Small Business Financing FAQ's

Understanding Your Small Business Loan Options -

Q. What are business loan “terms”?

A. The phrase “loan terms” usually refers to the term length of your loan (however it is sometimes also used to describe other loan conditions). For example, loan terms can range from 6 months, 12 months, 24 months, 4 years, 5 years, 10 years, or longer—depending upon the nature of the loan.

Q. What is a personal guarantee on a business loan?

A. A personal guarantee gives your lender the right to pursue your (the guarantor’s) personal assets if your business defaults on a business loan.

Q. Can I get a business loan after a bankruptcy?

A. Qualifying for a small business loan will be more difficult during the 10 years the bankruptcy appears on your credit report, but some lenders will work with your businesses if the bankruptcy has been discharged typically for at least two years. By agreeing to a personal guarantee, you (the guarantor) are agreeing to be 100% personally responsible for the entire loan amount, in addition to any collection, legal or other costs related to the loan.

Q. What is loan stacking?

A. Loan stacking is where a short-term loan or cash advance is approved on top of a loan or advance that is already in place with similar characteristics with no consideration of the borrowers ability to manage the debt. It often happens when a lender, who you don’t know and likely have never spoken to before, sees the UCC filing for your first loan (because it’s part of the public record), and contacts you to inform you that you now qualify for an additional loan. Loan stacking could put a business at risk of default and bankruptcy.

Q. Is business loan interest tax deductible?

A. Business loan interest may be considered a legitimate business expense and tax deductible by the IRS. You should consult with a trusted tax adviser to discuss how this applies to your business.

Different Small Business Loan Types -

Q. What is a small business cash flow loan?

A. Type of debt financing, generally for working capital, using the expected cash flows that a borrowing company generates as collateral for the loan. You’re essentially borrowing from cash that you expect to receive in the future by giving the lender the rights to a predetermined amount of these receivables.

Q. What is a bank statement business loan?

A. A bank statement loan is a loan that is based among other things on the past 3-24 months of bank statements showing that the average monthly deposits, withdrawals/expenses and average balances will support the loan payments.

Q. What is a small business expansion loan?

A. Designed for prime businesses with better risk profiles, a business expansion loan is large-scale growth capital if you're looking to invest in bigger projects.

Q. What is a small business ACH loan?

A. The ACH designation applies to the Automated Clearing House, and a lender’s ability to withdraw an agreed upon amount directly from your checking account at agreed-upon intervals. An ACH loan is a loan where the lender collects the borrower’s periodic payments via ACH.

Q. What is a small business loan?

A. From purchasing inventory and equipment to remodeling and advertising, small businesses need capital for many reasons. Small business loans may be used for any business expense, even if you just need an influx of capital to boost your cash flow. 

Q. What is factoring?

A. Factoring is technically not a loan. A third party, known as a factor, purchases a company’s invoices or purchase orders at a discount giving the business owner access to a percentage of that invoice now, instead of waiting for the invoice or purchase order to be paid. The balance, minus the agreed upon fees are then paid to the business owner once the factor has collected payment from the business’ customer(s).

Q. What is accounts receivable financing?

A. Accounts receivable financing uses a company’s outstanding AR as collateral for a loan.

Q. What is invoice financing?

A. Say goodbye to Net-30/60/90 payments. Invoice financing is a simple way to fix cash flow by advancing payments for outstanding invoices. Overcome cash flow gaps by getting an advance on your outstanding invoices.

Q. What is revenue based financing?

A. Instead of a business being required to pay fixed interest payments like a typical bank loan, a revenue based loan is paid with a percentage of revenues. Small business revenue based financing helps you grow your business and it does not saddle you down with long-term, highly encumbering debt.

Q. What is a short-term business loan?

A. A short-term business loan is typically a loan with a term of 12 months or less.

Q. What is a long-term business loan?

A. A long-term business loan typically has a loan term of longer than 12 months or longer.

Q. What is a small business working capital loan?

A. At any stage of growth, fast, flexible funding is essential to the continued success of your small business. Working capital loans are typically 6 to 18 month terms and fixed payment options to accommodate your specific needs, so you can focus on what you do best, running and building your business.

Q. What is a small business line of credit?

A. A small business line of credit provides flexibility that a regular business loan doesn’t. With a small business line of credit, you can borrow small business capital and pay interest only on the money borrowed. You then draw and repay funds as you wish, as long as you don’t exceed your credit limit. Need to manage cash flow? Buy inventory? Pay for a surprise expense? Then a business line of credit makes sense.

Q. What is a Merchant Cash Advance or MCA?

A. A Merchant Cash Advance can provide small business owners with an upfront fixed amount of cash in as little as 24 hours. The funding amount is based upon a percentage of the businesses credit card receivables or daily cash balances using historical credit card receipts and bank statements to determine the initial advance. The business pays back the advance, plus a percentage, often referred to as a discount factor, from a portion of their credit card receivables or cash available plus a percentage which is often referred to as a discount factor. The remittances are drawn from the business customer on a daily, or weekly basis until the obligation has been met. MCA's are great options for small business owners who may not have strong credit but have lots of credit card activity, or cash deposits and need financing quickly.

Finding the Right Business Loan -

Q. What is the best type of business loan for my business?

A. There are many options available for most small business situations. The first questions to ask to find the best loan for your situation are 1) What is my loan purpose? 2) How much capital do I need to meet that need? 3) What type of loan can I likely qualify for? The answers to these questions will lead you to the best loan for your business and situation.

Q. What is a non-bank lender?

A. A non-bank lender is any lender that is not a bank. For example non-profit lenders, online lenders, and equipment financing companies are frequently non-bank lenders. They are usually regulated as commercial lenders, but are not banks.

Q. What is the cheapest business loan?

A. There are non-profit micro-lenders that offer very low or zero interest loans to qualifying business owners. They are typically in the form of micro-loans (the SBA and most traditional lenders consider loan amounts of $50,000 or less to be micro-loans). Beyond those options, bank loans for established businesses with strong collateral will typically be the next cheapest option.

Q. What is the difference between a line of credit and a business loan?

A. A line of credit is a revolving loan that provides a pre-determined amount of capital that can be accessed as needed, repaid, and then used again. A business loan is a fixed amount of capital in a lump sum that is repaid over the term of the loan.

Q. Do I need collateral to get a line of credit for my business?

A. Some lenders, including many banks, may require specific collateral to secure a business line of credit, while other lenders may apply a general lien to all the business assets – both are deemed “secured.” There are two types of business lines of credit available to business borrowers- a secured line and an unsecured line. 

Q. How long does it take to apply for a business line of credit?

A. It depends upon the lender. It could take several days or weeks when applying with a traditional lender or as little as a few minutes with many online lenders.

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