loan.

Business term loans are the classic financing you think about when you hear the word “loan.” You get a lump sum of cash that you pay back with predictable monthly payments, usually at a fixed term and a fixed interest rate.

2. SBA 7(a) loan.

With an SBA 7(a) loan, you could get up to $5 million in financing for whatever your heart acquires. Contrary to the name, the government (Small Business Administration) does not actually lend the money—they just guarantee all or a portion of the loan to decrease the risk for lenders.

3. Startup loan

If an opportunity to buy out a competitor arises but you don’t have years of business experience under your belt, a startup loan may be your best bet. They’re not too different from term loans, but they’re offered by lenders who are willing to accept borrowers with lower revenue, credit scores, and years in business.

4. Equipment financing

In some situations, the purchase price of the business you’re acquiring might be majorly determined by the value of the equipment you’re purchasing. When that’s the case, equipment financing should be a top consideration. Plus, you get to use the equipment as collateral for the loan, so there’s less risk for you.Fortunately, you don’t have to go from bank to bank inquiring about all these loans to find the best deal. Just use our free 15-minute application, and our nifty sci-fi algorithms will find you the perfect business acquisition loan with the perfect lender. Simple, quick, free—the way it should be.

How long does it take to buy out a competitor?

The timeline for acquiring a competitor can vary significantly based on a range of factors, including the size and complexity of the deal, regulatory hurdles, and the negotiation process. Generally, smaller acquisitions can be completed within a few months, while larger, more complex deals may take a year or more to finalize.

The initial stages of the process involve preliminary discussions and due diligence, which is critical for assessing the target company's financial health, legal standing, and operational fit. Following this, the negotiation of terms and the drafting of contracts can span several weeks to several months, depending on the parties' agreement speed and the deal's complexity. Regulatory approvals, a crucial step, can also extend the timeline, especially in industries that are heavily regulated. Throughout this period, maintaining open communication and a clear strategic vision is essential for both parties to facilitate a smooth transition and integration post-acquisition.

Tips to make your business acquisition a success.

Despite being long and painful, the actual transaction of buying out your competitor is just the first step in a successful business acquisition. That’s not to say you can’t pop the champagne and enjoy the victory (you earned it!)—just know the hardest part comes next.

Once the bubbly starts to fizzle, it’s time to get back to work. To make sure your business acquisition doesn’t end up like poor ol’ Motorola (who?), follow these post-acquisition tips:

• Have capital on hand. Don’t drain all your money on the acquisition—you’ll need capital for everything that comes next: integration, onboarding, travel, rebranding, legal fees, and so much more. If you don’t have one yet, go ahead and secure a business line of credit to deal with additional expenses and any surprises. 
• Communicate, communicate, communicate. When it comes to acquisitions, there’s no such thing as too much communication. Make sure employees, customers, and stakeholders are all on the same page. Get these communications prepared, reviewed, and revised in advance so you’re ready to go on Day 1. Take the initiative and provide answers to predicted FAQs as soon as possible.
• Integrate slowly. Don’t rush into forging one team immediately. Take things slow. Let the teams and businesses continue to operate independently at first. Then, begin to roll out changes gradually. Sometimes, complete integration isn’t necessary—don’t force anything. You acquired your competitor because they’re doing something right—don’t break it.
• Study the culture. After the acquisition, take some time to analyze the culture of the business you bought. What’s going right? What’s going wrong? “It’s important to understand and respect that regulations and processes are in place because they have led to success in the past,” said Glen Willard, franchise owner of River Street Sweets. “Develop a plan that includes how your suggested changes or improvements will benefit the business as a whole, and take it to the top.”

Ready to buy out your competitor?

Now that you know what to expect from a business acquisition, how are you feeling? Are you confident about your decision to acquire a competitor?

If not, don’t worry. You’ll never be 100% sure of the outcome. That’s the life of a small business owner—always weighing risk and reward.

While you can’t guarantee a flawless acquisition, you can do everything in your power to set your business up for success. Take your time and do it right—a top-notch competitor acquisition could change the course of your small business forever.

As a small business owner, you know the value of flexibility. Circumstances can change rapidly, for better or worse—a few days of bad weather or a positive Instagram post from a popular influencer can have huge impacts on a small business’ cash flow. In many cases, business is seasonal—companies need to prepare for a busy season while experiencing a slow season, meaning they need funds that aren’t flowing in as revenue. This is why many turn to business lines of credit.Business lines of credit are very flexible and don’t carry the stringent application requirements like some other forms of financing, like term loans. However, they can provide as much as $250,000 with interest rates as low as 8%.

How does a business line of credit work?

A business line of credit is a financing method that allows businesses to access money as expenses arise.

They are more similar to a business credit card than to a business loan because you don’t receive a lump disbursement all at once that requires monthly repayment.

If you access funds through a business line of credit, interest accrues on any balance that is not paid down through repayments. As you pay down the balance, the amount of credit available to use increases.

Limits on a business line of credit are set by a lender. Lines of credit are typically renewed over time, assuming the borrower’s creditworthiness remains in good standing.

Business lines of credit can be secured or unsecured. With a secured line of credit, a borrower puts up cash or assets as collateral in case of default. No collateral is required for an unsecured line of credit. If you want to access a large line of credit, as in greater than $100,000, a borrower might want you to put up collateral in a secured line of credit arrangement.

Business line of credit pros:

• Revolving access to credit, usually without the need for collateral
• Credit limits often higher than with credit cards
• Interest rates typically lower than credit cards

Business line of credit risks:

• Repayment terms might not be as good as other financing methods, like term loans
• Approval processing time is usually longer than with credit cards
• Credit cards are more likely to offer 0% APR introductory terms than business lines of credit

When to consider a business line of credit.

