18/04/2024

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How to Choose the Best Fast Business Loan

How to Choose the Best Fast Business Loan

Two people reviewing information on a tablet.

Ippei Naoi/GettyImages; Illustration by Hunter Newton/Bankrate

 

Choosing a fast business loan is similar to finding a traditional one, except that you’ll need to work with specific lenders and the maximum loan amount may be limited. To get approved, your business should be a shoo-in with solid financials like a 600+ personal credit score and high annual revenue. But some online lenders like Fora Financial offer lenient criteria for startups and bad credit borrowers, broadening access to funding.

Keep the following questions in mind to help you narrow down your options.

The amount you’re borrowing for your business loan affects how quickly you get funding. High loan amounts increase risks for the lender and may require extra documentation to prove that you can repay the loan, increasing the time for loan approvals. Typically, lenders with fast funding speeds offer smaller loan amounts than lenders who take weeks to underwrite loans.

Lender Loan type Funding speed Loan amount
Credibly Working capital 1 business day $5,000 to $400,000
Bluevine Line of credit As little as 24 hours Up to $250,000
Fora Financial Term loan 24 to 72 hours $5,000 to $1.4 million
OnDeck Term loan As little as same day $5,000 to $250,000
Triton Capital Equipment loan 1 to 2 business days $10,000 to $500,000

Lenders base the amount you can borrow on your business’s annual revenue, business plan, collateral, type of loan, use of funds and more.

The lender also uses a few calculations to figure how much you can afford:

  • Debt service coverage ratio (DSCR). Your business’s DSCR compares your annual revenue to annual debt repayments, including loan principal and interest. Most lenders want to see a DSCR of 1.25 or higher.
  • Debt-to-income ratio. This figure compares your monthly debt repayments and monthly gross revenue as a percentage. The ideal DTI is 36% or lower, but many lenders will accept a higher ratio on a case-by-case basis.

Online lenders tend to specialize in quick funding with relaxed loan criteria, helping business owners with less-than-stellar credit. But expect a higher interest rate and more fees than traditional loans.

Fast business loans also tend to be short-term loans with terms as short as six to 18 months and daily or weekly repayments. The short term will impact the total loan amount that your business can handle. Check out what you might pay for a business loan before applying to get an idea of costs.

The speed of funding will depend on the type of business loan you choose, and different loans work well for different purposes. When deciding on which loan to use, consider the loan amount, fees, what your credit score qualifies for and whether you can make the repayment schedule.

Types of loans to think about:

Loan type Description Best for
Term loan A loan for a fixed amount with set repayment terms and either fixed or variable interest Purchases earmarked for a specific purpose
SBA Express loans A government-backed 7(a) loan with faster approval times than traditional 7(a) loans Small loan amounts
Lines of credit Credit that remains open to use at any time and that renews as you pay back the loan Using credit as needed
Equipment financing A type of secured loan for a fixed amount with set repayment terms, backed by the equipment as collateral Funding new assets
Invoice factoring Invoice factoring allows you to sell outstanding invoices to a factoring company that collects payment for you Seasonal fluctuations in cash
Invoice financing Invoice financing uses outstanding invoices to secure a loan or line of credit. You pay back the loan amount plus fees when your client pays you Bridging cash flow gaps
Merchant cash advance A type of alternative financing with high fees that you repay with future sales Emergencies

To get approved for a fast business loan, most lenders require a minimum personal credit score of 600 or higher. You can find a few lenders who offer loans for bad credit in the 500s.

If the lender uses your business credit, you’re generally considered a low risk if your credit score is around 80 and medium risk if it’s between 50 and 80.

Personal FICO score

Your personal FICO credit score can range from 350 to 800, though a score of 670 or higher is considered a good score. Your personal credit gets rated by three major credit bureaus — Equifax, Experian and TransUnion — that each use its own scoring model.

In general, the factors they use to rate your credit score include:

  • Amounts owed
  • Different types of credit you hold
  • Length of credit history
  • New credit applied for
  • Payment history

Business credit score

Your business credit score gets calculated by business credit reporting agencies. Dun & Bradstreet, Equifax or Experian are the main agencies, and they use a scale of one to 100. Lenders will look at your business credit score if you have an established credit history, but many consider personal credit score over your business score.

Your business also gets scored by the FICO Small Business Scoring Service but on a scale of one to 300. This credit score is mainly used when you apply for an SBA loan.

Your business credit score still considers factors like your payment history, length of credit history and how much credit you use. But it also includes the age and size of your business and the failure risk associated with your industry.

While funding speed might be your priority, compare the features that each lender provides to make sure you’re choosing the right loan. Look for:

  • APR. The annual percentage rate is the truest representation of how much the loan will cost, incorporating your yearly loan cost plus interest and certain fees. APRs can range from 6 percent for borrowers with solid credit to 30 percent or higher for bad credit borrowers.
  • Factor rates. Many fast business loans like merchant cash advances charge a factor rate instead of an APR. The factor rate multiplies the entire loan amount by a factor like 1.10 or 1.50 to give you the total loan cost. While it sounds good, it often translates into a steep interest rate and doesn’t include any fees you’ll be charged.
  • Loan amount. Most lenders post a maximum amount that they’re willing to offer for a specific loan, although the amount you qualify for may be different.
  • Penalty fees. Check the loan agreement for any fees you might get charged for missed payments, paying off the loan early or anything else the lender deems a penalty.
  • Repayment terms. Understand the length of the loan terms and how often you’ll make repayments, such as daily, weekly or monthly.

Fast business loans don’t have the strict requirements found with bank loans. But you still need to check and see that you meet the minimum requirements.

What you’ll need to get most fast business loans:

  • Minimum personal credit score above 600
  • Six months to 1 year in business
  • No recent history of bankruptcies
  • Minimum revenue from $60,000 to $250,000 per year
  • Personal guarantee, which allows the lender to pursue your personal assets if you default

Although these are common requirements, online lenders are more likely to offer fast funding and work with bad credit borrowers with a credit score in the 500s. These lenders lower their criteria for revenue, credit score and minimum time in business than the standard.

Bottom line

The best fast business loans can help you cover emergencies and other short-term expenses, but can cost more than traditional loans offered by banks and credit unions. To choose the most affordable option, make sure to scope out the lender and loan features closely.

  • The fastest way to get a business loan is to choose a lender that specializes in funding within a few business days. Online lenders tend to work on shorter timetables than traditional banks. Then, check the lender’s eligibility requirements and loan features to make sure that you qualify. If you meet the lender’s requirements and submit all the required documents, you shouldn’t have a problem getting funded quickly.

  • Traditional lenders take up to a few weeks to approve a business loan, depending on the loan type, your business financials and the amount you’re requesting. But many online lenders approve loans in one to three business days, and sometimes the same day that you apply. SBA loans can take anywhere from 30 to 90 days to process since it has to get SBA approval.

  • The ideal way to get emergency cash quickly is to apply with a lender that specializes in fast business loans, such as an online lender. Check the funding speed and keep in close communication with the lender to make sure you get the funds you need in time. If you don’t qualify for a loan, you can look into alternative funding like invoice factoring, invoice financing or merchant cash advances. These types of loans should be a last resort since they come with high fees and can easily lead to a cycle of debt.
  • Most business loans require a minimum personal credit score of 600 or higher, even if you need an emergency loan. If your credit doesn’t measure up to that standard, look for lenders like Credibly and Fora Financial that provide loans to some borrowers with credit scores above 500.