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Finance & Accounting

SBA Loans vs. Bank Loans: How to Choose



When deciding between a business bank loan and an SBA loan, the right fit will depend on the number of years your business has been in operation, your annual revenue, your credit history and a handful of other factors.

Generally, bank loans offer the lowest interest rates and best terms on business loans, which make them the first stop for many borrowers seeking financing. However, if a borrower doesn’t qualify for a bank loan, a Small Business Administration loan with competitive interest rates and terms can be a good alternative. Take a closer look at bank loans and SBA loans to understand how each works.

Overview of bank loans

Banks, credit unions and other financial institutions offer small-business loans. The amounts, interest rates, fees, eligibility requirements and other terms of these loans vary depending on the bank and its guidelines. The repayment period for these loans may be as short as 12 months or as long as 20 years.

General eligibility requirements

Bank loans can be hard for many small businesses to qualify for because the lender takes on the full risk from nonpayment of the loan. Each bank sets its own qualification standards for the loans it offers. However, some general requirements include the following:

  • At least two years in business.

  • Minimum annual revenue amount.

  • Strong credit history.

Types of small-business loans offered by banks

While they may be branded with specific names, the following are some common types of small-business bank loans:

  • Business lines of credit.

  • Term loans.

  • Equipment loans.

  • Commercial real estate loans.

Uses of bank loans

Bank loans can be used for a number of purposes including, but not limited to, the following:

  • Purchase of land or commercial property.

  • Expansion or remodel of an existing business.

  • Working capital to improve business cash flow.

  • Purchase of equipment and machines.

  • Funds to consolidate debt.

Interest rates

Business loan interest rates vary by lender, but a range from 2.5% to 7% is common for small-business loans from banks. Typically, your lender will base your interest rate on factors such as the following:

  • Loan amount.

  • Loan term.

  • Your creditworthiness including credit score.

  • Business relationship with the lender.

When a traditional bank loan may be a good fit

Some situations where a bank loan may be a good option for your business include:

  • Established business: You’ve been in business for more than two years and have a proven track record.

  • Strong annual revenue: An annual revenue amount of over $100,000 can meet the qualification requirements of some bank loans.

Overview of SBA loans

If you’ve been turned down by a bank for its loan program, you may still qualify for an SBA loan. These loans are not offered directly through the SBA, but are instead handled by approved lending partners. Some of these lending partners may even be the same lenders that you looked at for a bank loan. Qualification for an SBA loan can be easier for borrowers because SBA loans are guaranteed by the Small Business Administration, meaning there’s less risk to the lender in the case of nonpayment of the loan.

The SBA’s Lender Match tool can help you find a lender in your area. After answering some questions about your business, you’ll receive a list of lenders that are interested in your loan. This gives you the opportunity to compare rates, fees and terms for lenders before submitting your application.

General eligibility requirements

Eligibility requirements are determined by the loan program and the lender. A complete list of requirements will be given to you by the lender, but some general eligibility requirements for SBA loans include:

  • The size of your business must meet SBA standards.

  • Your business needs to be for profit and officially registered.

  • Your business should be located and operating in the U.S. or its territories.

  • You’ve invested time and money in your business.

  • You can’t get financing from other lenders.

Types of SBA loans

SBA loans can be used to start or expand your business. There are three main types of SBA loans available to borrowers:

  • SBA 7(a) loans including standard 7(a) loan, 7(a) Small Loan, SBA Express, Export Working Capital, International Trade, Preferred Lenders, Veterans Advantage and CAPLines.

  • 504 loans.

  • Microloans.

Uses of SBA loans

How you use the funds from your SBA loan can depend on the type of loan you get. For example, SBA 7(a) loans can be used for working capital, while 504 loans cannot. Here are some common uses of SBA loans:

  • Working capital or revolving funds.

  • Real estate, equipment, machinery, furniture, supplies and materials purchases.

  • Construction or renovation of buildings.

