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Can I File for Unemployment as a Business Owner?



When you own your own business, you take on a lot of risk from the start. One of the riskiest parts is, What happens if your business folds and your income ceases as a result? Many business owners are having to face this situation in the wake of COVID-19, which begs the question: Can business owners file for unemployment?

The answer might be yes—but, as you might expect, there are several factors involved. Some of these details depend on the state in which you’re filing as well as your business entity structure. We’ll cover whether or not you can file for unemployment as a business owner as well as some alternatives to look into for financing if you’re not able to claim unemployment.

Can business owners file for unemployment?

The rules of unemployment for small business owners are dictated by the guidelines of the state in which you operate and are employed. While unemployment benefits are created specifically for employees, not business owners, you may be eligible if you’re an employee within your own business.

To explain, if you worked as a wage-earning employee of the company on a W-2 (not 1099), paid federal and state unemployment taxes, lost your status as an employee, and can prove that you’re seeking alternative employment, then you might be eligible.

In order to claim unemployment as a business owner, you also need to have a title and role that comes with a defined set of responsibilities. An example would be president, CEO, COO, etc. Your role must be defined and you must perform it for the company you own in order to qualify.

Of course, not every business owner is set up as a W-2 employee who pays taxes on their earnings through a standard paycheck. Some businesses owners prefer to compensate themselves via dividends or distributions since they’re often taxed at the capital gains rate instead of incurring ordinary income taxes which are assessed at higher rates. However, that method wouldn’t set you up to file for unemployment as a business owner.

Typically, sole proprietorships are not eligible for unemployment since they don’t pay unemployment taxes and aren’t a W-2 employee. This is often the case with LLCs and partnerships as well. However, new guidelines specific to COVID-19 (which we’ll get into below) may change that.

Unemployment changes due to COVID-19

The federal government’s Coronavirus Aid, Relief, and Economic Security Act (CARES Act), created and enacted due to COVID-19, changed the conditions around self-employed individuals applying for unemployment benefits. This includes new eligibility for sole proprietors, LLCs, independent contractors, and gig workers who weren’t ordinally eligible due to how they’re paid and the fact that they don’t pay unemployment taxes. And while guidelines to continue to receive unemployment each week typically include actively looking for work, they are currently looser due to the difficulty for many to do so.

Additionally, if you don’t qualify for regular unemployment benefits, you may be eligible for federal Pandemic Unemployment Assistance under the CARES Act. This would allow business owners to collect unemployment if your business temporarily closed due to COVID-19, if you’ve temporarily had to stop working due to a high risk of exposure, if you’ve had to care for a sick family member, or if you’re temporarily quarantined due to contracting coronavirus or being required to isolate—among other reasons.

This modified unemployment assistance program provides benefits that last longer than standard unemployment for those who are eligible. The duration of unemployment benefits depends on each state; however, if you qualify for Pandemic Unemployment Assistance, these benefits can last for a total of 39 weeks (including any time you received regular unemployment benefits). Self-employed small businesses owners are also eligible for an additional $600 per week in addition to their state-specific unemployment benefits, as stated in the CARES Act—however, this extra $600 benefit was set to expire on July 31, 2020.

Not everyone is universally eligible for unemployment benefits under the CARES Act, however. If you are a small business that has closed for reasons unrelated to coronavirus or you’re currently receiving sick leave or family leave, you won’t be able to receive unemployment benefits as well.

As you’ll expect, one’s eligibility for unemployment benefits due to disruption from COVID-19 will vary depending on the policies of the state in which you’re operating. It’s important to contact your state to find out their guidelines and whether you qualify for unemployment benefits as a business owner, especially amid the pandemic.

How to apply for unemployment as a business owner

The first foundational element of applying for unemployment as a business owner is confirming that you’re eligible to work and actively looking to be employed again (including through your own business). You’ll apply directly through your state—unemployment is processed on a state-by-state basis and not through the federal government.

As a result, requirements for application and approval will vary by state, but it will be helpful to pull the following documents:

  • Your pay stubs for the last year

  • Your tax returns, both business and personal

You’ll have to complete a form provided by the state as an employee as well as a form that’s sent to the business; you’re responsible for filling out both of these as a business owner.

What kind of unemployment benefits can I Expect?

If you’re approved for unemployment benefits as a business owner, you’ll receive the benefits available in your state. It’s very important to note that these benefits vary significantly among states; the majority of states will only provide benefits between roughly three and six months.

In terms of the amount of unemployment benefit you’ll receive if you file for unemployment as a business owner, there’s a big range, which is based on your earnings. You can generally expect to receive between $40 and $450 a week. The claim manager you work with within your state will be able to let you know exactly how much you’ll receive on unemployment.

