Lending Library

Financing a seasonal business can be tricky. You need up-front capital to prepare for the busy season, and then you need ongoing cash to keep up with mid-season expenses. Thanks to these challenges, it's difficult for seasonal businesses to rely on sales alone to fund all of their costs.

Fortunately, financing can help. With the right seasonal loan, you can cover your bases and make the most of the busy season. Get ahead of the game now by forecasting your financial needs and applying for funds in advance. 

Remember, fast cash is usually expensive cash. If you can predict your needs ahead of time, you can secure much more affordable financing.

First, let's cover a few ways you can use seasonal loans to fund your business. Then, we'll share our 6 favorite financing methods for making it happen.

How to use seasonal financing.

Whether you're preparing for opening day or keeping inventory on the shelves during peak season, seasonal financing can be a huge year-round help. Here are a few ways you can use a seasonal loan to give your business a financial advantage:

• Hire extra help: Add additional headcount to your team to serve more buyers and provide top-notch customer service.
• Stock up on inventory: Purchase sufficient inventory in the pre-season and during the busy season to keep your shelves full.
• Purchase equipment: Buy additional equipment or make necessary repairs to remove bottlenecks and maximize efficiency.
• Launch marketing campaigns: Start generating awareness before and during peak season with targeted advertising campaigns.
• Cover cash flow gaps: Take care of emergencies quickly and stay on top of all your financial obligations.

6 financing methods for seasonal businesses.

1. Short term loan.

If time is of the essence, a short term loan can get you the quick cash you need. You can get a short term loan for as much as $500,000 with terms up to 3 years, helping you stretch out your monthly payments. Plus, these loans are quick. You could get the financing you need in as little as 24 hours.

You can use a short term loan to finance just about any business expense: payroll, equipment, marketing, inventory—you name it. If you need to purchase a lot of up-front inventory or buy an essential piece of equipment, a short term loan can help you do it in no time.

2. Business line of credit.

A business line of credit is the go-anywhere, do-anything financing tool. Your lender will approve you for a certain credit amount, and you'll be able to draw from that line as often as you'd like to. 

Draw what you need, pay it back, and then get access to the funds again. And the best part is that you only pay interest on the portion you borrow—not the entirety of your line of credit. This is what makes a business line of credit a flexible and affordable financing tool.

If you know you'll need extra capital but you're not sure how much, a business line of credit can help you save money. You won't secure more than you need and have to pay off the unnecessary interest.

Use it if you need it, or keep it in your back pocket for an emergency. A business line of credit is a must-have financing tool for any company but especially for seasonal businesses.

3. Accounts receivable financing.

Just because you're making more sales doesn't mean you necessarily have more money. If you have a long cash flow turnover rate, then you likely won't see the income for quite a while, which isn't very helpful if you need money ASAP.

Accounts receivable financing (also known as factoring) lets you sell your outstanding invoices for immediate cash. A factoring company will buy your IOUs and pay you up front for 80% to 95% of the value of your invoices. Then, they'll chase down your customers for the remaining balance and take out their fees before sending you over the remainder.

Sometimes less money today is more valuable than more money tomorrow. If business is booming but your cash is tied up in accounts receivables, this can be a great way to get you the money you need to fund your busy season.

4. Cash advance

A cash advance provides you with a lump sum of cash in exchange for a percentage of your daily sales. Unlike a term loan, payments are based on your revenue (not a fixed monthly payment)— you'll have higher repayments during the busy season and lower payments during the off periods.

You can use your cash advance to finance various business expenses. Qualifying is easy—you just need to prove how much money you make regularly. However, most lenders will look at your last 4–6 months of bank statements, which might not include your previous peak season. This could hurt how much you qualify for.

A cash advance can get you cash quickly, but it's not cheap. You should only turn to a cash advances when you've exhausted your other options. 

5. Small business credit card.

You can use a small business credit card a lot like a line of credit. It'll expand your working capital to cover day-to-day expenses like purchasing supplies, making quick repairs, or even paying the overtime crew.

Small business credit cards can have extensive lending limits, too—you could secure one with a credit line as large as $50,000. The only caveat is that you'll want to spend responsibly so you can pay off the card in full every month. Don't just focus on the minimum monthly payment. Credit cards can have higher APRs, and you don't want to pay more interest than you need.

6. Equipment financing

Equipment financing can help you purchase just about any business-related asset: forklifts, trucks, furniture, software, and more. Plus, you don't need to provide any additional collateral since the equipment you're financing will suffice.

An extra cash register or blender can help you process customers faster, helping you make more sales and capitalize on the peak season. More sales now is worth the monthly expense, especially since you'll own the new piece of equipment moving forward and can sell it at a later point if necessary.

Capitalize on peak season.

Despite the long days and busy hours, most small business owners anxiously await the peak season. With the right financing in place, you'll be positioned to overcome challenges and make the most of every day.

Need help securing funding? Getting you money in the bank is what we do best. Start your 15-minute application to start exploring your seasonal financing options.

Acquisitions are a key part of business. A small business can be acquired by a larger company and reap the benefits of a bigger and more established infrastructure. However, that same small business can also go through an acquisition where it is dissolved entirely. 

There are multiple types of acquisitions and different reasons for each. Here are 4 common acquisition types and why they are used in business. 

1. Vertical acquisition

One of the most common types of acquisitions is the vertical model. In this case, a company buys another that falls in a different place on the supply chain. The acquisition will either be for a company higher or lower in the manufacturing process—hence the vertical reference. 