  • Establishing a new business; acquiring or expanding an existing business.

  • Refinancing existing business debt.

  • Improvements to existing facilities including land, streets, parking lots, landscaping and utilities.

Interest rates

Depending on the type of SBA loan you get, the interest rate could be tied to the prime interest rate, the Libor rate, U.S. Treasury issues or something else. For example, the interest rate for a $60,000 fixed-rate 7(a) loan would be the prime rate plus 6%, while the interest rate on a microloan depends on the lender. The SBA sets maximum interest rates and you can negotiate with your lender on the interest rate you pay.

When an SBA loan may be a good fit

Situations that make an SBA loan a good option for business financing include the following:

  • Startup financing: The SBA’s 7(a) loan can be used to establish a new business.

  • Credit flexibility: There’s the potential that you can qualify even with poor credit ratings.

  • Continued support: Some SBA loans offer counseling and education to help you get your business off the ground and continue to operate it.

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Finance & Accounting

4 tips to find the funding that fits your business



The facts are clear: Startups are finding funding increasingly difficult to secure, and even unicorns appear cornered, with many lacking both capital and a clear exit.

But equity rounds aren’t the only way for a company to raise money — alternative and other non-dilutive financing options are often overlooked. Taking on debt might be the right solution when you’re focused on growth and can see clear ROI from the capital you deploy.

Not all capital providers are equal, so seeking financing isn’t just about securing capital. It’s a matter of finding the right source of funding that matches both your business and your roadmap.

Here are four things you should consider:

Does this match my needs?

It’s easy to take for granted, but securing financing begins with a business plan. Don’t seek funding until you have a clear plan for how you’ll use it. For example, do you need capital to fund growth or for your day-to-day operations? The answer should influence not only the amount of capital you seek, but the type of funding partner you look for as well.

Start with a concrete plan and make sure it aligns with the structure of your financing:

  • Match repayment terms to your expected use of the debt.
  • Balance working capital needs with growth capital needs.

It’s understandable to hope for a one-and-done financing process that sets the next round far down the line, but that may be costlier than you realize in the long run.

Your term of repayment must be long enough so you can deploy the capital and see the returns. If it’s not, you may end up making loan payments with the principal.

Say, for example, you secure funding to enter a new market. You plan to expand your sales team to support the move and develop the cash flow necessary to pay back the loan. The problem here is, the new hire will take months to ramp up.

If there’s not enough delta between when you start ramping up and when you begin repayments, you’ll be paying back the loan before your new salesperson can bring in revenue to allow you to see ROI on the amount you borrowed.

Another issue to keep in mind: If you’re financing operations instead of growth, working capital requirements may reduce the amount you can deploy.

Let’s say you finance your ad spending and plan to deploy $200,000 over the next four months. But payments on the MCA loan you secured to fund that spending will eat into your revenue, and the loan will be further limited by a minimum cash covenant of $100,000. The result? You secured $200,000 in financing but can only deploy half of it.

With $100,000 of your financing kept in a cash account, only half the loan will be used to drive operations, which means you’re not likely to meet your growth target. What’s worse, as you’re only able to deploy half of the loan, your cost of capital is effectively double what you’d planned for.

Is this the right amount for me at this time?

The second consideration is balancing how much capital you need to act on your near-term goals against what you can reasonably expect to secure. If the funding amount you can get is not enough to move the needle, it might not be worth the effort required.

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Overdraft Protection: What It Is and Different Types



Overdraft fees can be a major drain on your finances. Some banks charge more than $30 per overdraft and potentially charge that fee multiple times per day if you keep making transactions that overdraw your checking account. If you want to avoid these fees, you can typically opt out of overdraft coverage with your bank. It can be useful, however, to set up overdraft protection instead of opting out so you don’t find yourself unable to pay for something urgent.

What is overdraft protection?

