How to Score the Lowest Rate on a Business Loan (Without Banks)

Accessing low business loan rates from banks can be tricky. Qualification requirements often exclude startups, seasonal enterprises, very small businesses with low sales volumes and businesses with shaky financial histories. Approval and underwriting for qualified businesses may take weeks or months. From your standpoint as a business owner, this means missing out on opportunities while awaiting funding.

Whether you can’t present the financial picture banks are looking for or you’ve tried to apply and were turned down, you’re not out of luck. Alternative financing provides another important option for business owners. If you’re bouncing back from tough times and those in need of fast funding to cover expenses, or pursuing growth, then alternative financing may be the answer.

Alternative Financing for Small Business Loans

What is alternative financing? Simply put, it’s a way for businesses to get funding from a source other than a bank.

Approval rates are higher, thanks to less rigorous standards for qualification, and cash is typically available in a few days. Some lenders are able to approve and deliver funding in just 24 hours.

This speedy process is possible because alternative lenders don’t ask for as much paperwork as banks. Usually, you need to provide just a handful of documents along with your application, like a few months’ worth of bank statements. A lender may ask for more information in certain situations to clarify your company’s financial standing.

Banks may reject an application due to credit score, poor cash flow or an unfavorable debt-to-income ratio. On the other hand, alternative lenders consider multiple factors to assess your ability to pay back a loan. The total picture of your financial situation affects the rates you can qualify for. On a standard small business loan, they can range from 7% to 99.7% on a standard small business loan.

Types of Alternative Lending for Businesses

Many of the same loan types banks offer are also available from alternative lenders. But, there are other options designed to meet the unique needs of businesses in various financial situations as well:

• Working capital loans – Short- or long-term loans to cover standard business expenses or invest in expansion projects
• Merchant cash advances (MCAs) – Funding obtained through an advance based on future credit card sales, which is then paid back using a percentage of each transaction
• Line of credit (LOC) – A fixed amount of funding available as needed, with payments made only on the amount drawn out
• Accounts receivable financing – Selling outstanding invoices to a lender to receive a portion of the total upfront and the remainder when customers pay
• Equipment financing – Loans or leases to provide access to newer, safer or more high-tech equipment

Rates differ for each of these loan types. A business loan calculator can give you an idea of what you can expect to pay based on both rates and term lengths.

Alternative Lending Companies: Separating the Good from the Bad

Finding the best small business loan rates isn’t just about pricing; it’s about the experience. You want a trustworthy lender that provides good service in addition to cheap prices. It’s important to receive the proper assurances that you’ll receive help and support for the duration of the loan term.

It can be tricky to hit the “sweet spot” with alternative lenders. Some companies hide questionable practices behind promising sales language and can seem legitimate until you read their loan agreements. Here are a few tips to weed out the bad apples!

Find the Right Features

Ask these questions when comparing alternative lenders:

• Do they have the loan option you want? Most offer several types of loans, but some focus on only one.
• Can you access the amount of funding you need? Make sure you’re able to request enough to cover your expenses.
• What are the terms and rates? The numbers may be posted on the company’s website, or you may have to call to get specifics.
• Is collateral required? If not, are loans secured with a lien? Be clear about the level of risk to your assets before applying.
• Can the application be completed online? Some lenders may offer a paperless option to expedite approval and underwriting.

Beware of Predatory Practices

When a loan offer seems too good to be true, you could be dealing with a predatory lender. The unscrupulous practices of these companies can spell disaster for the unwitting business owner, but you’ll see the red flags if you know what to look for. Avoid lenders that:

• Offer loans with very short term lengths
• Ask for application fees
• Hide other fees in the fine print of loan agreements
• Use balloon payments to make loan rates appear lower
• Provide funding to businesses in questionable industries

Reading customer reviews can reveal a lot about how a lender does business, too. Complaints of unannounced changes to terms and rates, withdrawals after the end of loan terms or poor customer service are all good reasons to move on and look for another option.

How to Qualify for the Cheapest Business Loan Rates

Basic qualification requirements should be available on lenders’ websites. It’s usually a short list consisting of a specific amount of monthly or yearly revenue, a minimum time in business and whether or not a minimum FICO score is necessary.

Be aware that requirements may vary between loan types. Some loans aren’t available to startups, for example, even if the lender will otherwise work with less-established businesses. Others may require higher FICO scores or additional factors like a minimum monthly deposit amount. However, some lenders are willing to be flexible. If you’re not sure whether you meet the requirements, you should be able to get more information by filling out a prequalification form or calling the lender.

Generally, a stronger financial picture will get you better rates. 

Explore Lending Options for Your Small Business

No matter what your financial history, low business loan rates aren’t out of reach. National Business Capital & Services offers 12 loan types to cover various business expenses, fund expansion or get your startup off the ground. You may be able to qualify with $100,000 to $120,000 in annual revenue and no minimum FICO and have funds deposited in one to three days. Business financing advisors are available to walk you through the process and connect you with a low-cost loan option.