For example, instead of an ice cream company buying milk from a dairy farm across town, it could acquire the farm itself. This turns an expense—milk buying—into a new revenue stream. 

There are multiple reasons why companies opt for vertical acquisitions. First, it’s easier to acquire a company than to build a new one.

Using the ice cream example again, it’s faster to buy a fully functioning farm than to look for land, cows, equipment, and expertise. With the amount of time and planning it takes to start a business, it’s also likely cheaper to buy a company than to build one. 

Buying firms along the supply chain also means companies will save money in the long run. Let’s say it costs a farmer $2 per gallon to produce milk and he sells the product to an ice cream company for $3 per gallon. By buying the farm, the ice cream company can receive their milk without the markup. They might also optimize the infrastructure to the point where it only costs $1.75 to produce a gallon of milk.   

Companies don’t just buy down the supply chain—they might also look to buy higher in the manufacturing process so they can profit from selling products instead of just materials. 

Vertical acquisitions make companies more independent of market trends and vendors because they don’t have to turn to outside suppliers to make their products. 

2. Horizontal acquisition 

A horizontal acquisition doesn’t have anything to do with the supply chain. Instead, it refers to companies acquiring other firms in their industry—companies that offer similar or the same products. When Facebook acquired Instagram, it was a horizontal acquisition. Both companies were social networks for people to connect, share, and promote themselves. 

Horizontal acquisitions are often created to eliminate competition and quickly increase market share. If there’s another company that people are excited about that poses a threat to your business, you can eliminate the threat by buying them. If you can’t beat them, acquire them.

The main challenge of horizontal acquisitions is that they may pose antitrust threats to American citizens. When one company buys competitors, it can eventually lead to a monopoly. You can see examples of antitrust laws in the purchase of Sprint by T-Mobile last year or the desire for Staples to buy Office Depot. 

The Federal Trade Commission (FTC) oversees antitrust laws to make sure the American people are protected. This way, consumers have options and a sense of free market exists. It prevents a single company from acquiring all of its competitors and controlling supply and prices.

3. Conglomerate acquisition

A conglomerate acquisition occurs when one company buys another from a completely unrelated industry. For example, if our ice cream company decided to purchase a brewery. 

There are multiple conglomerates in the United States, and you might not realize that some of your favorite brands are all part of the same umbrella.

For example, Procter & Gamble is the company behind the Oral-B line of dental hygiene products while also selling Tide laundry detergent. Mars, Inc. is known for candy bars like Snickers or Twix but also operates Pedigree dog food. 

Typically, companies take steps to become conglomerates as a way to protect themselves from market fluctuations. If you own multiple businesses, then it’s unlikely that they would all lose money at the same time. If for some reason people stop buying Tide products, Procter & Gamble can still make money from the other arms of its business. 

As far as the smaller companies are concerned, the acquisition gives them stability. They don’t have to operate as a small business anymore and can tap into the resources and expertise of their new parent company. 

It’s hard for conglomerates to become monopolies because they would have to own almost every significant business within an industry rather than several businesses in a variety of industries. 

4.  Market extension acquisitions.

This option is similar to a horizontal merger in that the 2 companies are in the same industry. However, they are not competitors because they are a part of different markets.

For example, a company that sells the dominant product in the United States might acquire a similar company that is dominant in Germany. The German company might continue to operate as it always did, except it will be owned by an American firm. 

This acquisition is often meant to absorb the competition before it poses a real threat. Instead of competing with a brand that is trying to enter your market, you can keep them at bay with an acquisition.

From a proactive standpoint, market extension acquisitions can help companies enter new markets without having to compete with existing brands. They also won’t have to waste time and money on building up brand recognition. 

Know your mergers.

Different acquisitions provide multiple levels of change for companies. When one company buys another, it may want to let the purchased organization continue to run on its own. However, some companies buy up competitors with the sole purpose of shutting them down. 

Understanding the acquisition process, different acquisition types and the relationship options of business mergers is important for business owners being acquired and also for companies looking to acquire other businesses. In the process of acquiring a company? Learn more about business acquisition loans. 

If you don’t have the best credit but need to buy equipment for your business, rest assured that there are options at your disposal. While you might have to do some research and take some extra steps to get approved, you can lock in an equipment loan with a less-than-perfect credit score. Here’s everything you need to know about securing equipment financing with bad credit.

Can you get equipment financing with no credit check?

Lenders will check your credit score as part of the process of securing equipment financing. But don't let this deter you! Remember, your credit score is just one piece of the puzzle. Lenders also consider other factors about your business. So, even if your score isn't perfect, it doesn't mean you're out of options. 

Why equipment financing requires a credit check.

Your credit tells lenders how likely you are to repay what you borrow. If you have bad credit, they’ll view you as a risky borrower and may be more hesitant to lend to you. The good news is that many lenders have lenient requirements and serve borrowers with bad credit. 

These lenders often consider other factors like your annual revenue, profitability, cash flow, and outstanding debt when deciding whether to approve you for an equipment loan. Keep in mind, however, that if you have a bad credit history you might have to settle for a higher interest rate or make a larger down payment than a business owner with good or excellent credit.

Bad credit equipment financing options.

The following lenders offer equipment financing with minimum credit score requirements of 600 or below.

How to increase your chances of approval.

If you have bad credit but need to borrow money to fund the cost of your business equipment, certain strategies will boost your likelihood of locking in construction and heavy equipment financing, restaurant equipment financing, and other types of business equipment financing. Here are some ideas to consider.

