As an entrepreneur in Pennsylvania, you might need a business loan to start a new business or to grow your current business. Pennsylvania has more than one million small businesses, and together they make up 99.6%—nearly all—of the state’s economy.
Given their importance to the local economy, Pennsylvanians have several resources that they can turn to in order to borrow money for their business. In Pennsylvania, a multitude of private lenders, nonprofit organizations, banks, and credit unions provide financial assistance to businesses.
Pennsylvania small business loans: The 6 best options
To help you navigate your options, here are the six best options for Pennsylvania small business loans:
Pennsylvania Industrial Development Authority
Community First Fund
Small Diverse Business Capital Access Program
Freedom Credit Union
Mid Penn Bank
Keep reading to learn more about how these Pennsylvania business loans work, eligibility criteria, and cost.
Overview: Pennsylvania small business loans options
Pennsylvania is one of the oldest states in the nation and has a thriving small business and startup scene. Manufacturing, agribusiness, and mining are among the most important industries in the state. Here are some of the best local funding options to consider as you search for small business financing in Pennsylvania.
1. Pennsylvania Industrial Development Authority
The Pennsylvania Industrial Development Authority (PIDA) loan program provides low-interest business loans and business lines of credit to commonwealth businesses that create and retain full-time jobs, as well as for the development of industrial parks and multi-tenant facilities. Loan applications are reviewed by a network of certified economic development organizations (CEDOs) that partner with PIDA.
You can use PIDA financing for the following purposes:
Construct, acquire, or upgrade real estate (up to $2.25 million)
Purchase machinery or equipment (up to $1.5 million)
Working capital (up to $100,000)
Terms vary based on the loan purpose. The repayment period goes up to three years for working capital, 10 years for machinery and equipment, and 15 years for real estate. You can expect interest rates to be slightly below market, which means they are slightly less expensive than bank loans. However, in most cases, you’ll have to put down half of the funds that you receive as a match. In other words, if you qualify for $50,000 of funding, you’ll also have to bring $50,000 to the table. In addition, you’ll need to provide a personal guarantee and sufficient collateral to qualify for financing from PIDA.
FINANTA, which stands for “Financing and Technical Assistance, is a nonprofit financial institution that provides loans, credit-building services, and financial education to consumers and entrepreneurs in the Philadelphia region. Both new and established businesses can qualify for financing from FINANTA.
Loan amounts range from as little as $1,200 to as much as $250,000. Smaller microloans and lines of credit are designed to be used for working capital purposes, and larger small business loans can be used for real estate or business expansion. Along with your loan, keep in mind that FINANTA can also help you reach your business goals and do a better job of running your business. They offer training in bookkeeping, financial planning, project management, and more. You can use the contact form on FINANTA’s website to learn more.
3. Community First Fund
Community First Fund is another nonprofit institution that specializes in providing small business financing, but they focus on helping businesses in low- to moderate-income communities in parts of central and eastern Pennsylvania. Eighty percent of their loans benefit low-income communities, and slightly more than half of their loans are minority business loans, going to entrepreneurs of color.
Community First loans can be structured as direct microloans, real estate loans, or SBA loans. SBA loans are government-guaranteed loans that help reduce risk for lenders. While new businesses or business owners with average credit can qualify for a microloan, qualifying for an SBA loan requires above-average credit scores. Community First also runs a loan program called the Harrisburg Opportunity Fund. Those funds are specifically designated for entrepreneurs who improve quality of life and economic development within the city of Harrisburg. You can apply for a loan on Community First Fund’s website.
4. Small Diverse Business Capital Access Program
The Small Diverse Business Capital Access Program (SDBCA) is a lending program that targets entrepreneurs from underserved backgrounds, particularly minority-owned, LGBT-owned, women-owned, and veteran-owned businesses, as well as businesses owned by people with disabilities. Businesses in a range of industries can qualify, including industrial, agricultural, research and development, hospitality, technology, construction, child daycare, and retail. To qualify, your company must have 100 or fewer employees.
