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LOW INTEREST SMALL BUSINESS FUNDING

March 17, 2020 8:26 pm Published by Leave your thoughts

Low-interest business funding options include SBA funding and online funding.  As a business owner with good personal credit and strong financials, it’s easier to qualify for cheap financing — meaning you can borrow money at a lower annual percentage rate. APR is an accurate measure of the cost of financing.

If you’re looking for the lowest-cost funding

SBA funding are by far your best bet for the lowest possible rates if your business is strong. With the SBA guaranteeing 75% to 85% of the financing, funders can offer SBA funding rates of about 7% to 9% that are based on the prime rate. But the application process is a major time commitment — we’re talking months — and small-business owners may not have time for that. 

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If you’ve been in business less than two years

Many traditional funders, such as banks, require at least two years of business history to qualify for funding.  

If you’ve been in business two or more years

With two years in business, you may have an additional financing option that comes with competitive rates and quick funding. 

If you’re looking for business funding alternatives

Outside of traditional business funding, you can also consider using personal funding for business or a business credit card. You typically need to have good to excellent credit to get the lowest APRs.

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Personal funding: Using  personal funding for business is typically best for starting your company. Since your company is brand new, you won’t have any business or revenue history, which are two key components that small-business funders consider. Instead, personal funding providers will qualify you based on your personal credit score and income.

Personal funding also tend to have lower APRs than many online alternative funders, but defaulting on them could hurt your personal credit score.

Business credit card: Using a business credit card not only gives you access to a revolving line of credit, but you can also earn valuable rewards, like cash back. Credit limits on business credit cards are typically higher than what’s offered for personal credit cards.

Business credit cards are a good option for recurring or everyday purchases. You can qualify based on your personal credit even if you don’t have an established business history. 

Apply for Small Business Funding

If you are in need of a low-rate business funding, here are the first funding you should consider:

  1. SBA Funding. Many business owners assume that SBA Funding are low-interest funding for small businesses that come directly from the SBA. While the first part of this is true, the SBA is merely guaranteeing low-interest small business funding from an SBA-approved funder. The SBA guarantees a large portion of the funds—around 85% of the funding amount—which ultimately allows them to have the best cost of working capitals for business funding. This is great news for small business owners looking for a low-cost of working capital business funding.
  2. Traditional Bank Funding. Bank business funding are almost always long-term funding with low cost of working capitals. Currently, bank rates on these low-interest business funding range from 2.55% to 5.14% for large national banks, and 2.48% to 5.4% for small national and regional banks.  These low-interest business funding are the most generic and easy-to-understand as far as business funding go. You receive a lump sum of capital that you’ll pay back over a set period of time, with fixed repayments plus interest.
  3. Medium-Term Funding.  Unlike “traditional” term funding, medium-term funding are typically offered by alternative, non-bank funders. These funders offer funding that are structured similarly to bank funding, but are different in a few key ways:  They offer slightly smaller funding amounts (up to $1 million), slightly shorter terms (up to five years), and slightly higher cost of working capitals (ranging from 6.5% to 20%).
  4. Business Line of Credit. Though business lines of credit also traditionally come from banks, new, alternative funders have entered the small business funding space in order to offer this low-interest option to slightly less-qualified borrowers.  With a business line of credit, you’ll gain access to a pool of funds that you can draw from whenever you need to for your business. You only pay interest on the funds you draw, and once you repay them, your credit line will return to its original limit.

Low Interest business funding requirements:

If you’re new to the world of small business funding, then it’s easy to jump into a search for business funding assuming you’ll find the lowest cost of working capitals on the market. In reality, it’s not always so simple.

The rates and terms of a business funding come down to two things: the details of the business applying for the funding, and the details of the funding itself.

Here are the factors that determine whether or not a funder will offer you a low-interest business funding:

Personal Credit Score

Your personal credit score will play an important role in your business funding application and, as a result, in whether you qualify for low-interest business funding.

Time in Business

A company’s time in business also has a large impact on what cost of working capitals it can qualify for. It’s a simple but important credential. 

Industry

Another aspect of your business that funders will look at is your business’s industry.

This factor is pretty simple: Some industries are just riskier than others.

Accessibility of the Funding

Most low-interest small business funding like bank funding or SBA funding, have a longer timeline for application and approvals than other funding.

One way to avoid high-interest business funding is ensuring that you never wait to seek funding until it’s an emergency. Quick business funding are almost never low-interest business funding. If you wait until you absolutely need funding to start your search, your only options will be expensive ones.

Looking for financing to grow your business?  contact First Down Funding for all funding options.

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