Business Loans FAQ

Funding Hero makes it extremely easy to compare the top-rated PPP lenders and apply directly through their portals. If you are not sure whether you are eligible for a PPP loan you can also apply to a regular business loan and compare your options using our business loan comparison chart.
The SBA, in consultation with the U.S. Treasury Department, has reopened the PPP program as of Monday, January 11, 2021 at 9 am ET. The renewed PPP program has allocated $284 billion in loans and has been extended to March 31, 2021. Businesses who received a first draw PPP loan can still be eligible to apply this time around provided they have used or will use the full amount of the first-draw PPP loan.
High APR. Depending on all the influencing factors, interest rates can get extremely high, ranging from 40% to 350%. These rates are exceptionally high compared to regular business loans.

No federal regulation. As Merchant Cash Advances are not established as loans, but transactions, there is no federal supervision. Therefore, they lack protection from government laws and are instead regulated by the Uniform Commercial Code.

Risk of debt. Due to the nature of MCA's and how quick and easy they process, businesses may rely on these for fast funding. Once they repay their first one, shortly after, they may apply for another which can introduce a vicious debt-cycle.
Merchant Cash Advance terms will vary depending on influencing factors. However, some typical terms apply:

• Maximum advance amounts range from $2.500 to $250,000.

• Repayment terms are based on the total amount of advance you borrowed, with APR applied.

• Interest rates are typically between 1.14% to 1.18% variable.


You and the MCA provider will agree on a fixed percentage which they will deduct from your credit and debit card sales every month until you have repaid in full. This percentage fluctuates with your sales, so if you are doing better one month you can pay off more of your loan. Repayment periods range from 3 months to one year. Those with higher credit card sales are more likely to repay in a shorter time frame.
The big difference between an SBA loan and a conventional loan is that the government partially guarantees an SBA loan. While lenders provide the funds on an SBA loan, the agency guarantees a portion of that amount. If you default on the loan, the SBA pays out the guaranteed amount. This allows for longer payment terms and lower monthly payments. Conventional business loan payment terms typically only last 5 years. An SBA loan can last as long as 25 years.
There are many options for financing your business. Below are a few of the most common types of business loans:
Business Lines of Credit: A line of credit that businesses can access when needed
Equipment Financing: Loans to finance equipment in which equipment serves as collateral
SBA Loan: Low-cost, flexible loans secured by the Small Business Administration
Short Term Loan: Small loans with short repayment terms between 3 to 18 months
Working capital loans carry very short repayment terms, usually of 12 months or less. Typically, repayment structures will require borrowers to make loan payments either daily or weekly. Because of the short term repayment, businesses should resort to this sort of loan if their budget can handle payments frequently and on time. Businesses that need to pay for everyday expenses can apply with online lending services for a working capital loan. Keep in mind that online lenders have requirements in order to qualify. Lenders will look at criteria such as credit score, revenue, years in operation, and so forth. Eligibility requirements will vary from lender to lender.
SBA loans can be difficult to qualify for and come with some general minimum requirements. Your lender will analyze your financials, business history, ability to repay the loan, and plans for the use of the proceeds. Prepare to have good credit, cash flow, and a strong balance sheet with 2 years of business history.
Businesses can apply for working capital loans to finance short-term operational costs including payroll, debt payments, and rent. That can include everything from large purchases and unexpected expenses to everyday cash flow. Typically, working capital loans come with short repayment terms, and businesses do not usually use this type of loan for long term investments such as real estate.
If you are a small business looking to make an investment or purchase and need access to fast cash, then a Merchant Cash Advance could provide a great option for you. Those who receive the majority of their transaction payments by card will especially benefit.

By applying for an MCA, you could see the funds in your account in as little as two days. MCA offers an ideal solution for a business that doesn't have many assets as they are unsecured, so you won't need any collateral. You can request financial help without putting your home or belongings on the line.
The best place to start is on the SBA website. Look for an SBA Prefered Lender. Banks are the most popular, but online platforms are also available. SBA loans require a significant amount of paperwork. The loan process takes an average of 60 to 90 days to complete as the SBA and the lender review all of your documents. This can vary according to the SBA loan program and the lender you work with.
The APR (annual percentage rate) refers to the annualized interest rate charged for your personal loan. Typical APRs range from about 5% up to 30%. The APR of the loan depends on the applicant’s financial history, assets, income, credit history, and other factors.
The Paycheck Protection Program (PPP) is a business loan program established by the US Federal government and implemented by the US Small Business Administration in order to help businesses adversely affected by the COVID-19 pandemic. To qualify for a PPP loan, applicants must meet certain criteria which we will detail below.

PPP loans can be used for a variety of purposes including: payroll (which can include salary, tips, vacation leave, sick leave, holiday pay, furlough pay, bonuses, severance pay, and other compensation paid to employees), rent, utilities, and interest.