Apply with Online Lenders

Compared to traditional lenders with brick-and-mortar locations, online lenders are usually more flexible. You’ll find that they are often open to lending to borrowers with less-than-perfect credit scores. Do your research and find several online lenders who specialize in bad credit equipment financing. 

Consider Equipment Leasing

It’s important to understand equipment financing vs. equipment leasing. By doing so, you can decide whether equipment leasing makes more sense for your unique needs. With an equipment loan, you make a down payment and finance the rest of the equipment cost. 

An equipment lease, on the other hand, lets you rent and use the equipment for a specific period. While most businesses return the equipment at the end of the lease, some decide to buy it at fair market value or explore other options outlined in their agreement. 

Offer Additional Collateral

In a typical equipment loan, the equipment itself serves as collateral. Since the lender can seize it if you default, they take on less risk. If you have bad credit, you might want to offer additional collateral, like your commercial vehicle or inventory, to help secure the loan and reduce risk for the lender. Just make sure you feel confident that you’ll be able to repay what you borrow or you might lose a valuable asset.

Increase Your Down Payment

The larger your down payment, the smaller the loan you’ll need to cover the cost of your equipment. If possible, save up for a hefty down payment so that lenders are more open to lending to you with bad credit. Not only will a larger down payment position you as a more attractive borrower, but it can also save you hundreds or even thousands in interest fees and lower your overall cost of borrowing. 

Perfect Your Business Plan

Your business plan is an important document that shows lenders who you are and what you plan to do with the funds. Take the time to look over and improve your business plan so that it accurately reflects your business acumen and clearly highlights how an equipment purchase will help your business. 

Apply with a Cosigner

A cosigner is someone with strong credit, a stable income, and significant assets. If you apply for an equipment loan with a cosigner, lenders will consider their financial situation in addition to yours. This can increase your chances of approval and potentially lead to lower rates and better terms. However, the downside of this strategy is that, if you don’t make your payments, the cosigner will be responsible for them.

Equipment loans for bad credit are available.

Don’t let bad credit prevent you from locking in the equipment loans you need. With a bit of creativity and patience, you can qualify for equipment financing with bad credit. As long as you choose a lender who reports on-time payments, an equipment loan can also give you the chance to improve your credit. Best of luck in your search for bad credit equipment financing.

*The information contained in this page is Lendio’s opinion based on Lendio’s research, methodology, evaluation, and other factors. The information provided is accurate at the time of the initial publishing of the page (January 2, 2024). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.

The cost to lease gym equipment will depend on how much equipment you plan to lease, the brand of equipment, and the type of machines. It might also be impacted by personal factors, such as your credit score and borrowing history.

Depending on the size of your gym, you likely need to acquire at least $30,000 worth of new equipment. And while the final numbers will depend on your credit score, you could be able to lease $30,000 worth of equipment for roughly $1,000 to $2,000 per month—perhaps even less.

Details of cost.

According to gym equipment manufacturer Primo Fitness, the average commercial gym ranges from about 3,000 to 4,000 square feet. As noted above, filling this space with gym equipment will cost a budding gym owner roughly $30,000 to $50,000.

More modestly, Primo Fitness estimates that it would cost about $10,000 to fill a small 1,500-square-foot personal training studio—this includes about four treadmills, a pair of ellipticals, several strength machines, and dumbbells. 

Here’s a breakdown of potential lease prices based on current equipment prices and a 6% lease rate. Note that other fees may increase the monthly cost depending on the lease’s structure.

Benefits of leasing gym equipment.

Leasing gym equipment can be a smart play for your small business because it doesn't require nearly as much upfront capital as it does to buy equipment—and lease terms are typically less restrictive than financing terms. Also, when a lease is done, you can often choose to lease brand-new equipment, so you can keep your gym up-to-date from year to year.

Gym equipment leasing vs. buying.

While the obvious benefit to buying gym equipment at the outset is owning the equipment, leasing doesn't require a large infusion of startup capital—a key advantage. Additionally, gym equipment can become obsolete fairly quickly, but when you finish repaying a lease, you often get the option to lease new equipment.

Pros and cons of leasing vs. buying.

Equipment leasing vs. equipment financing.

Financing and leasing of equipment share many similarities, but there are some key differences to be aware of. In both cases, you will be required to make a monthly payment over a set period of time. However, equipment financing takes the form of a loan with interest and includes the option to prepay the loan.

By financing, you will gain ownership of the equipment. On the other hand, equipment leasing often means that the lessor (i.e. the person or company providing the equipment) retains the title of the equipment, event though you are using it.

Learn more about your options for gym equipment financing.

Are you a small business owner looking for financing options? A business loan broker might be able to help. In this article, we'll explain what a business loan broker is, the types of brokers available, and how they can help you find the financing you need to grow your business.

What is a small business loan broker?

A business loan broker—sometimes called a commercial loan broker—is an individual, company, or service that helps small businesses apply for small business loans or other financing.

Importantly, the broker does not approve or deny loan applications or service loans themselves: instead, the broker connects businesses with financing. A quality broker will help you research which business financing options make sense for your needs and help you set up your application for approval. In return, the broker receives a fee based on the size of the loan, either paid by the borrower or financier.

Types of business loan brokers.

Because many different types of small business financing exist, some business loan brokers specialize in various niches. However, some brokers have experience with connecting small businesses with a wider range of funding options.

SBA loan brokers help businesses navigate the application process for SBA loans.