Similar to PIDA, the Diverse Business Program is run by CEDOs and community development financing institutions (CDFIs).The terms and interest rates are negotiated between the borrower and the CEDO or CDFI. Typically, the maximum loan amount ranges between $100,000 to $200,000. The first step toward eligibility is to get certified by the Pennsylvania Department of General Services as a minority-, woman-, veteran-, LGBT-, or disabled-owned business.
5. Freedom Credit Union
Freedom Credit Union has been serving consumers and businesses in the Philadelphia area since 1934. Loans offered by banks and community lenders differ from credit union business loans. Credit unions typically offer better rates, lower fees, and more personalized services. However, credit unions are open only to members. Anyone who lives or owns a business in the following counties can become a member of Freedom Credit Union: Bucks, Chester, Delaware, Montgomery, or Philadelphia counties.
Freedom Credit Union offers a variety of business loans, including term loans, lines of credit, real estate, business vehicle loans, and business credit cards. If you’ve been rejected for more traditional financing options, business credit cards can be a good alternative. Business credit cards often come with high spending limits, allowing you to purchase essential items to start or grow your company. Find your local branch of Freedom Credit Union to get started.
6. Mid Penn Bank
Rounding out our list of Pennsylvania business loan options is Mid Penn Bank. This is a regional bank with branches clustered around Philadelphia and Pittsburgh. As a locally based community bank, Mid Penn Bank is more accustomed than national banks to working with smaller businesses that have smaller funding needs.
Mid Penn Bank is a good option for business owners seeking SBA loans. This bank has been recognized as a Preferred Lender under the SBA’s Preferred Lending Program (PLP), which allows the bank to expedite SBA loan applications. Mid Penn Bank also specializes in agriculture loans. They have knowledge of the local farming industry and can help Pennsylvania farmers with real estate loans, machinery loans, and more. Find a Mid Penn branch near you to apply for a loan.
Grants for Pennsylvania small businesses
When you receive a loan for your business, you’re obligated to pay back the loan to the lender with interest. On the other hand, small business grants are like free money for your business, and don’t need to be paid back. Usually, grants are highly competitive, but they’re worth considering if you meet the eligibility criteria.
Here are some grants available to Pennsylvania small businesses:
1. Small Business Advantage Grant
The Small Business Advantage Grant provides a 50% matching grant for Pennsylvania small business owners who want to purchase energy efficient or pollution prevention equipment or adopt waste-reduction processes. Grants of up to $7,000 are available. Pennsylvania-based businesses in a range of industries can qualify, as long as the business has fewer than 100 employees.
For example, you can get a grant to install solar panels at your retail store. Or, maybe you’re a clothing or manufacturing business, and you make the switch to renewable materials. To qualify, a company’s upgrades or purchases must save the business at least $500 and at least 25% annually in energy consumption or pollution prevention-related expenses.
2. Alternative Fuels Incentive Grant
The Alternative Fuels Incentive Grant provides grant funding for the implementation of alternative and clean energy projects in Pennsylvania, The state’s Department of Community and Economic Development (DCED) and Department of Environmental Protection (DEP) administer the grant program.
If your business is involved with energy efficiency, natural gas, or solar power projects, to take a few examples, you can qualify for this grant. Manufacturers of clean energy equipment or components can qualify for up to $10,000 in grant funding for every job created by the business. Other projects can qualify for up to $2 million or 30% of the project cost, whichever is less.
3. William Penn Foundation Grants
The William Penn Foundation is among the most active grant organizations in Philadelphia. In 2019 alone, they provided over $11 million in grants to more than 35 organizations. This foundation supports arts and cultural organizations and businesses that make public spaces more accessible to Philadelphians. Many theaters, museums, and art galleries have received funding through the William Penn Foundation. To begin, read the foundation’s grant FAQs, and fill out an inquiry form online. Be prepared to provide a detailed proposal of your project or a business plan.
