If you’ve never secured a $300k business loan before, the task can seem daunting at the outset. But if you understand your business’ financial situation, your creditworthiness, and how you’re going to pay back the loan, you should have no trouble securing the right kind of financing for your business.

Below, we’ll explain the common financing solutions that can help you secure the capital you need, as well as the requirements you’ll need to meet to obtain financing fast and with no hassles.

Key Takeaways:

First, determine which kind of business loan is best for your business. Next, choose a funder that’s likely to approve the funds you require.
Once you’re approved, sign the loan agreement proposed by the funder. Depending on the financing solution you chose, it can take anywhere from 24 hours to several weeks to secure funding.

Types of Business Loans

Term Loans

If you’re looking to obtain a lump sum of capital that’ll be paid back over a fixed period with interest, a business term loan may be exactly what you need.

A term loan is one of the most common business financing solutions, and it can be used to pay for new equipment, expansion, working capital expenses, and much more.

The term on a business term loan can be anywhere from a few months to 20 years, and repayments are made either weekly, bi-weekly, or monthly.

As far as interest rates go, business term loans can have a fixed or variable rate, and they can be secured or unsecured.

A secured business term loan is backed by collateral, and it usually has a lower interest rate and a longer term. An unsecured loan isn’t backed by collateral, which means the interest rates on these tend to be higher and the terms shorter.

Some of the benefits of term loans include:

It’s easier to secure the funds you need with good credit and a history of meeting obligations.
The interest rates tend to be more favorable.
Longer terms allow for more flexibility with repayments.
Consistently making repayments on time will help you build credit.
Most business-related expenses can be covered with the funds you receive.

Some notable drawbacks include:

You’ll need to meet stricter requirements to secure this kind of financing.
It may take several days or weeks to get the funds you need.

SBA Loans

Many businesses that can’t meet the criteria for a standard business loan go with an SBA loan when they need financing.

These loans are backed by the Small Business Administration, and they don’t just have longer terms (10-25 years) but more flexible repayment terms as well. And because the criteria for qualifying isn’t as strict, they’re popular among businesses with bad credit or limited history.

There are six kinds of SBA loans, and each has its own approval criteria. Additionally, the kind of loan you get determines how the funds can be used, so it’s best to check out each type of loan before you submit an application.

It can take anywhere from 30-90 days to secure an SBA loan depending on a variety of factors, including your creditworthiness, your business’ financial situation, what you plan to use the funds for, and the funder you choose.

Some of the key advantages of an SBA loan include:

They are easier to get approved for because the criteria is more relaxed.
Because the interest rate is capped, they’re more affordable than conventional term loans.
You can secure a large sum ($500,000-$5 million).

Some of the downsides include:

You may need to make a down payment.
Collateral may be required.
You may be personally responsible if the business defaults.
It can take several weeks or even a few months to secure funding.

Equipment Financing

A new piece of equipment may be exactly what you need to take your business to the next level, and equipment financing allows you to purchase it without needing the cash in hand.

The term on this kind of loan is typically between 3-10 years, the interest rate is often fixed, and there’s no collateral required because it’s secured by the purchased equipment.

But equipment financing does require a down payment in most cases which can be 10-20% of the purchase price.

Repayment terms tend to be more flexible, and usually repayments are made on a weekly, bi-weekly, or monthly basis.

A variety of factors will be considered when you apply for equipment financing, including your business’ credit score, how long you’ve been in business, your business’ profit and loss (P&L) statement, and the value of the equipment that’ll be purchased with the loan.

Businesses with bad credit or limited history can secure equipment financing, but the loan’s interest rate will be on the higher side.

Some of the benefits of equipment financing include:

You can obtain the funds you need in just 24-48 hours.
Repayment terms tend to be flexible.
Consistent on-time repayments will help you build credit.

Some of the drawbacks include:

Expect a higher interest rate if you have bad credit.
A down payment may be required.
The loan may outlast the equipment.

Merchant Cash Advance

A merchant cash advance (MCA) isn’t a business loan in the traditional sense, rather it’s an alternative form of business financing that can be extremely useful for some businesses.

This kind of financing is popular among businesses that do a considerable number of debit and credit card sales as securing funds is relatively easy for businesses that can show a suitable history of card sales.

Wondering how an MCA works? Here’s a brief explanation:

First, you’ll need to fill out an application. This process is quite simple, provided you can show a history of card sales. Next, you’ll be offered a “factor rate”, instead of an interest rate, that’s based on the loan’s size. So if your loan is $300,000, and the factor rate is 1.3, you’ll pay back $390,000.

Repayments are usually made on a daily or weekly basis, and you may pay a fixed amount or a percentage of card sales, otherwise known as a “holdback”.

Some of the advantages of an MCA include:

Much higher approval odds, including those with bad credit.
Typically funds can be secured within 24-48 hours.
You won’t need to put up collateral.