Overdraft protection is a checking account feature that some banks offer as a way to avoid overdraft fees. There are several types of overdraft protection, including overdraft protection transfers, overdraft lines of credit and grace periods to bring your account out of a negative balance. Some other overdraft coverage programs might be a combination of these features.

Before you opt out of overdraft protection altogether — which means your bank will decline any transaction that would result in an overdraft — consider how you might need overdraft coverage in an emergency. For example, maybe you’re using your debit card to pay for gas on a road trip. You need enough fuel to get home but don’t have enough money in your checking account. Instead of dealing with running out of gas, you may want to deal with an overdraft.

How does overdraft protection work?

Here are more details about the main types of overdraft protection that banks tend to provide.

Overdraft protection transfers. When a bank allows you to make an overdraft protection transfer, you can link a savings account, money market account or a second checking account at the same bank to your main checking account. If you overdraft your checking, your bank will take the overdrawn funds from your linked account to cover the cost of the transaction. Many banks allow this service for free, but some banks charge a fee.

Overdraft lines of credit. An overdraft line of credit functions like a credit card — but without the card. If you don’t have enough money in your account to cover a transaction, your bank will tap your overdraft line of credit to cover the remainder of the transaction. Lines of credit often come with steep annual interest rates that are broken up into smaller interest charges that you keep paying until the overdraft is paid back. Be aware that a line of credit could end up being expensive if you use this option to cover your overdrafts.

Grace periods. Some banks offer grace periods, so instead of immediately charging an overdraft fee, the bank will give you some time — typically a day or two — to return to a positive account balance after overdrafting. If you don’t do so within that time frame, your bank will charge you fees on any transactions that overdrafted your account.

Other coverage programs. Some banks are taking a new approach to overdraft protection by offering what’s basically a free line of credit with a longer grace period for customers to bring their account to a positive balance. One example, Chime’s SpotMe® program, allows customers to overdraft up to $200 with no fees. The customer’s next deposit is applied to their negative balance, and once the negative balance is repaid, customers can give Chime an optional tip to help keep the service “free.”

Chime says: “Chime is a financial technology company, not a bank. Banking services provided by, and debit card issued by, The Bancorp Bank or Stride Bank, N.A.; Members FDIC. Eligibility requirements and overdraft limits apply. SpotMe won’t cover non-debit card purchases, including ATM withdrawals, ACH transfers, Pay Friends transfers or Chime Checkbook transactions.”

4 ways to avoid overdraft fees

  1. Set up low balance alerts. Many banks offer an alert option so you’ll get a text, email or push notification if your account drops below a certain threshold. These alerts can help you be more mindful about your balance so that you can put more money into your account or spend less to avoid an overdraft.

  2. Opt out of overdraft coverage. If your bank doesn’t offer overdraft protection — or if its only options cost money — you may want to opt out of overdraft coverage, in which case your bank will decline any transactions that would bring your account into the negative. Keep in mind that this option could put you in a sticky situation if you’re in an emergency and can’t make an important purchase because you don’t have overdraft coverage.

  3. Look for a bank that has a more generous overdraft policy. Many banks are reducing or eliminating their overdraft fees, so if overdrafts are an issue for you, do some comparison shopping to see if there are better options available.

  4. Consider getting a prepaid debit card. Prepaid debit cards are similar to gift cards in that you can put a set amount of money on the card, and once you run out, you can load it with more money. The prepaid debit card can’t be overdrawn because there isn’t any additional money to draw from once its balance has been spent.

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Business Ideas

Startup Business Grants: Best Options and Alternative Funding Sources



Startup business grants can help small businesses grow without debt. But if you want free money to start a company, your time may be better spent elsewhere. Competition for small-business grants is fierce, and many awards require time in business — often at least six months.

Some grants are open to newer businesses or true startups. And even if you don’t qualify now, it can pay to know where to look for future funding. Here are the best grants for small-business startups, plus alternative sources of startup funding to consider.