Other financing options for Pennsylvania small businesses
It can be a good idea to start with local small business loans and grants. Many local lenders and grant organizations have knowledge of businesses in the area and might be willing to work with you. However, there are also several online small business loans that might be a good fit for you. Here are some online lenders for Pennsylvania small business owners to consider:
OnDeck offers short-term business loans and lines of credit for business owners who are looking for fast and convenient financing. OnDeck is a fully digital lender. You apply for the loan and upload a few documents online and find out within a day if you’re approved or not. In order to qualify for an OnDeck loan or line of credit, you must have the following: at least three years of business history, $250,000 in annual business revenue, and a credit score of 600 or higher.
Loans from OnDeck go up to $500,000 and come with a repayment term of three years or less. The credit lines go up to $100,000 and come with a repayment term of one year or less. When shopping around for Pennsylvania small business loans, remember that online lenders like OnDeck are significantly more expensive than banks, credit unions, and community lenders. Interest rates are on the high end and payments are debited automatically from your bank account on a daily or weekly basis, which can be tough on a small business’s cash flow. OnDeck’s main advantages are speed and the fact that they work with borrowers who have below-average credit. If you’re approved for a loan, you can see the funds in your bank account in one to two business days.
Like OnDeck, BlueVine is a digital small business lender. BlueVine also offers term loans and lines of credit of up to $250,000. Repayments are made weekly over six or 12 months, depending on how large of a monthly payment you can afford.
The eligibility requirements for BlueVine products are even less strict than OnDeck. To qualify for a BlueVine loan or line of credit, you must have just six months in business, $10,000 in monthly revenue, and a credit score of 600 or higher.
3. Balboa Capital
A significant share of Pennsylvania small businesses are in the agriculture industry, and these businesses often need access to expensive machinery and equipment. Enter Balboa Capital, which provides equipment loans and leases of up to $250,000 for small business owners. They have a simple online application, and they can offer fixed monthly payments. Your term will be correlated with the useful life of the equipment. One of the advantages of equipment financing is that you don’t have to provide additional collateral beyond the equipment itself.
How to qualify for PA loans
Once you figure out which Pennsylvania business loans you’d like to apply for, it’s time to focus on your business loan application. Every lender has its own evaluation criteria for approving a loan application, but there are things you can work on to help you increase your chances of qualifying for a loan.
These are the main things to focus on when applying for a business loan:
Improve your credit score
Your credit score is one of the most important, if not the most important, aspects of your business loan application. Many lenders set minimum credit scores for loan applicants. If you don’t meet that minimum, your application will be rejected right away. Even if your application is approved, a stronger credit score will help you qualify for larger amounts of financing and lower interest rates. To maintain good credit, monitor your credit score regularly and pay all your bills on time.
Write a comprehensive business plan
Lenders and grant organizations prefer to work with business owners who have a clear business strategy. One of the best ways to set up your business for success and impress lenders is by writing a good business plan. Your business plan should include information about your target market, an explanation of your business’s competitive advantages, and a few years of financial projections. Financial projections are a particularly important section for startup business plans.
Maximize your business’s revenues
Businesses that are already making money have an easier time borrowing money and securing grants. If you’re able to maximize your income streams and cut unnecessary costs, your business will look more impressive on paper. Lenders and grantmakers will be more likely to work with you since you’ve already had some success.
The bottom line
Pennsylvania small business owners have an array of small business loan and grant options. State government agencies, nonprofits, credit unions, and banks are all ready and willing to work with Pennsylvania small businesses. And if you want to expand your available options, don’t forget to explore online small business loans.
How to Get a Loan to Buy a Business
Not everyone wants to take on the challenge of building a business from the ground up. An attractive alternative can be to step into a business that’s already up and running by purchasing it from the current owner. Some advantages of buying a business may include easier financing, an established customer base and an existing cash flow.