Commercial loan brokers specialize in commercial real estate loans and mortgages.

Franchise loan brokers understand the franchising process and can help find loan options for opening a franchise.

Equipment financing brokers help businesses find equipment financing.

Small business loan brokers help businesses understand the variety of small business financing options available.

Some small business loan brokers do it all.

Some brokers and broker services, like Lendio, specialize in all or most of the above categories at once. By working with a wide range of financiers, these comprehensive brokers can help you compare options ranging from term loans to alternatives like accounts receivable financing. With some, you can even look at options like business credit cards.

The cost of using a business loan broker.

Understanding the cost of using a business loan broker is an important aspect of your financial planning. Generally, brokers charge a fee that is a percentage of the loan amount. However, this can vary based on the complexity of your loan application and the loan amount.

Remember, brokers bring expertise, experience, and potentially better loan options to the table, thus saving your time and potentially getting you better terms. However, before you engage a broker, ensure you understand the fee structure clearly. Some brokers' fees are paid by the lenders, while in other cases, the borrower is responsible. It's crucial to weigh the cost of a broker against the potential benefits to determine if it's the right path for your small business financing needs.

When to use a business loan broker.

There are several key scenarios when utilizing the services of a business loan broker can be highly beneficial:

When you are unsure of the right financing option: If you're confused by the plethora of financing options available or unsure which one is the right fit for your business needs, a business loan broker can offer invaluable guidance. They bring their expertise to the table, helping you navigate through various loan types, and aligning them with your unique requirements.

When you lack the time or resources: Applying for business loans can be a time-consuming process. If you're already juggling multiple tasks and can't afford to devote extensive time to research and application processes, a business loan broker can be a lifesaver. They handle the legwork, letting you focus on your core business activities.

When you want to compare multiple loan offers: A business loan broker has access to a wide network of lenders, allowing you to easily compare various loan offers and terms. This access can optimize your chances of securing the best possible loan terms.

When you've been denied a business loan in the past: If you've faced loan application rejections before, a business loan broker might be able to help. They can assist you in improving your application, identifying potential issues that led to previous rejections, and connecting you with lenders that may be more likely to approve your application.

Remember, engaging a business loan broker is an investment, and the value they bring should outweigh their cost. Making this decision requires a careful assessment of your business's specific needs, your financial situation, and the broker's capabilities. Lendio's team of dedicated professionals is always ready to assist, ensuring you find the right financial solution for your business.

Choosing the right business loan broker.

Choosing the right business loan broker can significantly influence your financing outcome. Start by conducting thorough research. Look for brokers with extensive experience, a strong network of lenders, and a good understanding of small business needs and challenges. It's important to check their track record, client testimonials, and their reputation within the industry.

You might want to engage in a consultation to gauge their expertise and understand their process. A good broker will be transparent about their fees, the lenders they work with, and how they can support your loan application. Be wary of brokers who promise guaranteed loan approval or who pressure you into making quick decisions.

Remember, the right broker will prioritize your best interests, provide valuable guidance, and work diligently to help you secure the right loan for your business. At Lendio, we are committed to these principles, ensuring that our clients benefit from a seamless and successful financing process.

Potential red flags.

As with anything involving small business lending, you need to do your due diligence with finding a small business broker. Here are some potential red flags that should raise suspicions:

• The broker has no online reviews.
• The broker has no physical address or phone number available.
• The broker pressures you to apply for a bigger loan than you think you need.
• The broker charges an upfront fee before working with you.

Lendio: Your partner in business financing.

Lendio is a leading online lending platform that helps businesses secure the financing they need. Our platform simplifies the lending process by connecting small business owners with a curated network of lenders. We are committed to providing a seamless experience, guiding businesses through the complex world of financing with clarity and confidence.

Key facts about Lendio's platform include:

Wide range of financing options: Lendio's platform provides access to a variety of loan types, including SBA loans, lines of credit, equipment financing, and more. This ensures businesses can find the right financing solution tailored to their specific needs.

An extensive network of lenders: Lendio works with a broad network of over 75 lenders, which increases the likelihood of securing a loan and allows businesses to compare multiple loan offers efficiently.

Simplified application process: Lendio's user-friendly platform offers a simplified loan application process. With a single application, businesses can apply to multiple lenders, saving time and reducing hassle.

Expert guidance and support: Lendio's team of loan specialists provides expert guidance throughout the loan application process. They help businesses understand their options, navigate the process, and improve their chances of approval.

Positive customer reviews: Lendio has consistently high ratings on review platforms like Trustpilot, demonstrating our commitment to excellent customer service and satisfaction.

At Lendio, we are dedicated to making business financing easier, so you can focus on what truly matters - growing your business.

Conclusion

In conclusion, utilizing a business loan broker can be highly beneficial in finding the right financing solution for your small business. A broker brings expertise, experience, and access to a wide network of lenders, making it easier to compare and secure business loan offers.

Small business loans are one of the most popular ways for entrepreneurs to get the money they need to start a business and keep it running. Yet, despite the importance of accessing capital, some small business owners struggle to qualify for funding. In 2021, just 31% of business applicants received all of the funding they applied for according to a report by the Federal Reserve. 

On a positive note, there are many possibilities to consider where small business financing is concerned, and there’s a good chance you’ll be able to find a lender that’s willing to approve your business for some type of financing solution. 