Some of the disadvantages include:

You’ll need to start making repayments soon after you secure financing.
This kind of financing won’t help you build credit.
Since they’re not subject to usury laws, MCA borrowing fees can be as high as 50-100% or more.
It’s possible to refinance an MCA, but you may end up paying interest on interest if you do.

Invoice Factoring

Another popular alternative financing solution is invoice factoring. Here’s how it works:

First, you sell your unpaid invoice to a factoring company at a discount, usually 85-90% of the invoice amount. Next, you have to wait for the factoring company to be paid the full invoice amount by your customer.

Once the factoring company gets paid, they’ll send you the remaining 10-15% minus fees. Factoring companies charge several fees usually between 1-10% of the full invoice amount.

Before you choose this financing solution, you should understand the differences between recourse and non-recourse factoring.

If you choose recourse factoring, you’ll be responsible for paying the full invoice amount in the event that the customer fails to do so. If you agree to non-recourse factoring, which is less common, the factoring company assumes the risk of non-payment. Non-recourse factoring fees are higher than recourse factoring fees because there’s higher risk for the factoring company.

Some of the advantages of invoice factoring include:

You can secure the funds you need immediately.
Getting approved is easy if you have large invoices and customers with good credit.
No collateral is required.
You can serve customers who need more time to pay.

Some of the disadvantages include:

You could pay a significant amount in fees if your customers take a long time to pay.
Only businesses that do invoicing can utilize this financing solution.
Your relationships with customers may suffer if the factoring company is aggressive.

Qualifying for a $300k Business Loan

Personal & Business Credit Scores

Two of the most important factors a funder will consider when you apply for financing are your personal and business credit scores.

Most funders want to see a personal credit score above 650 and a business credit score above 80.

A lot of factors go into both credit scores, but higher scores are generally viewed as an indication that the applicant has a strong history of meeting debt obligations.

Traditional funders, like banks and credit unions, tend to be adamant when it comes to their credit score criteria, whereas online funders are more flexible.

Even if your credit score is bad, it’s smart to check with different funders to see what their criteria are. With this information, it’ll be easier to determine which funder and financing type are right for your business.

Business Plan & Loan Proposal

When applying for financing, especially if you’ve chosen a traditional funder, you’ll need a thorough and realistic business plan as well as a loan proposal.

In the business plan, you must clearly outline your business’ goals and how you intend to reach them. The loan proposal is different in that it explains how you’re going to pay back the loan.

If both documents are detailed and well thought out, you’ll have a better shot at getting approved for the capital you’re seeking.

Annual Revenue

Annual revenue is another important factor that funders will consider before approving a loan for your business. A funder will ask for monthly or annual revenue statements as well as detailed financial projections for your business.

Of course, requirements in this area vary from funder to funder, but usually online funders want to see $20,000-$100,000 in annual revenue, whereas traditional funders want to see $250,000 in annual revenue.

Revenue statements will give a funder an idea of how profitable your business is, and they’ll also indicate whether or not you’ll be able to make repayments in the future.

History of Business

If your business has been operating for at least two years, most funders will view this favorably. That said, if you haven’t been doing business for two years, but you can show stable revenue over the past 12 months, there’s a good chance you’ll be able to get some kind of financing from most funders.

Funders consider business history because it can indicate how stable a business is as well as the likelihood of the loan being paid back.

Business Type and Size

The type of business you run, as well as its size, will also be considered by the funder when you apply for financing. If the type of business you’re running is often associated with inconsistent revenue, like restaurants and bars, you may have a harder time securing the funds you need.

Here’s what funders generally want to see when assessing a business’ type and size:

The business can be classified as a “small business” under the standard definition.
The business is either profitable or likely to become profitable.
The business has a history of meeting its debt obligations.

Business and Financial Documentation

When you apply for business financing, you should have the following documents ready to go, whether your funder requests them or not:

Personal and business credit reports
P&L statements, balance sheets, and cash flow statements
Personal and business tax returns
Financial projections
Business plans
Legal contracts and agreements
Proof and appraisal of collateral
Business licenses
Commercial leases

The documents you’ll need to provide are determined by the funder you’ve chosen to get financing through. If you’re not sure of what’s required, reach out to the funder before submitting your application.

Collateral

To secure the kind of financing you’re looking for, you may need to offer up collateral, such as equipment, real estate, inventory, or valuable assets. And if collateral is required, you’ll need to get what you’re offering up appraised beforehand.

In the event you default on the loan, your collateral can be seized and sold by the funder.

Additionally, you may be required to sign a business loan personal guarantee, wherein you agree that your personal property may be seized in the event of default.

