3 Best Small Business Loans for Startups Looking to Expand

When you’re a new business looking to expand your reach, one of the first issues you’ll run into is funding. Oftentimes, small business owners don’t have the cash themselves to fund an expansion project, and even the most robust crowdfunding platforms can only procure so much working capital.

In these cases, businesses funding options are limited to debt. And while it may be tempting to put it all on the business credit card, you can afford to be picky about which debt you take on. Here are a few of our top picks for small business expansion loans in 2022.

What are the best small business loans in 2022?

When it is time to look for a business loan, here are the three places that you should start first:

How can your business secure good credit?

All of these loan options sound great, but how can you make sure your business qualifies for a loan with good terms? 

While every loan has different requirements, here are a few basic things to keep in mind when applying for loans:

Know your credit score

As a new business, no one expects you to have perfect credit. However, having poor credit can prevent you from qualifying for decent loans. While there are many ways to check your business’ credit score, the same is true across the board: the higher, the better. 

A bad credit score is as follows:

• Experian: one to 25
• D&B PAYDEX: zero to 49
• FICO SBSS: zero to 140

A medium credit score is as follows:

• Experian: 25 to 75
• D&B PAYDEX: 50 to 79
• FICO SBSS: 140 to 180

A good credit score is as follows:

• Experian: 75 to 100
• D&B PAYDEX: 80 to 100
• FICO SBSS: 180 to 300

Whether you’re applying for a microloan or a business startup loan, most potential lenders will view your credit history through the FICO SBSS. In this case, you’ll need at least a 140 to qualify for loans.

Even loans from the U.S. Small Business Administration (SBA) require at least a 140 to qualify. However, SBA 7(a) loans are mainly granted to businesses with a FICO SBSS score of 160. Some banks even draw the line at 180.

So how can you raise your business credit?

By paying attention to these details:

• Personal credit report. Lenders will take a look at your credit history and project your business’ credit risk based on that report. So, one way to boost your business’ credit score is to pay off personal credit cards and personal loans.
• Business credit history. While your personal credit affects your FICO SBSS score, your business’ individual credit patterns also play a role. Make sure your business spends responsibly and always pays its accounts receivable on time.
• Duration of operation. The maximum FICO SBSS score you can get as a brand-new business with no credit history is a 140. Basically, you’ll need to let your business grow a bit before you join the throngs of established businesses requesting financing for expansion.

Have a long-term plan

If you were able to achieve startup financing for your business, then you likely had to present potential investors with your long-term business plan.

Essentially, investors and lenders alike want to know what your long-term plans and goals are because they want to know how risky your business is. A digital advertising firm that eventually hopes to expand into email marketing is a much safer investment than a gourmet popcorn stand that eventually wants to expand into water aerobics.

Be prepared to not only show your long-term plans, but also financial projections, tax returns, and other financial documents.

Know your options

When you think of loans, you may automatically think of banks, credit unions, and SBA loans. While these are good options, they aren’t your only options.

Types of loans like the ones we presented above have much broader application processes, and exist to secure business funding for small businesses that may not meet traditional lenders’ strict expectations. Microlenders and alternative lending agencies provide different types of financing for different business needs.

You can easily negotiate the terms of your loan, and may see more favorable terms if you have a down payment prepared. 

You can also consider alternative methods of financing. You may know friends and family who would be willing to donate to your expansion, and there are plenty of small business grants that can provide small business financing with no interest or principle to worry about.

You can also consider the more traditional types of startup funding like Kickstarter and GoFundMe, which can connect you directly with members of your community that may be interested in funding your expansion.

 

Take out a loan and grow your business

It’s always an exciting moment when your small business outgrows itself. But while celebrating your growth is fun, securing the funding to successfully scale your business can be stressful, confusing, and even frustrating at times.

Luckily, you have funding options like OnDeck, Lendio, and Bluevine, as well as traditional SBA loans and small business grants. As long as you maintain good credit, keep your long-term vision clear, and carefully consider your options, you’ll find a solution that will work for both you and your business.

For more cutting-edge content about the business world, check out Entrepreneur.com.