If you’re wondering how hard it is to get a business loan, the answer depends in large part on the type of business loan you hope to take out. Your business details also play a significant role in the type of financing your company may be eligible to receive. Read on to learn more about business loan approval factors that lenders may consider.  This guide also includes details about approval odds for different types of business loans and how to discover whether a loan offer is an affordable financing solution for your company.

Business loan approval factors.

When you apply for a business loan, a lender may evaluate various factors to determine whether to approve or deny your application. After a loan approval, the factors below may also influence your loan’s interest rate, loan amount, and repayment term. 

Credit score and credit history (business and personal)

Lenders will review your personal and business credit score when evaluating a business loan application. A higher credit score will make it easier to qualify for a loan, especially if you have a consistent credit history. Minimum credit score requirements vary by loan type and lender. Equipment financing minimum requirements start in the 500s with SBA loans starting at 650.

Business revenue

Lenders will want to see a steady stream of revenue, so they know you will have the ability to repay the loan. Just like credit scores, the minimum revenue requirement will vary, but a minimum of $8,000 in monthly revenue is a good rule of thumb.

Time in business

Lenders inherently take on risk when loaning money to a business, so they want to ensure your business will still be around to pay off a loan. For larger, long-term loans, such as an SBA loan, lenders will want to see a minimum time in business of two years. For smaller, short-term loans, such as a business cash advance, funders will want to see a time in business of at least six months.

Collateral

Collateral acts as a guarantee for the lender that if you default on the loan, the lender will be able to recoup their assets by claiming an asset such as equipment or property. 

Industry

Certain industries can be seen as riskier than others depending on the nature of the industry and external factors such as the economy and government restrictions.

More established businesses with good credit, higher revenues, and lower overall risk profiles can typically borrow more money and qualify for better loan terms. Startups and businesses with bad credit—or other types of high-risk borrowing profiles—may face higher interest rates and lower loan amounts and struggle to qualify for certain types of financing.

Approval odds by type of business loan.

Getting approved for a business also depends on the type of loan you need. Below are several popular business financing products, along with your basic odds of getting financed. 

Accounts receivable financing

Sell your outstanding invoices to get cash flowing now. This is a great option for businesses with large accounts receivable.

Time in business

Any

Minimum credit score

N/A

Minimum monthly revenue

$8,333

Collateral requirements

Invoices act as collateral

Equipment financing

Finance your purchase of business equipment, vehicles, and electronics. Pay your loan back in regular monthly payments over a set term plus interest.

Time in business

0-1 Year

Minimum credit score

520

Minimum monthly revenue

$0 – $8,333

Collateral requirements

The equipment acts as collateral for a lease and a portion of collateral for a loan.

Business credit card

A business credit card helps you track expenses, build a strong business credit history, and increase your working capital so you can reap the literal rewards.

Time in business

0-2 Years

Minimum credit score

650

Minimum monthly revenue

Varies

Collateral requirements

None

Business cash advance

Get an advance on your future sales earnings to get fast financing, and pay it back with a fixed daily percentage.

Time in business

6 Months

Minimum credit score

500

Minimum monthly revenue

$8,333

Collateral requirements

None

Business line of credit

Get a revolving amount of funds to borrow from when you need to and pay back later. Great for working capital and regular short-term expenses.

Time in business

6 Months

Minimum credit score

600

Minimum monthly revenue

$6,000

Collateral requirements

Varies

Business term loan

A term loan provides a lump sum that gets repaid in regular intervals over a set amount of time, also known as the loan term.

Time in business

1 Year

Minimum credit score

600

Minimum monthly revenue

$8,000

Collateral requirements

Usually required

SBA loan

Invest in longer-term small business growth or even refinance existing debt with a loan that is partially government-backed. An SBA loan has stricter requirements and is usually paid back over a longer term with lower rates than other loans.

Time in business

2 Years

Minimum credit score

640

Minimum monthly revenue

$8,000

Collateral requirements

Required for loans greater than $50,000

Have you ever wondered why lenders pay such close attention to your credit score? It’s because they’re protecting their assets and want to determine whether they can trust you to consistently repay the money. If your credit score reflects a solid track record, you’ll get serious consideration. If you have major blemishes in your past, many lenders take defensive action.

Of course, we realize the life of an entrepreneur is full of risk. We’ve all collected our share of bumps and bruises along the way. So there’s no shame in a less-than-stellar credit score. And if you feel like your bad credit is keeping your business from achieving its potential, you’re not alone. However, don’t let one or two rejected loan applications keep you down. It is possible to get still business loans with bad credit.

Best business loans for bad credit.

The following list highlights lenders from our selection of best business loans that offer minimum credit requirements below 650 and have a lower minimum credit score requirement than their counterparts.

How a bad credit score impacts your business loan options.

Credit score requirements for business loans vary by lender and the type of loan. No credit requirements are the same, so you’ll always need to do your due diligence to find your best opportunities. This is especially true for bad credit loans online.

Traditional banks typically require good or excellent credit to qualify for a business loan. This means you should have a personal credit score of at least 670, although some banks will consider applicants with credit scores in the low 600s. If you’re applying for a long-term or SBA loan, banks may want to check your business credit score in addition to your personal credit score. In this case, you’ll want to have excellent business credit, as well—a Dun & Bradstreet score of 80 or above should suffice.

Where to find business loans for bad credit.

There’s still hope for business owners with bad credit. While big banks tend to offer the lowest interest rates, plenty of other affordable lenders out there offer bad credit loans online.

Lending Marketplaces

Lending marketplaces have opened the door for a new range of business owners to access business loans. These marketplaces are home to a wide range of lenders and leverage technology to connect borrowers with a loan that suits their needs and credit profile.