PPP loans do not require collateral on the part of the business and have a set interest rate of 1%. Loans are potentially 100% forgivable depending on what the loan was spent on, to what extent the business was able to keep its employees as well as their hours and wages.
Lenders follow SBA guidelines but use their own underwriting criteria to evaluate loan applications. The first step involves finding out why you were denied. There are clear ways to strengthen your application and apply for an SBA loan in the future by improving your credit score, growing business history, and increasing your annual revenue.
Merchant Cash Advances should only be used as a last resource during a financial crisis within a business. Due to their high APR rates, this type of business loan could end up doing more damage to a budget.

Alternatives to this include small business loans, which you can apply for through banks or online lenders. You can choose from short-term or long-term business loans, depending on your financial circumstances. This option will always run a credit check, however, interest rates are relatively lower so acts as a suitable alternative for Merchant Cash Advances.
In simple terms, an SBA loan refers to a small business loan partially guaranteed by the government through the Small Business Administration (SBA). The SBA works with a network of approved financial institutions that lend money to small businesses. The SBA agency doesn’t lend the money directly to small business owners, but it sets guidelines for loans by partnering with lending institutions. SBA loans range from $500 to $5 million dollars, and the loan term ranges from 5 to 25 years. Interest rates start at 3.4% and extend up to 13%, depending on the type of loan you look into. There are four types of SBA loans: • SBA 7(a) loans • SBA 504/CDC loans • SBA microloans • SBA express loans. Business owners who are looking into these loans must have a legally registered and officially operating for-profit business that operates in the United States, have invested equity into their business, be able to repay the loan, and have exhausted other financial options. Other stipulations and eligibility requirements depend on the loan applied for, the lender, and the financial/credit status of the business owner.
Pros:

Short term loans: Businesses won’t get tied up in long term loans. Short term lending periods make working capital loans ideal for companies that need fast cash to supplement slow seasons of business during the year.

Unsecured financing: Working capital loans require little to no collateral.

Fast funding: Borrowers can quickly access cash with an easy online application and fast approval process, usually within 48 hours.

Early payment options: Businesses can pay off loans early without penalty fees. In fact, because these loans are designed for the short term, early repayment can improve your credit score.


Cons

Short repayment periods: Borrowers may need to repay their loan on a daily or weekly basis in 12 months or less, depending on the terms of the loan.

No partial repayment plans: Lenders require borrowers to pay back the amount borrowed in full, even when a business files for Chapter 11 bankruptcy.

High-interest rates: Working capital loans usually charge higher interest rates than long-term loans.
Terms can vary and can range from 3.72% to 13%, depending on which SBA loan program you are borrowing through, how much you borrow, the repayment term length, and your business’ qualifications. SBA loans can range in size from $500 to $5 million. Repayment terms vary: 25 years for real estate/equipment and 10 years for working capital. The 7(a) loan is the SBA’s most popular product and offers a flexible sum of cash for a variety of uses, including daily operations, purchasing new products, and refinancing high-interest loans. Your SBA loan rate depends on the current US Prime Rate.
To qualify for a PPP loan you must meet the following criteria:

• Your business must have less than 300 employees
• You must demonstrate a revenue reduction of at least 25% in the first, second, or third quarter of 2020 (when compared with the same quarter in 2019).
• Your business needs to have been operational before February 15, 2020 and remain operational today

Eligible businesses include:

• Sole proprietors
• Independent contractors
• Self-employed individuals
• Certain non-profits
• Seasonal employers
• Housing cooperatives
• Faith-based organizations (with less than 150 employees)
Repayment agreements depend on the terms negotiated between your business and the lender. Repayment periods can be as low as 6 months or less or for up to 5 years or more. When negotiating your loan, make sure to agree upon repayment terms that suit your current budget.
Pros of Invoice Factoring

Immediate cash flow:Businesses can expect advanced payment on outstanding invoices in as quickly as 24 hours after approval.
Ongoing cash flow: Businesses can use invoice factoring more than once as a financing option. In this way, they won’t have to wait for payment from customers to have cash in the bank.
No interest rates: Unlike loans, invoice factoring doesn’t come with interest rates.
High approval rates: Collateral, credit score, and loan history don’t play a big part in determining eligibility for invoice factoring. Usually, factoring companies will be most concerned with the payment history of your customers.
No collateral required: The invoices act as collateral so you won’t have to risk putting up real estate, equipment, or other costly forms of collateral.