A business line of credit might work well if you find your business in one of these scenarios:

• Seasonal business fluctuations: If your business sees its fortunes rise and fall with the seasons, a line of credit can keep you afloat during the quieter months.
• Cash flow shortages: Consider a credit line when late payments from clients affect your daily operations. It can bridge the gap and help maintain smooth business continuity.
• Inventory purchases: Bulk buying often saves money, and access to a credit line means taking advantage of such savings without depleting your cash reserves.
• Capitalizing on opportunities: When an opportunity for growth presents itself unexpectedly, a business line of credit allows you to act swiftly and decisively.
• Emergency preparedness: Unforeseen expenses, such as equipment repairs or natural disasters, can strike at any time. A line of credit provides a safety net for these scenarios.
• Credit building: Establishing and using a line of credit responsibly can help build your business's credit profile, opening the door to better financing options in the future.
• When you need a higher credit limit: Scaling your operations often requires more significant financial backing. If your business is growing faster than anticipated or you're making pricier investments and you're consistently maxing out your existing credit, it might be time to explore options for a higher credit line. This ensures you have the capital needed to sustain that growth while keeping your finances manageable.
• When credit cards aren't an accepted form of payment: Sometimes, specific vendors or large transactions require alternate payment methods. A business line of credit provides the flexibility to handle such situations with ease, ensuring that your operations run without a hitch.

How does a business credit card work?

Assuming you are one of the 191 million Americans who have at least one credit card, you can probably understand business credit cards—they are credit cards created for businesses.

Going a little deeper, a credit card is more than just a plastic rectangle. The card represents an agreement between the credit card company and a borrower. The borrower purchases goods and services from vendors using funds made available by the financier. As per the terms agreed to by both parties, the borrower then pays back these funds over time—typically with interest if a balance is not paid down within one repayment period.

Business credit cards are usually unsecured, meaning the borrower does not have to offer collateral as part of the agreement.

Business credit card pros:

• Approval period for credit card usually takes less than 24 hours, often just minutes
• Credit cards are usually unsecured and don’t require collateral
• Many credit cards have introductory offers or allow users to accrue points and cash back

Business credit card risks:

• Credit cards typically have higher interest rate terms than many other forms of small business financing
• Credit cards often have lower credit limits than business lines of credit
• Some bills, like rent, cannot be paid via credit card, but can be paid from a line of credit

When to consider a business credit card.

A business credit card might work well if you find your business in one of these scenarios:

• For everyday purchases: Use a business credit card for routine expenses. It's perfect for office supplies, software subscriptions, or travel expenses, all while helping you keep personal and business expenses separate.
• Reward programs: Choose a credit card that offers rewards like cash back, points, or travel miles. It's a smart way to benefit from the spending that you're already doing.
• Building credit: Just as with a line of credit, responsible use of a business credit card can bolster your company's creditworthiness, potentially leading to more favorable loan terms in the future.
• Employee expenditures: Issue cards to key staff members to streamline procurement processes and expense tracking, while setting individual credit limits to maintain control over spending.
• Simplified accounting: Consolidate your business expenses on a credit card for clearer bookkeeping. Many cards offer integration with accounting software, making reconciliation processes smoother.
• Interest-free periods: Take advantage of credit cards that offer 0% introductory APR. It’s a great way to manage cash flow if you can pay off the balance before the promotional period ends.
• Easier approval: Sometimes, obtaining a business credit card is quicker and requires less documentation than securing a business loan or credit line, especially for emerging businesses.
• Tracking expenses: Keeping tabs on where your money's going is essential for any business. By using a business credit card, you can monitor expenditures with ease, thanks to detailed monthly statements and categorization of expenses. This clarity not only simplifies budgeting but can also highlight spending patterns, helping you to identify potential savings and make informed financial decisions.

Business line of credit vs. credit card: The difference.

Business credit cards are good for everyday one-off expenses like office supplies and travel expenses. Business lines of credit are good for larger or recurring expenses, like rent or bills from vendors. Many of these types of expenses won’t accept credit cards but will accept funds from a line of credit.

Business lines of credit usually have maximum credit levels that are much larger than credit cards, so they are better for bigger purchases.

Approval for a business line of credit often takes longer than with credit cards, sometimes 1 or 2 weeks. In some situations, credit card applications can be approved nearly instantaneously.

Interest rates for lines of credit tend to be lower than for credit cards. Interest rates for lines of credit can be as low as 8%. Interest rates for credit cards are often between 10% and 20%, although many have introductory offers with 0% APR.

Imagine a yoga studio that is usually slow leading up to the holiday season but expects a large increase in class size after New Year’s resolutions to get fit and meditate more. With a business line of credit, the studio can buy equipment, rent larger spaces, and hire more teachers during the slow time so they are ready for the crowds on January 2. 

On the other hand, the yoga studio might want to take on expenses as they come—perhaps it realizes a week in that it needs more yoga mats. The studio can use a business credit card to take care of this expense.        

Business line of credit vs. credit card: Which one works best for you?

Choosing between a business line of credit and a credit card will depend on how much credit you need, how fast you need it, and for what expenses. For some industries that are seasonal and require large inflows of capital, like construction and healthcare, a business line of credit can be ideal. For others, like restaurant and trucking companies, you might have a lot of one-off smaller expenses like pots and pans or fuel. A business credit card might be best here.

Either way, you can see all your business line of credit options at Lendio, which works with top financiers to show you options in minutes.

*Information provided on this blog is for educational purposes only, and is not intended to be business, legal, tax, or accounting advice. The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. While Lendio strives to keep its content up-to-date, it is only accurate as of the date posted. Offers, interest or factor rates, or trends may expire, or may no longer be relevant.