Loans from these lending marketplaces have a much higher approval rate than those from traditional banks. They also tend to be much easier to apply for, and you’ll often receive funding very quickly. This makes them an ideal source of loans for people with bad credit.

Microloans

Microloans are exactly what they sound like⁠—small loans. These loans are geared toward entrepreneurs and are, therefore, easier to qualify for than traditional loans. 

No credit? That’s not necessarily going to be a roadblock. Your microloan will typically be fulfilled by several lenders pooling their money together, so each lender can spread their risk among many different small loans. This feature makes peer-to-peer lenders more willing to lend to people with bad credit. However, if you don’t have good credit, you will end up paying higher interest rates.

CDFIs

Community Development Financial Institutions (CDFIs) are non-profit or community-based financial institutions that offer loans to individuals and businesses in underserved communities. These institutions prioritize helping those who have historically been denied access to traditional financing options, which often includes business owners with bad credit.

CDFIs typically perform a more holistic evaluation of an applicant's creditworthiness, considering factors such as their character, community involvement, and potential for success. This approach to lending has made CDFIs a popular choice for business owners with bad credit.

Some examples of CDFIs include Accion and the Opportunity Fund. You can find more information about CDFIs through the CDFI Fund.

Types of loans for bad credit.

It’s important to know how to get a business loan if your credit isn’t in a great place. And there is a trio of financing products that often fit the bill perfectly. These loans for bad credit options are different from typical loans both in their structure and their low barrier to entry.

Let’s review each of the types of loans for bad credit and some of their unique attributes:

1. Business lines of credit 

A business line of credit is a financing option that functions a lot like a credit card. To qualify, you’ll need to have a credit score of 600 or higher, have a business that’s been operating for at least six months, and make $50,000 or more a year.

2. Business cash advance

A business cash advance is a strong choice for business owners with bad credit because the financing eligibility is primarily based on the company’s revenue and other financials. The approval process is typically fast, so it’s also good for companies that need immediate access to capital. Lenders usually require daily payments that are automatically debited from your business account. In addition to the principal balance, you’ll also pay a factor rate. Your daily payments are usually calculated as a fixed percentage of that day’s sales, which can help you avoid overleveraging your business.

3. Invoice factoring

Lenders who offer invoice factoring focus on your business’ future earnings based on your current accounts receivables, so most lenders won’t look at your credit score. Some will have other minimum requirements, such as time in business and monthly revenue. Most lenders will also have limitations on the industries with which they will work, with some specializing in e-commerce and others focused solely on B2B or B2G brands.

4. Equipment financing

Equipment financing helps you finance specific purchases, whether it’s a piece of heavy machinery or software to help run your company more efficiently. In the case of equipment leasing, the purchased asset is used as collateral, which helps to widen eligibility requirements and keep interest rates lower than with many other options. 

Most lenders have a one-year minimum time in business requirement, as well as a minimum annual revenue. A personal credit score is required, but minimums start in the 500’s.

Boosting your odds of qualifying for a business loan despite bad credit.

It's not just about finding the right lender—you also have to make yourself more appealing to them. Here are a few strategies to consider:

Improve your credit score - It’s easier said than done, but the most reliable way to make yourself attractive to lenders is by fixing your credit. Pay off outstanding debts, make sure you’re making all your current payments on time, and check your credit report for errors.

Offer collateral - If you can provide assets that the lender can seize in case you default on your loan, they may be more willing to work with you. These assets could be equipment, real estate, or other business properties.

Find a co-signer - If someone with a better credit score is willing to co-sign for your loan, that can greatly increase your chances of approval. However, remember that this person will be responsible for your loan if you can't make the payments.

Increase your cash flow - Lenders want to see that you'll be able to pay back the loan. If you can show that your business has a steady cash flow, you're more likely to secure the loan.

Build a strong business plan - As mentioned earlier, a solid business plan can go a long way. It shows that you're serious about your business, and it gives the lender confidence in your likelihood of success.

By following these steps, you can improve your chances of being approved for a business loan, even with bad credit. Remember, bad credit isn't a death sentence. It’s just a hurdle to overcome—and with the right approach, you can do it.

How to improve your credit score.

Improving your credit score takes time and effort, but it is worth it in the long run. Here are some steps you can take to improve your credit score:

Pay off outstanding debts - Focus on paying off any outstanding debts as soon as possible. This will not only improve your credit score, but also save you money in interest.

Make your payments on time - Late payments can significantly impact your credit score. Make sure you are making all of your payments on time, whether it's for a loan, credit card, or bill.

Monitor your credit report - Regularly check your credit report for any errors or discrepancies. If you find any, dispute them with the credit bureau to have them corrected.

Reduce your credit utilization - Your credit utilization ratio is the amount of available credit you're using. Aim to keep this below 30%, as it could positively impact your credit score.

Don't apply for too many new lines of credit - Each time you apply for a new loan or line of credit, it results in a hard inquiry on your credit report. Too many of these can negatively impact your score.

In conclusion, having a bad credit score isn't a dead end for business owners. There are several avenues available (Ex: lending marketplaces, microloans, and CDFIs) that are designed to help businesses with less-than-stellar credit histories. Compare small business loans from multiple lenders with a single application through Lendio.

*The information contained in this page is Lendio’s opinion based on Lendio’s research, methodology, evaluation, and other factors. The information provided is accurate at the time of the initial publishing of the page (December 8, 2023). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.