How Much Do You Need?

with Fundera by NerdWallet

Government startup business grants and resources

Some government programs offer direct funding to startups looking for business grants, but those that don’t may point you in the right direction or help with applications: Government agencies routinely post new grant opportunities on this centralized database. If you see an opportunity relevant to your business idea, you can check if startups are eligible. Many of these grants deal with scientific or pharmaceutical research, though, so they may not be relevant to Main Street businesses.

Local governments. Lots of federal grants award funding to other governments, like states or cities, or to nonprofit economic development organizations. Those entities then offer grants to local businesses. Plugging into your local startup ecosystem can help you stay on top of these opportunities.

Small Business Development Centers. These resource centers funded by the Small Business Administration offer business coaching, education, technical support and networking opportunities. They may also be able to help you apply for small-business grants, develop a business plan and level up your business in other ways.

Minority Business Development Agency Centers. The MBDA, which is part of the U.S. Department of Commerce, operates small-business support centers similar to SBDCs. The MBDA doesn’t give grants to businesses directly, but these centers can connect you with grant organizations, help you prepare applications and secure other types of business financing.

Local startup business grants

Some local business incubators or accelerators offer business grants or pitch competitions with cash prizes. To find these institutions near you, do an online search for “Your City business incubator.”

Even if you don’t see a grant program, sign up for their email newsletter or follow them on social media. Like SBDCs and MBDAs, business incubators often provide business coaching, courses and lectures that can help you develop your business idea.

Startup business grants from companies and nonprofits

Lots of corporations and large nonprofits, like the U.S. Chamber of Commerce, organize grant competitions. Some national opportunities include:

iFundWomen. iFundWomen partners with other corporations to administer business grants. You can fill out a universal application to receive automatic notifications when you’re eligible to apply for a grant.

Amber Grant for Women. WomensNet gives two $10,000 Amber Grants each month and two $25,000 grants annually. Filling out one application makes you eligible for all Amber Grants. To qualify, businesses must be at lesat 50% women-owned and based in the U.S. or Canada.

National Association for the Self-Employed. Join NASE, and you can apply for quarterly Growth Grant opportunities. There are no time-in-business requirements for these grants of up to $4,000, but you’ll need to provide details about how you plan to use the grant and how it will help your business grow.

FedEx Small Business Grant Contest. This annual competition awards grants to small-business owners in a variety of industries. You can sign up to receive an email when each application period opens. To be eligible, you’ll need to have been selling your product or service for at least six months. Be mindful, though, that each grant cycle receives thousands of applications.

Fast Break for Small Business. This grant program is funded by LegalZoom, the NBA, WNBA and NBA G League and administered by Accion Opportunity Fund. You can win a $10,000 business grant plus free LegalZoom services. Applications open during the NBA season, which runs from fall to early summer each year.

Alternative funding sources for startups

New businesses likely won’t be able to rely on startup business grants for working capital. The following financing sources may help accelerate your growth or get your startup off the ground:

SBA microloans

SBA microloans offer up to $50,000 to help your business launch or expand. The average microloan is around $13,000, according to the SBA.

The SBA issues microloans through intermediary lenders, usually nonprofit financial institutions and economic development organizations, all of which have different requirements. You can use the SBA’s website to find a lender in your state.

Friends and family

Asking friends and family to invest in your business may seem daunting, but it’s very common. Make sure you define whether each person’s money is a loan and, if so, when and how you’ll pay it back. Put an agreement in writing if possible.

Business credit cards

Business credit cards can help you manage startup expenses while your cash flow is still unsteady. You can qualify for a business credit card with your personal credit score and some general information about your business, like your business name and industry.

You’ll probably need to sign a personal guarantee, though, which is a promise that you’ll pay back the debt if your business can’t.


If your business has a dedicated customer base, they can help fund you via crowdfunding. Usually businesses offer something in exchange, like debt notes, equity shares or access to an exclusive event.

There are lots of different crowdfunding platforms that offer different terms, so look around to find the model that works best for you.

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