As mentioned above, you may currently be eligible for an additional $600 per week due to the CARES Act. Again, this benefit was to expire on July 31, 2020.

Your unemployment claim will last a year, which means that you can’t file another claim until this one expires.

Alternatives to unemployment benefits for business owners

If you don’t qualify for unemployment benefits as a business owner, it can be a tough hit, especially when you’re in financial trouble from the closure of your business. Although they’re different in nature, there are some alternatives to consider that may help you float your business in the interim.

SBA disaster loans

SBA disaster loans are a funding source for business owners that have been affected by a major disaster, such as the coronavirus pandemic or a natural disaster. There are several different types of SBA disaster loans, including:

  • Home and personal property disaster loans

  • Business physical disaster loans

  • Economic Injury Disaster Loans (EIDL)

  • Military Reservists Economic Injury Disaster Loans (MREIDL)

  • Express Bridge Loan Pilot Program

There are specific conditions for each SBA loan that business owners must meet in order to qualify. This includes the type of injury to the business or the situation in which the owner can’t meet their business expenses. They can provide capital into the millions and have very favorable repayment terms and low interest rates.

With the exception of the Express Bridge Loan program, this is the only situation in which the SBA provides funds directly to business owners (normally, the SBA only guarantees loans, which are provided by partner banks and organizations).

Paycheck Protection Program

The federal government also created the Paycheck Protection Program in the wake of COVID-19 to help small business owners cover payroll and other essential costs of running their businesses. Plus, depending on what they use the funds for—at least 60% on payroll costs—small business owners could have these loans forgiven, meaning it’s essentially free money for their business.

The Paycheck Protection Program is also available for self-employed individuals and independent contractors, which could make this a viable alternative for small business owners to cover their own income losses.

Other sources of funding during unemployment

If neither SBA disaster loans nor the Paycheck Protection Program are right for you, consider these other funding options to use in lieu of unemployment benefits.

There are pros and cons to all these options, and most are not meant to provide a long-term solution to a financial crisis. However, if you are unable to qualify for unemployment, they are worth considering.

The bottom line

Whether or not you can file for unemployment as a business owner depends on several factors. However, there are a few exceptions to the standard rules that have been implemented in response to the coronavirus pandemic. The best thing to do is check in with your state since benefits are administered at the state level. Unemployment representatives can give you the specific details for your situation. Keep in mind that you have alternative funding options to explore, as well.


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Are Small-Business Loans Installment or Revolving?



A small-business loan provides funds to purchase supplies, expand your business and more. This type of funding can be either installment or revolving. Reviewing the credit terms of your loan offer will help you determine whether you’re being offered an installment loan or revolving credit.

Both types of loans can be found in the Small Business Administration, or SBA, loan program and at banks, credit unions and online lenders. While each can provide much-needed funding for your business, there are some key differences to keep in mind.

Installment loans vs. revolving credit

Installment loans provide a lump sum of money

An installment loan is a credit agreement where the borrower receives a specific amount of money at one time and then repays the lender a set amount at regular intervals over a fixed period of time. Typically, each payment includes a portion for interest and another amount to pay down the principal balance.

Business term loan is another common name for this type of loan. After the loan is paid off, the borrower typically must apply for a new loan if additional funds are needed.

Revolving credit provides flexible funds

A revolving loan is a credit agreement where the borrower can withdraw money as needed up to a preset limit and then repays the lender a portion of the balance at regular intervals. Each payment is based on the current balance, interest charges and applicable fees, if any. You pay interest only on the funds that you use — not the maximum limit.

A business line of credit is a common type of revolving credit. Revolving credit gives the borrower flexibility in determining when to withdraw money and how much. As long as the credit balance remains within the preset limit and you continue to make timely payments, you can continue to draw from the line again and again.

Differences between installment loans and revolving credit

The terms of a loan can vary depending on the type of loan, lender and your business’s credentials. Your loan may be a unique combination of terms. However, the following are some common differences between installment and revolving loan programs.

Installment loan

Revolving credit

Loan amount

Fixed amount.

Maximum limit.

Withdraw as needed.

Payment amount

Fixed amount.

Minimum amount based on balance and interest with option to pay more.

Interest calculation

Based on loan amount.

Based on current balance, not maximum loan limit.

Ability to renew

Not renewable, typically.

Renewable, typically.

  • SBA loans.

  • Business term loans.

  • Commercial real estate loans.

  • Equipment loans.

  • Microloans.

  • SBA lines of credit.

  • Business lines of credit.

  • Business credit cards.