Buying a business is different from buying a franchise. Franchises have a set business model that’s proven to work. However, when you buy an independently operated business, it’s important to show the lender that you, your previous business experience and the business you want to buy are a winning combination.
What lenders look at when you want to buy a business
Because lenders can view the performance record of an existing business, it’s typically easier to get a loan to purchase an existing business compared with startup funding. However, your personal credit history, experience and details about the acquisition business still matter.
Your personal credit and experience
Through credit reports and credit scores, lenders are able to assess how you’ve managed debt in the past and potentially gain insights into how you will handle it in the future. Your education and experience will also be evaluated.
Solid credit history: Lenders look to see if you have a history of paying your debts. Foreclosures, bankruptcies, repossessions, charge-offs and other situations where you haven’t paid off the full amount will be noted.
Business experience: Having worked in the same industry as the business you want to purchase is helpful. Related education can also be viewed as a positive.
Other businesses you’ve owned
Having a track record of operating other successful businesses can have a positive influence on lenders when it comes to buying a new operation.
Record of generating revenue: Business financial statements can help a lender document that your current or past businesses were well-managed and turned a profit.
Positive credit record: Lenders review business credit scores and reports to verify creditworthiness and to identify liens, foreclosures, bankruptcies and late payments associated with your other businesses.
The business you want to buy
Just because a business is operating doesn’t mean it’s a good investment. Lenders will ask for documentation, often provided by the current owner, to assess the health of the operation.
Value of the business: Like you, your lender will want to ensure that you’re buying a business that has value and that you’re paying a fair price.
Past-due debts: Lenders will be interested in the business’s past-due debts, which may include liens, various types of taxes, utility bills and collection accounts.
Most lenders will let you know what they want included in the loan application package, but there are some personal documents that are typically requested, as well as ones related to the business you want to purchase.
The following documents are used to evaluate your personal finances, business history and plans for operating the business after its purchase:
Personal tax returns.
Personal bank statements.
Financial statements for any of your other businesses.
Letter of intent.
Documents from the current business owner will also be evaluated. Some common ones requested by lenders include:
Business tax returns.
Profit and loss, or P&L, statements.
Business balance sheet.
Proposed bill of sale.
Asking price for inventory, machinery, equipment, furniture and other items included in the sale.
Where to get a loan to buy a business
Compared with finding a loan to start a business, getting funding to buy an existing business may be easier. Here are three popular funding options to check into for a business loan:
Banks generally offer the lowest interest rates and best terms for business loans. To qualify for this type of loan, you’ll typically need a strong credit history, plus the existing business will need to be in operation for a certain minimum of years and generate a minimum annual revenue amount set by the lender.
If borrowers don’t qualify for a traditional bank loan, then SBA loans, ones partially guaranteed by the Small Business Administration, may be the next option to explore. Because there is less risk to the lender, these loans can be easier to qualify for. Banks and credit unions frequently offer SBA loans in addition to traditional bank loans.
Online business loans
Another option to consider is online business loans. Online business loans may offer more flexibility when it comes to qualification, compared with bank and SBA loans. Minimum credit score requirements can be as low as 600, and in a few cases lower. Generally, interest rates are higher than what’s available with a traditional bank loan.
Accounts Receivable Financing: Best Options, How It Works
Accounts receivable financing, also known as invoice financing, allows businesses to borrow capital against the value of their accounts receivable — in other words, their unpaid invoices. A lender advances a portion of the business’s outstanding invoices, in the form of a loan or line of credit, and the invoices serve as collateral on the financing.
Accounts receivable, or AR, financing can be a good option if you need funding fast for situations such as covering cash flow gaps or paying for short-term expenses. Because AR financing is self-securing, it can also be a good choice if you can’t qualify for other small-business loans.
