A Primer on Small Business Loans

August 13, 2020

Money, financing, loans, debt, borrowing, lending… it’s a list of words that offers hope and stability to some, but in the majority of others it causes awful anxiety, fear and frustration. Fortunately, it’s also  just a simple knowledge in where or how to borrow money. 

First off, the pandemic has caused a surge in home delivery business models. According to the US Chamber of Congress, major companies like “Instacart, Walmart Grocery, Shipt, and Target (have shown) an increase of 218%, 160%, 124% and 98%, respectively.” So, if you’re thinking of starting a delivery service, now is truly the best time to do so as banks and lenders will listen to your idea.

If you are a member of the lucky few able to start your small delivery business with savings alone, it is rare that any business reliant on purveyors upfront payment of invoices to operate without some loan or another. Short term loans give you cash flow to cover the cost of raw products, payroll, rent, fuel, and other delivery costs which can be difficult to maintain.

While they may be slightly more difficult to get than, say, a personal loan, you should strongly consider shopping for a small business loan. Small business loans can often be issued within 1-3 business days, carry very reasonable interest rates, and usually offer different funding options.

Below are a few funding options that allow you to customize your borrowing based on your business needs.

Line of Credit

If your money is in good standing but your stove seems to be failing, you may want to work with lines of credit as it is more of an emergency fund.

Cash Advance

If your sales are primarily through credit cards, Merchant Cash Advances are a great choice as they advance you cash based on your credit card history and proposed future.

Invoice Financing

Invoice financing is another popular choice of funding for this style of business. Invoice financing uses your unpaid invoices as collateral. The loan ‘waits’ for your supplier to pay their invoice so you can then pay back the loan (with interest of course).

How to find the best loan for your delivery business

When shopping for a small business loan, be sure to do your homework. While you may get excited about a great rate of interest, you also need to recognize how it is calculated. Pay attention to the transparency of the company by reading customer and industry reviews.  You should also do your best to avoid contracts with prepayment penalties. This is a fee where the borrower is penalized for paying off their loan on time and is commonplace in the small business loan arena.

Important Points to Know About the Best Small Business Loans

  • Some lenders require a minimum amount of proven business income for you to qualify. This might make them a poor choice for entrepreneurs who want to use loan funds to start a brand new venture.
  • Some small business lenders offer loans and others offer lines of credit. Some lenders on our list offer both. A loan is disbursed as a lump sum in most cases, while a business line of credit is a pool that you can tap as needed, similar to a credit card.
  • Your personal credit score is different from your business credit score. You have a FICO credit score that ranges from 300 to 850, based on your personal credit profile. Your business credit score is usually measured in increments from zero to 100.
  • Most business lenders require you to have solid personal credit in order to qualify.

The Best Small Business Loans of 2020

While the best loan for you will depend on multiple individual factors, some lenders stand out for their low starting rates, fair loan terms, and easy application process. The best business loans featured below meet those criteria.

See this guide for an in-depth comparison of the the lenders highlighted above.

We hope this article helped introduce you to some of the options available to you when it comes to small business loans. Good luck!

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