If you're considering purchasing commercial real estate, it's worth exploring the option of a commercial real estate loan, also known as a commercial mortgage. This type of loan can be a valuable tool for small business owners looking to expand their operations or acquire additional property.

But getting approved for a commercial real estate loan is not always easy. Lenders typically have stricter requirements compared to residential loans, and the process can be more complicated and time-consuming.

However, with proper planning and preparation, you can increase your chances of obtaining a commercial real estate loan. In this blog post, we'll discuss the steps you can take to secure financing for your commercial property.

What is a commercial real estate loan?

These small business loans have been precisely engineered for real estate projects. Here are some examples of relevant uses:

• Building a new office building
• Renovating your existing restaurant
• Opening a new retail space
• Purchasing an existing warehouse
• Getting out of a lease so you can become a property owner
• Refinancing for an extension of your payment term

As you can see, commercial real estate loans are more versatile than the name suggests. So if your project is real estate-related, there’s a good chance that it qualifies.

These loans are unique because they offer more generous interest rates than many other types of small business loans, largely because the real estate involved with the loan will actually be used as collateral.

When you secure a loan with such a valuable and readily accessible asset, you can expect rates that begin as low as 6.25%. As for the dollar amount, a commercial real estate loan can start at $250,000 and go as high as $5,000,000. Expect the repayment terms to fall somewhere between 10 and 25 years.

How to find the right commercial real estate loan.

Finding the right commercial real estate loan can be a complex decision, involving careful evaluation of your business needs, financial capacity, and long-term objectives. Let's dive into the key factors to consider in choosing the right loan for your business.

1. Determine your goals.

The first step of any loan process is identifying the financing option that best matches your purposes. To do this, you’ll need to decide exactly how much money your project will require and how soon you’ll need to get that money. These two factors help to narrow the list of viable options and save you valuable time.

After reviewing your loan amount and timeline, you may find that a commercial real estate loan is the ideal solution. You’ll then need to figure out the costs of various loans to separate the top contenders for your business. This process is done by lining up comparable elements between loans.

2. Compare lenders.

There are a plethora of lenders offering commercial real estate loans, each with their distinctive terms, conditions, and rates. It's crucial to take time and compare various lenders, considering factors such as interest rates, loan terms, additional costs (like origination fees), and customer reviews. Traditional banks, credit unions, and online lenders all have different merits and demerits.

Before proceeding with the loan application, check whether you meet the lender's minimum qualifications. These may encompass your credit score, annual revenue, and years in business. In addition, most lenders will require a down payment of 10% to 30% of the property's purchase price.

3. Apply for the loan.

Once you've determined your needs and compared lenders, the next step is to apply for a commercial real estate loan. The application process requires you to provide various documents and data.

• Financial records - Lenders will want to see your business' financial records to assess your ability to repay the loan. You will need to provide business and personal financial statements, income tax returns, and a credit report. If your business is new, you may be asked for a business plan or revenue projections.
• Property information - You’ll need to share details about the property you wish to purchase or renovate. This includes the property's address, purchase price, appraisal value, and blueprints (or renovation plans, if applicable).
• Legal documents - Lenders may also request legal documents such as incorporation documents, commercial leases, and contracts.

Remember, every lender has different requirements, so it's essential to understand what is needed before starting the application process. The sooner you can gather and provide this information, the smoother the application process will be.

The approval process can take anywhere from a few weeks to several months. Once you've been approved, you'll need to review the loan terms carefully before agreeing to them.

Requirements for a commercial real estate loan.

To secure a commercial real estate loan, you must meet certain requirements that prove your ability to repay the loan.

• Credit score - Most lenders require a personal credit score of at least 650. This gives them confidence in your ability to handle credit responsibly. Higher scores can lead to better interest rates.
• Business plan - Lenders want to see a well-crafted business plan that outlines your strategies for growth and income. This should include market analysis, competitive analysis, marketing strategies, and detailed financial projections.
• Debt service coverage ratio (DSCR) - The DSCR measures your business’ ability to service its debt. A ratio of 1.25 or higher is typically considered good.
• Property value - The property's appraisal value needs to be high enough to cover the loan amount. Lenders will conduct their own appraisal as part of the application process.
• Down payment - You’re typically required to put down 10% to 30% of the property's purchase price.
• Business financials - Lenders will want to see at least two years of financial statements for your business to evaluate its profitability.

Remember, every lender could have slightly different requirements, so make sure to check with your lender to know exactly what you need to apply.

Additional qualification criteria for a construction loan.

In addition to the general requirements for a commercial real estate loan, obtaining a construction loan often necessitates additional qualifications.

• Construction blueprints and detailed plans - Lenders will need to see a comprehensive set of construction plans and blueprints before they can accurately assess the risk associated with your project. These should be prepared by a qualified architect or engineer.
• Qualified builder - A legitimate, licensed, and insured builder is a requirement for most construction loans. The lender will need to validate the builder's qualifications and reputation before approving the loan.
• Cost estimate - A detailed cost breakdown is necessary. This estimate should include costs for labor, materials, permits, land development, and contingencies.
• Appraisal - The lender will want an appraisal of the future value of the building upon completion. This is sometimes called the after-repair value (ARV).
• On-site inspections - Lenders will conduct periodic on-site inspections to ensure the construction is proceeding as planned and the funds are being used appropriately.

Remember, the qualifications can vary based on the lender and the specifics of the construction project, so it's essential to have a thorough discussion with your lender about what is needed.