Here’s what you need to know about how accounts receivable financing works and some of the best options for small businesses.
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How does accounts receivable financing work?
With accounts receivable financing, a lender advances you a percentage of the value of your receivables, potentially as much as 90%. When a customer pays their invoice, you receive the remaining percentage, minus the lender’s fees.
Accounts receivable financing fees are typically charged as a flat percentage of the invoice value, and generally range from 1% to 5%. The amount you pay in fees is based on how long it takes your customer to pay their invoice.
Here’s a breakdown of how the process works:
You apply for and receive financing. Say you decide to finance a $50,000 invoice with 60-day repayment terms. You apply for accounts receivable financing and the lender approves you for an advance of 80% ($40,000).
You use the funds and the lender charges fees. After receiving the financing, you use it to pay for business expenses. During this time, the lender charges a 3% fee for each week it takes your customer to pay the invoice.
You collect payment from your customer. Your customer pays their invoice after three weeks. You owe the lender a $4,500 fee: 3% of the total invoice amount of $50,000 ($1,500) for each week.
You repay the lender. Now that your customer has paid you, you’ll keep $5,500 and repay the lender the original advance amount, plus fees, $44,500. You paid a total of $4,500 in fees, which calculates to an approximate annual percentage rate of 65.7%.
Because accounts receivable financing companies don’t charge traditional interest, it’s important to calculate your fees into an APR to understand the true cost of borrowing. APRs on accounts receivable financing can reach as high as 79%.
Accounts receivable financing vs. factoring
Accounts receivable financing is often confused with accounts receivable factoring, which is also referred to as invoice factoring. Although AR financing and factoring are similar, there are differences.
With invoice factoring, you sell your outstanding receivables to a factoring company at a discount. The factoring company pays you a percentage of the invoice’s value, then collects payment directly from your customer. When your customer pays, the factoring company gives you the rest of the money you’re owed, minus its fees.
With accounts receivable financing, on the other hand, your invoices serve as collateral on your financing. You retain control of your receivables at all times and collect repayment from your customers. After your customer has paid their invoice, you repay what you borrowed from the lender, plus the agreed-upon fees.
Invoice factoring can be a good financing option if you don’t mind giving up control of your invoices and you can trust a factoring company to professionally collect customer payments. If you’d rather maintain control of your invoices and work directly with your customers, AR financing is likely a better option.
Best accounts receivable financing options
Accounts receivable financing is usually offered by online lenders and fintech companies, many of which specialize in this type of business funding. Certain banks offer AR financing as well.
If you’re looking for a place to start your search, here are a few of the best accounts receivable financing companies to consider.
A division of the Southern Bank Company, altLINE is a lender that specializes in AR financing. AltLINE offers both accounts receivable financing and invoice factoring, working with small businesses in a variety of industries, including startups and those that can’t qualify for traditional loans.
AltLINE offers advances of up to 90% of the value of your invoices with fees starting at 0.50%. To get a free quote from altLINE, call a representative or fill out a brief application on the lender’s website. If you apply online, a representative will contact you within 24 hours.
AltLINE’s website also contains a range of articles for small-business owners, covering AR and invoice financing, payroll funding, cash flow management and more. AltLINE is accredited by the Better Business Bureau and is rated 4.7 out of 5 stars on Trustpilot.
1st Commercial Credit
1st Commercial Credit offers accounts receivable financing in addition to other forms of asset-based lending, such as invoice factoring, equipment financing and purchase order financing. The company works with small and medium-sized businesses, including startups and businesses with bad credit.
With 1st Commercial Credit, you can finance $10,000 to $10 million in receivables with fees ranging from 0.69% to 1.59%. You can start the application process by calling a sales representative or filling out a free quote form on the company’s website. After your application is approved, it typically takes three to five business days to set up your account, then you can receive funds within 24 hours.
1st Commercial Credit is accredited by the Better Business Bureau and has an A+ rating.