When to use an installment loan

Set loan amount is needed

If you’re confident in the loan amount you need, then an installment loan may be the right fit, especially if you need the money in a lump sum. For example, if you’re using the funds to make a one-time purchase, you’ll likely want an installment loan.

Long-term financing needs

Some term loans can offer you more time for repayment when compared with revolving credit. When you stretch your payments out over a longer period of time, it can mean a lower monthly payment. However, that trade-off typically means you’ll pay more in interest costs over the life of the loan.

Larger funding needs

If you’re looking to purchase property, equipment or other large-ticket items, there are a number of installment loans that can be used for this purpose. Revolving credit limits are often less than term loan maximums.

Preference for predictable payments

With a set monthly payment amount, it can be easier to budget for an installment loan compared with a revolving loan, where the payment varies depending on how much of the credit line you use.

When to use a revolving loan

Short-term financing needs

Revolving credit can be good to handle short-term cash shortages or to cover unexpected expenses. Some businesses use lines of credit as an emergency fund of sorts since they’ll pay interest only on the funds they use.

Fluctuations in cash flow

Businesses that experience major fluctuations in their cash flows may benefit from revolving credit. For example, seasonal businesses that don’t have consistent revenue throughout the year can use lines of credit to cover operational costs during their slow season.

Preference for flexible loan amount and payments

If you don’t know exactly how much money you need, then revolving credit will give you the option to qualify for a maximum amount but only withdraw funds as you need them. This way, you’ll pay interest only on the current amount owed.

Compare small-business loans

To see and compare loan options, check out NerdWallet’s list of best small-business loans. Our recommendations are based on the lender’s market scope and track record and on the needs of business owners, as well as rates and other factors, so you can make the right financing decision.


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Advantages and Disadvantages of a Business Bank Loan



According to the Federal Reserve’s 2021 Small Business Credit Survey, banks remain the most common source of credit for small businesses — compared with options such as online lenders, community development financial institutions or credit unions.

You can use a business bank loan for a variety of purposes: working capital, real estate acquisition, equipment purchase or business expansion. To qualify for one of these small-business loans, however, you’ll likely need excellent credit and several years in business.

Before applying for a business loan from a bank, consider the following advantages and disadvantages.

Advantages of business bank loans

Flexible use of funds

Banks offer a range of different business loan products, including term loans, business lines of credit, equipment financing and commercial real estate loans, among other options. Unless you opt for a product that has a specific use case, like a business auto loan, for example, you can generally use a bank loan in a variety of ways to grow and expand your business.

When you submit your loan application, the bank may ask you to identify a purpose for the financing to evaluate the risk of lending to your business. Once you’re approved, however, the bank is unlikely to interfere if you change your intentions, as long as you make your payments. This flexibility is perhaps one of the biggest advantages when comparing debt versus equity financing.

Large loan amounts and competitive repayment terms

Bank loans are often available in amounts up to $1 million or more. Many online lenders, on the other hand, only offer financing in smaller amounts. Popular online lenders OnDeck and BlueVine, for example, both have maximum loan limits of $250,000.

Business loans from banks also tend to have long terms, up to 25 years in some cases. These loans usually have monthly repayment schedules, as opposed to daily or weekly repayments.

In comparison, online business loans typically have shorter repayment terms, ranging from a few months to a few years. Many of these loans require daily or weekly repayments.

Low interest rates

Banks typically offer small-business loans with the lowest interest rates. According to the most recent data from the Federal Reserve, the average business loan interest rates at banks range from 3.19% to 6.78%.

Although some online lenders can offer competitive rates, you’ll find that their products are generally more expensive than bank loans, with rates that range from 7% to 99%.

The interest rates you receive on a bank loan, or any small-business loan, however, can vary based on a number of factors, such as loan type, amount borrowed and your business’s qualifications, as well as any collateral you provide to back the loan. In general, the stronger your qualifications and the more collateral you can offer, the better rates you’ll be able to receive.

Relationship with a bank lender

Many banks provide ongoing support for their lending customers, such as business credit score tracking or a dedicated relationship manager to work with your business. Most banks also offer other types of financial products, such as business checking accounts, business credit cards and merchant services, if you prefer to use one institution for your financial needs.

Although some alternative lenders offer additional support and services, the Federal Reserve’s 2021 Small Business Credit Survey reports that businesses that receive financing are more satisfied with their experience with small banks (74%) and large banks (60%) compared with online lenders (25%).

Disadvantages of business bank loans

Intensive application process and slow to fund

To apply for a small-business loan from a bank, you’ll need to provide detailed paperwork that may include, but is not limited to, business and personal tax returns, business financial statements, a loan purpose statement, business organization documentation, a personal financial statement form and collateral information. You may have to visit a bank branch and work with a lending representative to complete and submit an application — although some banks offer online applications for certain business loan products.