Interest rates and fees

Just like any other loan, a commercial real estate loan comes with its own set of interest rates and fees.

Interest rate

Your interest rate—often expressed as an Annual Percentage Rate (APR)—is the amount you'll be charged for borrowing money, represented as a percentage of your loan amount. Commercial real estate loans generally offer more competitive interest rates, sometimes as low as 6.25%, because the real estate you're purchasing will serve as collateral for the loan.

Fees

The fees associated with a commercial real estate loan can vary, but some common fees include application fees, origination fees, and appraisal fees. Application fees cover the cost of processing your loan application, while origination fees are charged by the lender for creating the loan. Appraisal fees are paid to a third party to assess the value of the property being purchased.

Prepayment penalties

In addition, some loans may include prepayment penalties, which are fees charged if you pay your loan off early. It's crucial to understand all the fees and interest associated with your loan so you can accurately calculate the total cost of borrowing and ensure it aligns with your business's budget and financial plan.

Comparing costs

As you evaluate your best loan options, here are four popular pricing metrics that will help you break down the cost into manageable views:

• Annual percentage rate (APR) - Anyone who has purchased a home or vehicle is familiar with this metric, which represents the cost of your loan on an annual basis.
• Total cost of capital (TCC) - Sometimes it helps to get a macro view. With the TCC, you’ll see an overall cost that takes into account interest—fees on loans that don’t charge interest, plus ancillary fees.
• Average monthly payment - Because budgets are often viewed on a monthly level, this metric is helpful. Even if your loan were to have daily or weekly payments, you could still calculate those payments on a monthly scale.
• Cents on the dollar - The simplest of all the pricing metrics, cents on the dollar breaks down the amount you’ll pay in fees and interest for every dollar you borrow.

While these metrics will give you a clearer view of your loan costs, they’re far from your only resource. Commercial mortgage calculators are readily available and are a simple way to crunch the numbers and improve your understanding of various costs.

Where to get a commercial real estate loan.

There are multiple sources from which you can secure a commercial real estate loan. Each has its own benefits and drawbacks, thus your choice depends on your specific needs and circumstances. Here are some of your main options:

• Banks - Banks are traditional sources of commercial real estate loans. They typically offer competitive interest rates and longer terms. However, they also have stringent approval criteria and require extensive documentation, which can be a challenge for some small businesses.
• Non-bank lenders - These include online lenders, credit unions, and private lenders. Non-bank lenders generally have less stringent approval criteria, faster approval times, and more flexible terms than banks. However, their interest rates can be higher.
• Commercial mortgage-backed securities (CMBS) lenders - Also known as conduit lenders, they pool and sell commercial mortgages on the secondary market. These loans have fixed, low-interest rates and longer terms and are typically nonrecourse, meaning the lender can only claim the collateral in case of default.
• Hard money lenders - These are mostly private investors who offer short-term, high-rate loans. The advantage here is speed and a less rigorous approval process, making them suitable for short-term investment opportunities or when a faster closing time is paramount.
• Real estate investment trusts (REITs) - These are companies that own, operate, or finance income-generating real estate. They provide loans for commercial real estate but usually require a higher return on their investment.
• SBA 504 loan - The SBA 504 loan is offered by the U.S. Small Business Administration (SBA) for purchasing fixed assets, such as land and buildings. The advantage here is that you can access lower interest rates with a longer term with a 10% down payment.
• SBA 7(a) loan - The SBA also offers the SBA 7(a) loan for any kind of business expense including purchasing real estate. 

Repaying a commercial real estate loan.

Repaying a commercial real estate loan typically involves a combination of regular interest payments and a final balloon payment at the end of the loan term. The specific repayment schedule will depend on the terms set by your lender and the type of loan you have obtained.

• Regular interest payments - Most commercial real estate loans require monthly interest payments for the duration of the loan term. These payments are calculated based on the loan's interest rate and the remaining principal balance. Interest rates can be either fixed or variable, depending on the terms of the loan.
• Principal amortization - Some loans include a principal amortization schedule, in which a portion of each payment is applied towards reducing the principal balance of the loan. This means that over the term of the loan, you'll gradually reduce the principal until the loan is fully repaid. However, some commercial real estate loans have a shorter amortization schedule than the loan term, leading to a balloon payment at the end.
• Balloon payment - If your loan has a balloon payment, this means that the remaining balance of the loan is due at the end of the loan term. This could be a substantial amount, depending on the size of the loan and the amortization schedule. It's important to plan for this payment and ensure that you have a strategy for covering it. This could involve selling the property, refinancing the loan, or using other business assets.
• Prepayment - Some commercial real estate loans allow for prepayment, where you can pay off the loan before the end of the term without incurring a penalty. Others might impose a prepayment penalty to compensate for the interest the lender would lose. Check the terms of your loan agreement to understand the rules around prepayment.

Remember, the specifics of your repayment plan will depend on the terms of your loan agreement, so it's crucial to understand these details before you sign. Also, ensure that you manage your finances effectively to avoid defaulting on the loan, as this could lead to the loss of your property.

Conclusion

Getting a commercial real estate loan is a significant undertaking that requires careful consideration and preparation. However, with proper planning and research, you can find the right option.

*The information in this blog is for informational purposes. It should not be used as legal, business, tax, or financial advice. The information contained in this page is Lendio’s opinion based on Lendio’s research, methodology, evaluation, and other factors. The information provided is accurate at the time of the initial publishing of the page (December 7, 2023). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.