Porter Capital is an alternative lender specializing in invoice factoring and accounts receivable financing. The company also has a special division, Porter Freight Funding, which is dedicated to working with businesses in the transportation industry.
With Porter Capital, you can receive an advance of 70% to 90% of your receivables and work with an account manager to customize a financing agreement that’s unique to your business. Porter funds startups and established businesses, offering fees as low as 0.75% monthly.
You can provide basic information about your business to get a free quote and receive funding in as little as 24 hours. Although Porter Capital isn’t accredited by the Better Business Bureau, it does have an A+ rating; the company also has 3.7 out of 5 stars on Trustpilot.
Although AR financing and factoring are distinct, many companies blur the lines between the two. As you compare options, make sure you understand the type of financing a lender offers.
If you decide that invoice factoring may be a fit for your business, you might consider companies like FundThrough, Triumph Business Capital or RTS Financial.
Find and compare small-business loans
If accounts receivable financing isn’t right for you, 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.
SBA Loan Collateral vs. Guarantee: What’s the Difference?
Personal guarantees and collateral are both ways of promising a lender that you’ll make good on your debt. You may have to offer both to get an SBA loan.
Collateral ties a loan to a specific asset, like your business’s inventory or your home, which the lender can seize if your business can’t repay the loan. A personal guarantee promises the lender that you will repay the debt using your personal assets, but may not specify how.
In general, SBA lenders require anyone who owns 20% or more of a business to provide a personal guarantee. SBA loans larger than $25,000 usually require collateral, too.
Do SBA loans require a personal guarantee?
SBA loans usually require unlimited personal guarantees from anyone who owns more than 20% of a business. Lenders may ask for limited or unlimited personal guarantees from other business owners, too.
Unlimited personal guarantee: This is a promise that the guarantor (the business owner) will pay back the loan in full if the business is unable to. The lender doesn’t have to seize collateral or seek payment from any other source before going straight to the loan applicant for loan repayment.
Limited personal guarantee: If you own less than 20% of a business, you may have the option to sign a limited personal guarantee instead. The limited personal guarantee caps the amount you’ll have to pay the lender, either as a dollar limit or a percentage of the debt.
Limited personal guarantees can be secured by collateral, which means the lender will seize those assets when they recoup payment instead of asking you to pay back a certain dollar amount.
Who has to personally guarantee an SBA loan?
The SBA requires personal guarantees from:
Individuals who own more than 20% of a business.
Spouses who own 5% more of the business, if their combined ownership interest is 20% or more.
Trusts, if the trust owns 20% or more of the business.
Trustors, if a revocable trust owns 20% or more of the business.
SBA lenders may require additional personal guarantees.
Do SBA loans require collateral?
For SBA 7(a) loans of between $25,000 and $350,000, SBA lenders have to follow collateral policies that are similar to the procedures they’ve established for non-SBA loans. Banks and credit unions are usually the intermediary lenders for SBA 7(a) loans.
If you use an SBA loan to finance specific assets, like an equipment purchase, the lender will take a lien on those assets as collateral. The lender may also use your business’s other fixed assets as collateral, and you may have to offer personal assets, too.
For SBA 7(a) loans larger than $350,000, SBA lenders need collateral worth as much as the loan. The lender will start with your business assets. If they need more collateral, the SBA requires them to turn to the real estate you own personally, as long as you have at least 25% equity in the property.
Live Oak Bank is the largest SBA 7(a) lender in the U.S. by volume. Its loans may require collateral in the form of:
Commercial real estate.
What if I can’t provide collateral or a personal guarantee?
If you’re seeking any type of SBA loan, there’s a good chance you’ll have to provide both collateral and a personal guarantee. Even SBA microloans usually require collateral and a personal guarantee. Without them, you’ll have trouble getting an SBA loan.
Some online lenders offer unsecured business loans, which don’t require collateral. But you may still have to sign a personal guarantee.