The entire process, from application to funding, can take anywhere from several days to a few weeks, or even longer, depending on the type of loan and the bank. Some banks will also require you to open a business checking account with them before you can receive funds.

In comparison, alternative lenders typically have streamlined, online application processes that require minimal documentation. Many of these lenders also offer fast business loans — in some cases, funding applications within 24 hours.

Strict eligibility requirements

To qualify for a business loan from a bank, you’ll generally need strong personal credit (often a FICO score of over 700), several years in business and a track record of solid business revenue. Bank of America, for example, requires a minimum annual revenue of $100,000 for unsecured term loans and a minimum annual revenue of $250,000 for secured term loans.

Depending on the bank and the loan type, you may need to provide collateral, such as real estate or equipment, to secure your financing. Most banks will also require you to sign a personal guarantee that holds you personally responsible for the debt in the event that your business can’t pay.

Online lenders, on the other hand, have more flexible qualifications and some will work with startups or businesses with bad credit. To qualify for a business line of credit with Fundbox, for example, you only need six months in business, a credit score of 600 or higher and at least $100,000 in annual revenue.

Although online lenders may still require a personal guarantee, they’re less likely than banks to require physical collateral.

Find and compare small-business loans

Still trying to determine the right way to finance your business? Check out NerdWallet’s list of the best small-business loans for business owners.

Our recommendations are based on the market scope and track record of lenders, the needs of business owners, and an analysis of rates and other factors, so you can make the right financing decision.


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Finance & Accounting

What Are Typical Small-Business Loan Terms?



Small-business loan terms determine how long a small-business owner has to pay back their borrowed money, plus interest. Typical loan terms, also referred to as repayment terms, can vary from a few months to 25 years — it depends on your lender and the type of business loan.

You and your lender will establish a repayment schedule that shows how much you’ll pay per week or month. While reviewing repayment terms, consider eligibility requirements and annual percentage rates, which take into account interest rates and other fees associated with the loan.

Typical loan terms overview

Repayment term

Term loans

Up to 10 years.

Business expansion.


Up to six years.

Startups and businesses with smaller funding needs.

Up to 25 years.

Small businesses with good credit and available collateral.

Business lines of credit

Up to five years.

Short-term, flexible financing.

Invoice financing

A few months.

Cash advances based on unpaid invoices.

Equipment financing

Up to 10 years.

Equipment purchases.

Business loan repayment terms

Term loans: Up to 10 years

Small-business term loans provide a lump sum of cash upfront that borrowers pay back over time. Online lenders and traditional banks offer them, and maximum amounts range from $250,000 to $500,000. Term loans fall into either the short-term or long-term category — for example, a long-term loan may have a repayment term of 10 years while a short-term loan from an online lender might only give the borrower from three months to two years to pay it back.

Microloans: Up to six years

Nonprofit, community-driven lenders offer microloans to small-business owners in specific regions and underserved communities. While smaller loan amounts typically mean shorter repayment terms (and this is true for some microloans), SBA microloans have terms of up to six years.

SBA loans: Up to 10 years for working capital and fixed assets; up to 25 years for real estate

SBA loans range anywhere from thousands of dollars to $5 million and generally have low interest rates. The maximum 7(a) loan term for working capital is 10 years, although according to the SBA, seven years is common. Borrowers have up to 25 years to pay off loans used for real estate.

Business lines of credit: Up to five years

With a business line of credit, small businesses pay interest only on the money that they borrow, and funds can be available within days. Some business lines of credit require weekly repayments instead of monthly repayments.

Invoice financing: A few months

Invoice financing provides businesses with a cash advance while they wait on their unpaid invoices. Like a business line of credit, invoice financing is a quick way to access cash and is one of the shortest-term financing options available. Terms mostly depend on how long customers take to pay their invoices.

Equipment financing: Up to 10 years

Equipment financing is used to pay for large equipment purchases, and then that same equipment serves as collateral. Terms vary and usually depend on how long the equipment you’re financing is expected to last.

What is a loan maturity date?

A loan repayment term describes how much time you have to repay the loan, plus interest; you might also hear this referred to as loan maturity. This is not to be confused with the loan maturity date, which is the final day of your repayment term. On the loan maturity date, the entirety of the loan and any extra associated costs should be paid.

What is a prepayment penalty?

Some lenders charge borrowers a fee for paying off their loan ahead of schedule. Typically, this is to offset the lost interest the lender expected to receive over the full term of the loan. For example, SBA borrowers with a 15-year-plus loan term are penalized for prepaying 25% or more of the loan balance within the first three years of their loan term. Check your business loan agreement to see if your lender charges this type of fee.


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