What Do Small Business Loan Requirements Look Like in 2020?

It’s been tough for entrepreneurs to get small business loans in 2020. Most traditional private lenders aren’t offering standard small business loans due to the ongoing uncertainty of COVID-19. Personal loans are always an option, but it can be hard to justify putting personal assets at risk for quick cash.

With that said, there are other great funding options available, depending on your financial circumstances, what you intend to use the money for, and whether you meet the criteria for small business loans of each type. 

Let’s dive into the small business loan requirements for a few of the best options this year:

Lines of Credit

A business line of credit is not unlike a credit card that extends your business checking account up to a certain limit.  The advantage here is flexibility.  Even if your cash flow needs are unpredictable, you’ll borrow any more or less than you actually need.  

It typically works like this: The bank or lender transfers cash into your account to cover any checks or withdrawals that would otherwise overdraw your account. You only pay the interest on the total amount borrowed until you’ve repaid it in full. The line of credit will remain available for the length of an agreed term (often one year). During that period, you can draw from it again at any time, up to the total agreed cash limit.

Many businesses will keep a line of credit available as a more-or-less permanent financing tool by renewing it annually with their lender. It’s also much easier to get approved for a line of credit than a traditional small business loan, since they represent less risk for the bank or lender. This is because cash is only provided to the borrower if and when they draw from the agreed line of credit. 

Online financial services like LendingLogiq make it easy to find and qualify for a business line of credit quickly from top lenders without the hassle of traditional bank paperwork.

SBA-Guaranteed Loans

The SBA doesn’t lend the money directly. Rather, it sets standard small business loan requirements for partnered lenders. This typically means more flexible overhead, lower payments, reduced risk, and potentially no collateral.

According to the SBA, “eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates.” Here are a few more criteria for small business loans guaranteed by the SBA:

  • Be a registered, legal, for-profit business
  • Physically located and operated in the U.S.
  • Have invested equity (the business owner’s time or money)
  • The business has exhausted financing options from other lenders

Merchant Cash Advances

This isn’t really a loan, but a type of financing where your business is paid a lump sum that is paid off with a percentage of future revenues. Banks reject almost 80% of small business loans, but an MCA gives you advantages like:

  • Greater eligibility (vs. small business loan requirements)
  • Immediate funding
  • More flexible repayment

Whereas business loans have set repayment schedules, a maturity date, and fixed payment amounts, MCA payments simply come from a percentage of weekly revenues. The more business you do, the quicker you’ll pay it off! This typically means shorter payment terms and smaller regular payments. You’ll never face a prepayment penalty, either. In fact, most funders will reward you for early payment.

Another reward you can earn from repayment often kicks in once you’ve repaid roughly 50% of the original cash advance. At that point, many lenders will make additional funds available to you. 

Also, unlike stringent small business loan requirements, MCAs can be more flexible with credit scores and other criteria for small business loans. Most lenders will be looking primarily for evidence of business performance and consistency of deposits.

An “unsecured advance” is accessible without any collateral. If you opt for a “secured advance,” perhaps using some property as collateral, you’ll gain even lower rates and more generous repayment terms using a flexible lien. Liens are useful because they can be used as a credit line again, if you need it, and are released upon payoff. Plus, a recorded lien can help your business build credit!

It’s not unusual for business owners to need fast, comprehensive financing, but meeting small business loan requirements from banks may be a lot harder today. If you need to grow your business, get in touch with our experienced financial team at LendingLogiq for quick, simple business financing solutions. We’ll help you find the capital you need to build the business you want—and share your mission with the world!