How to Get a $300k Business Loan (Step by Step):

1. Choose the Right Financing Solution for Your Business

Before you start looking at financing options, you need to determine why you need a business loan and how you plan to use the funds.

After you’ve decided what the funds will be used for, you can see which financing solution will best suit your needs.

If you need a large lump sum, but the speed at which you get it isn’t a big concern, consider a traditional business term loan or an SBA loan.

If time is a factor, and you need money quickly to meet working capital expenses, a business line of credit, invoice factoring, or a merchant cash advance may be better.

Lastly, if you want to purchase a new piece of equipment with borrowed money, equipment financing may be what you need.

2. Determine Your Business’ Financial Situation and Creditworthiness

Seeing your business through the eyes of a funder before you submit an application will ensure you don’t waste precious time.

Your first step should be determining how much revenue your business generates on a monthly or annual basis.

Next, look out into the near future to determine if you’ll be able to consistently make repayments on time.

You’ll also need to assess your credit score and history honestly, as these are two of the most important factors funders look at when determining whether or not they’ll get paid back by the applicant.

Once it’s clear what your business’ financial position is, which kind of funder is more likely to provide the funds you need should also be clear.

3. Compare Funders

After you’ve determined which financing solution is best for your business, compare funders to ensure you get the best deal. And when you’re considering your options, keep the following in mind:

Approval requirements
Loan terms
Interest rates
Incentives and perks
Fees

Separating the flexible funders from the rigid ones is also a good move. After all, it’s better to be working with a flexible funder when unexpected financial hardship rears its ugly head.

4. Gather Necessary Documentation for Your Application

To ensure the loan approval process isn’t slowed down because of missing documentation, gather all necessary materials before you apply. And don’t be afraid to double-check with the funder you want to get financing through; it won’t cost you anything nor negatively impact your credit score.

It’s also wise to gather supplementary materials that other funders require this way you can send them over quickly if your funder requests them during the approval process.

5. Submit Your Application

Once all your documents are in order, apply for the loan. Depending on the funder you choose, you may be able to do this online, over the phone, or in person.

6. Review and Accept the Loan Agreement

If the funder approves your application, they’ll send over a loan agreement for you to sign. Thoroughly analyze this document before signing on the dotted line.

If you have questions about the terms, reach out to the funder for clarification. You could also hire a business attorney to look over the agreement for you. If things don’t add up, they’ll let you know what you should do next.

Once everything checks out, sign the agreement. After the funder receives confirmation that you’ve signed, they’ll get the disbursement process in motion. Depending on the funder you chose, it may take 2-14 business days to get the funds in your business bank account.

Pros & Cons of Securing a Business Loan

Pro: You Can Expand Your Business Without Paying Out of Pocket

In the world of business, expansion is often the key to increased revenue and higher profit. But if you don’t have the cash to expand, your business can get stuck at its current size, possibly to its detriment.

This is one of the main reasons why getting a business loan is so useful. You can use the lended funds to take your business to the next level, and then pay the money back when more revenue starts coming in.

Pro: You Can Build Credit

If you get a traditional term loan or an SBA loan, you can build credit by consistently making repayments on time. This can be advantageous down the road, as you’ll secure better terms the next time you need a loan. Plus, improved credit will be beneficial if you have to refinance.

Con: High Interest and Fees

When you borrow money, the amount you get is not the amount you pay back. No matter what kind of financing solution you choose, you’ll have to pay some form of interest on the borrowed money.

Plus, you may be saddled with a handful of fees. This is why it’s critical to understand interest rates and fees before taking out a business loan.

Con: Increased Risk of Default

Borrowing money for your business can be great, but defaulting can be a disaster. Not only will your credit suffer substantially, but you may also lose your personal assets or be in debt for many years because of a default. This is why it’s crucial to have a repayment strategy in place before applying for a loan.

Do You Need Good Credit to Get a $300k Business Loan?

No, you don’t need good credit to get a business loan. If you apply for an SBA loan, for example, you may get approved with bad credit, provided you can make a down payment and put up collateral. There are also other financing solutions for individuals with bad credit.

That said, having bad credit when you apply for a loan is costly. Specifically, you’ll have to deal with more stringent loan terms, and in all likelihood you’ll be paying a higher interest rate.

Final Thoughts

If you need a $300k business loan, you have several financing options to choose from.

Of course, the kind of financing that’s best for your business is determined by a handful of factors, including your business’ financial situation, your creditworthiness, what you need the money for, and your ability to make repayments in the future.

If you want to explore your options, contact Specialty Capital today to see which financing option is best for your business.

The ReCapThe Specialty Capital Blog

The ReCap

The Specialty Capital Blog

The ReCapThe Specialty Capital Blog

The ReCap

The Specialty Capital Blog

Sign up for The ReCap Newsletter

The ReCap
The Specialty Capital Blog

The ReCap
The Specialty Capital Blog