Probably, though your lender may charge a prepayment penalty for doing so. This might be a flat rate or a percentage of what you would have paid in interest. Read through your contract and talk to your lender to learn what fees you might face for early repayment.
What types of business loans are available?
From term loans to lines of credit to short-term funding, you have a variety of business loan options to choose from. What’s right for you will come down to the type of business you own and what it needs funding for.
- Term loans. Business term loans are typically unsecured and ideal for covering a one-time expense. You receive a lump sum — typically anywhere from $5,000 to $5 million — that you pay back plus interest and fees over five to 25 years.
- SBA loans. The Small Business Administration (SBA) offers several loan programs for business owners who’ve struggled to qualify for financing in the past. These are typically term loans that come with more competitive rates since they’re partially backed by the government. However, the application process can take months to complete.
- Lines of credit. Similar to a credit card, you receive access to a credit line that you can draw from as needed. Depending on the lender, you’ll either be on the hook for fixed installments over a set term or minimum monthly repayments.
- Equipment and vehicle financing. These work like term loans, but they’re secured by the equipment or vehicle your business is purchasing. Rates tend to be lower than with their unsecured counterparts, but you risk losing your asset should you default.
- Short-term business loans.Short-term business loans — typically invoice factoring, invoice financing and merchant cash advances — are ideal for businesses that need emergency funds fast. While they’re typically easier to qualify for, they’re more expensive than the other options on this list. And repayments are usually due daily or weekly over a few months.
How much can I borrow?
Depending on the lender and type of financing, you may be able to borrow anywhere from $5,000 to $5 million. The exact amount depends on how long you’ve been in business, your annual revenue and your personal credit score. What you plan on using the funds for and your existing relationship with the lender may also play a role. And some lenders might require collateral for larger amounts.
Because business loans are so common, you can find lenders that offer both online and in-person applications. You can also go through an online business loan connection service to prequalify with multiple lenders at once.
The information you need to provide will vary depending on the the type of business loan you’re applying for and the provider you go with. In general, you might need to have the following documents on hand:
Is a business loan connection service a direct lender?
No, a business loan connection service isn’t a direct lender. Instead, it works with affiliate lenders to help you find financing you might qualify for. After filling out an online form, you’ll receive prequalification offers from lenders that may be able to provide funding. This gives you an idea of what rates and terms you might qualify for before filling out the lender’s full application.
Term loans are one of the most popular types of small business loans. If you’ve ever taken out a mortgage or financed a vehicle purchase, then you’re probably familiar with the mechanics of a term loan. Term loans are delivered via a lump-sum of capital from a lender and paid off in fixed installments according to a schedule until you pay back the principal plus any applicable interest (and any fees). Repayment periods can vary from short term (12 months or less) to medium term (1 -3 years) to long term (3+ years). Term loans are typically secured by a lien on your business assets (a right for the lender to seize those assets if you default on the loan) and may require a personal guarantee, which means your personal assets may be liable if your business defaults on the loan. One of the perks of a term loan is that the interest rate, which could be either fixed or variable, tends to be competitive and lower than other types of small business financing. This is especially true when you consider that you may be repaying the loan over a number of years. Business owners have flexibility with regards to how they can use the funds. For instance, one could use a small business term loan to expand to a new location, replenish inventory, or hire new employees.
Merchant Cash Advance
Merchant cash advances (MCAs) aren’t exactly small business loans. Instead, they’re a cash advance against your future credit card revenue delivered to you in a lump-sum. The advanced amount, which can be anywhere from 5000,500 to $400,000 is determined by the issuer and based on your average monthly credit card sales. For example, through Funding Circle’s network of lending partners, this amount is between $5,000 and $500,000. Because the cash advance is repaid as a percentage of your daily credit card revenue, it may take anywhere from 90 days to two-and-a-half years to repay. One of the key risks of MCAs is piling on too many of them – known as stacking – which may completely deplete your cash flow. You should also be aware that interest rates (often expressed as a factor rate) can be very high, ranging between 40-350%. Learn more about applying for a merchant cash advance through Funding Circle.