From Business Loan Rates to Loan Terms, AVANA CUSO Provides Professional Guidance on Applying for Commercial Loans
Whether you’re planning to start a business or make changes to an existing one, you may need additional funds. That’s when a business loan typically enters the picture. AVANA CUSO, an experienced commercial real estate lender, promotes LendThrive, an automated financing platform that offers a variety of business loan options to help business owners pivot and grow. Business loans provide the funds for working capital, equipment, expansion, real estate, hiring, and more. From business loan rates to terms, AVANA CUSO explains here how to get a business loan.
How to Get a Business Loan: 7 Steps to Getting a Business Loan
In short, here are the seven steps you’ll need to follow to get a business loan:
Step 1: Determine the loan amount you need for your business plan.
Step 2: Establish the type of loan you need (ex. bank loan, micro-loan, equipment financing, small business loan, business lines of credit, or accounts receivable financing).
Step 3: Check your personal and business credit scores to determine your credit position (If you have a lower score, take time to work on it before applying for a business loan).
Step 4: Obtain the necessary documents, including financial statements, tax returns, etc.
Step 5: Assess your personal and business collateral to determine the amount you can put up to secure the loan (The more you can pledge, the lower the risk to the lender).
Step 6: Compare business loan lenders by considering annual percentage rates, terms, fees, etc. We always recommend talking to your local credit union(s) because they offer personalized support, a wide range of products, and more.
Step 7: Complete the business loan application at your preferred lender.
What Is Needed for a Business Loan?
The three major factors that determine your qualification for a business loan include:
Credit Score
Lenders will check two types of credit: personal and business. When first starting a business, your personal credit score will carry more weight, as your business score won’t exist yet. As your company matures, your business credit will overshadow your personal credit. Personal credit scores range from 350 to 800, with an excellent score being above 750. Business credit scores run from 1 to 100, with optimal scores being above 80. Here is our detailed guide on how to check your business credit score.
Cash Flow & Income
Lenders check your business’s debt-to-income ratio. The higher your cash flow and income and the lower your debt, the greater chance you have of getting the loan.
Collateral
In addition to checking debt, lenders review your business and personal collateral. The more collateral you offer (ex. vehicles or real estate), the lower the interest rate.
Choosing the Right Business Loan:
Term Loans
Term loans are best for significant, one-time expenses like purchasing real estate, funding a large project, or acquiring another business. These loans typically offer fixed repayment terms, with consistent monthly payments and interest rates. They are often available through banks, credit unions, and online lenders, with repayment periods ranging from a few years to decades.
Business Lines of Credit
A business line of credit provides flexible access to funds that you can draw from as needed, making it ideal for managing cash flow, handling unexpected expenses, or covering seasonal fluctuations. Interest is only charged on the amount borrowed, not the entire credit limit. This option is often more flexible than a traditional loan but may require higher credit scores or a solid business history.
SBA Loans
Small Business Administration (SBA) loans are government-backed loans designed to support small businesses with favorable terms like low interest rates and longer repayment periods. They are ideal for various needs, from working capital to expansion. SBA loans, such as the popular 7(a) loan program, require a rigorous application process and substantial documentation but are often worth the effort for qualified businesses.
Equipment Financing
Equipment financing is specifically designed to help businesses purchase or lease equipment, machinery, or vehicles. The equipment itself often serves as collateral, reducing the need for additional assets to secure the loan. Repayment terms typically align with the expected lifespan of the equipment, making it a practical option for capital-intensive industries.
Invoice Financing
Invoice financing allows businesses to borrow against unpaid invoices to improve cash flow and cover immediate expenses. This option is especially helpful for businesses with long payment cycles or delays in client payments. While it provides quick access to funds, fees, and interest can add up, so it’s essential to evaluate the cost-benefit ratio.
Microloans
Microloans are smaller loans, usually under $50,000, aimed at startups, new businesses, or those in underserved communities. They are often provided by nonprofit organizations, community lenders, or government programs like the SBA. These loans typically have lower eligibility requirements and may include mentoring or support programs to help businesses succeed.
Typical Business Loan Terms & Rates
Business loan terms vary based on the type of loan you choose, according to Fundera, a resource that assists small business owners in comparing loans. Small Business Administration (SBA) loans range from five to 25 years, while traditional bank loans can run from three to 10 years. Terms for business lines of credit are on the shorter side at six months to five years, while equipment financing options range from two to five years.
Similar to terms, business loan interest rates fluctuate based on the type of loan required and the borrower’s financial health. Traditional bank loans can run at a fixed rate of 2% to 13%, while small business loans typically range from 5% to 11%.
How to Take Out a Business Loan with No Money Down
Although you may not be required to put money down, you’ll need to offer business collateral (equipment, machines, vehicles, or real estate) or personal collateral (vehicles, homes, or valuables). Term loans, business lines of credit, and SBA microloans are sometimes available with no money down through certain lenders.
Where Can I Get a Business Loan?
AVANA CUSO has worked with business owners for over two decades. While primarily serving as their financing resource for the purchase and refinance of commercial real estate loans, we understand the importance of their other financing needs. And, when entrepreneurs are ready to buy their first commercial property, AVANA CUSO will work with our credit unions and brokers to fund the right loan and service them from origination to pay-off.
About AVANA CUSO
Established in 1998 and headquartered in Simi Valley, CA, AVANA CUSO is a prominent credit union service organization that offers competitive commercial real estate loans. We partner with credit unions and connect them to investors across the United States. Additionally, we uniquely support and guide our partners through the entire loan process. AVANA CUSO is a proud member of the AVANA Family of Companies.