Cons of Invoice Factoring

Liabilities: If you have a recourse invoice factoring, you become responsible for seeking out payment for unpaid invoices.
May lead to collections process: If the customer does not complete payment on an outstanding invoice, your business may need to bring your factor in as a partner through the collections process.
Factoring fees: Businesses will need to pay a factoring fee, typically between 1% to 5%.
Lack of control: Invoice factoring involves getting a third party company involved with your finances. Some companies may not want to allow the factor to have access to their financial or customer information.
Invoice factoring involves selling accounts receivable (invoices) to a third party (the factor) for a discount. The straightforward process typically goes like this:

• The business submits unpaid invoices for completed work.
• A factoring company verifies the invoices before advancing a percentage of the money owed in cash.
• The factoring company collects the full payment from customers.
• Once the factoring company receives the full payment, they will release the remaining funds to the borrower, minus a small factoring fee (usually between 1% to 5%).

Below, you can find an example of how invoice factoring works for an invoice value of $10,000.

Invoice value: $10,000 Factoring fee (3%): $300 Initial advance (85% of invoice value, minus the fee): $8,245 Remaining invoice value (12%): $1,455 Total received: $9,700

The approval process usually takes 1 to 3 business days. Businesses can expect initial advancement within 24 hours.

Keep in mind that factoring fees can vary (typically between 1% to 5%). Lenders will determine how much you pay based on a few factors such as the invoice amount, sales volume, and creditworthiness of the borrower.

Fees will also depend on whether the factor is “recourse” or “nonrecourse”, meaning if the company takes on responsibility for the unpaid invoice or if the factoring company does.

Many businesses don’t earn stable or predictable income throughout the year. Retailers, for example, sell more products during their fourth quarter, holiday season. In such cases, companies may need to wait months until they receive enough money to pay for daily operating costs. When a company doesn’t have enough cash on hand to pay for day-to-day expenses during slow periods, they can secure a working capital loan to cover costs. These loans usually make sense for companies that have high seasonality or cyclical sales that require extra funding during slow periods for business.
Business loans have a few advantages. By obtaining a loan, the lender does not have equity in the business. Instead, you simply need to repay principal plus interest. After repayment, you do not need to share profits with the lender. This also reduces administrative duties by eliminating the need for shareholder meetings and votes. In addition, loans do not require the same regulations on investments.
Businesses in need of working capital have a range of business loan options as alternatives to invoice factoring such as:

SBA Loans: The Small Business Administration guarantees the loan offered by banks and lenders. SBA loans typically have low-interest rates and longer repayment periods, ranging from seven years for working capital, 10 years for buying equipment, and up to 25 years for purchasing real estate.

Term Loan: A business receives a lump sum of money that they repay over an agreed period of time. Terms loans make the most sense for businesses with good credit.

Merchant Cash Advance: Businesses receive a lump sum of money. Instead of paying off the loan, the lender takes a percentage of daily credit and debit card sales or makes daily or weekly withdrawals from the business’ bank account.

A merchant cash advance presents many benefits for your business including: Quick access to funds. Once approved, you can expect to see the funds in your account in as little as two days. This process can often take up to one week, which is still much quicker than other lending options. Easy application. Applying for an MCA is easier than applying for a business loan and requires less paperwork. No credit history needed. As a Merchant Cash Advance doesn't run a credit check, even those with damaged credit can apply. Regarding they can prove to the financing company that they can repay in full by providing credit sales receipts for several months prior. Covers a range of business purposes. As long as you have a valid reason for applying for a Merchant Cash Advance for your business, your application is likely to be approved as MCA's cover a wide range of business purposes.
Merchant cash advances tend to have high borrowing costs and short repayment periods, making them difficult for budgeting. There are several types of business loans out there so companies should compare options before moving forward with the lending process. Online lending marketplaces offer a range of alternative loan options including: -SBA loans

-Business lines of credit

-Business credit cards

-Equipment loans

-Invoice factoring

Invoice factoring makes sense for businesses that sell goods or services to other businesses and can convert accounts receivable into working capital. Invoice factoring can provide a suitable option for businesses of all sizes across a range of industries, such as staffing, transportation, manufacturing, distribution, information technology, and more.

Factors, the companies that advance payment on invoices, have a range of flexible requirements. You can even find factoring for start-ups that haven’t been in operation for very long. Typically, invoice factoring works best for businesses in need of cash that already have a consistent monthly revenue of at least $25,000 per month to B2B or B2G customers.
Lending requirements depend on the business loan service. Often, lenders expect good credit, collateral, and steady monthly revenue for approval. A commercial lender may also request a business plan to prove that a business can repay the loan.
Small businesses in need of working capital can turn to invoice factoring. Also known as accounts receivable financing, this type of business loan allows companies to convert accounts receivables due within the next 90 days into immediate cash. Invoice factoring is not a loan but rather a way for businesses to turn invoices into cash.
A Merchant Cash Advance provides businesses with speedy access to funds based on their previous credit and debit card sales. A business can apply for a cash advance with a financing company, and they will receive funds through a quick and easy process. Repayment operates through a daily deduction of future card sales, plus a fee until the total amount of MCA is repaid.