Small Business

Lending Options
with

Gratitude

The list that follows was carefully curated by one of our talented volunteer interns, Anamika Mani, a student at Acton-Boxborough Regional High School with the oversight and mentorship of Nadia Nedelcheva of Enterprise Bank. If you’d like to be added to our list please contact info@mwcoc.com.

Lending Options Available for Small Businesses

Are you a small business looking to secure funds to continue growing your business? Look no further; a wide array of lending options are available to your small business, whether you need $5,000 or $500,000. There are so many viable options in today’s market that it is essential to review them all to make the right choice for your business.

Below, you’ll find the best lending options to help you grow your small business today. Click the hyperlinks to view the best options for each category or find popular options for that lending service further down in the listing.

Bank Financing

Banks have a variety of financing options available to small businesses. There are nine main categories of bank financing; lines of credit, letters of credit, term loans, equipment loans, commercial real estate loans, acquisition loans, practice loans, microloans, and SBA loans.

Lines of Credit

Lines of credit are similar to business credit cards, providing limited funds in exchange for monthly payments and variable interest rates. Unlike business credit cards, credit lines are designed to help manage cash flow and short term assets. Secured lines of credit require collateral, while unsecured lines of credit do not. 

Pros of Lines of Credit: Credit lines have higher credit limits and lower interest rates compared to business credit cards, they are helpful for businesses with seasonal sales, and they are cost-effective and beneficial for large purchases that cannot be paid back in a month’s time.

Cons of Lines of Credit: Most credit line providers require both a personal and business guarantee, and have high interest rates compared to other lending options (not credit cards). Keep in mind that excessive spending can cause financial crises and instability.

PNC Financial Services and American Express are popular credit line providers.

Letters of Credit

Letters of credit are typically letters issued between two banks (usually in different countries) that serve as a guarantee that payments can be made by the bank to a business or individual. Unlike lines of credit, letters of credit can only be used once.

 

Loans

A loan transfers money from one party to another with an agreement to pay that money back. The borrower incurs a debt and typically has a set time frame to pay the loan back, in which they will pay interest. Small businesses have access to many different loan types to help with financing.

Click here for more information on each type of business loan. 

The SBA is a significant provider of loan programs that help small businesses. Loan providers that are SBA certified often have safer and more beneficial loans, built specifically for small businesses.

Click here for the best SBA loan providers in Massachusetts.

Term Loans

Term loans provide borrowers with a lump sum payment upfront in exchange for payment over a time period, ranging from one to thirty years. The borrower agrees to repay the loan along with interest in exchange for cash. Term loans are typically given to established small businesses with stable financial statements that require financing for large and long term projects or for purchasing machinery, equipment, and real estate. Term loans can also be secured or unsecured, meaning they do or do not require collateral. 

Pros of Term Loans: Term loans typically have a predictable payment schedule, potential for early repayment, low interest payments, lump sum payment, and potential for a long payment timeline.

Cons of Term Loans: Term loans have an inflexible repayment schedule, strict eligibility requirements, and likely require a credit check to prove financial stability.

Click here to see the best small business loans of 2023.

Equipment Loans

Equipment loans can purchase business-related equipment, like an oven for a restaurant or a printer for an office building. Equipment loans often have shorter terms of 5-7 years, but an SBA guarantee can usually extend this term to 10 years. The most common equipment loan is the SBA 7(a) loan.

SBA 7(a) Loan

7(a) loans are the SBA’s most common loan, used for real estate, machinery, and equipment purchases. The maximum loan amount for a 7(a) loan is $5 million.

Click here for the best SBA loan providers.

Commercial Real Estate Loans

Commercial Real Estate Loans are for businesses that wish to purchase commercial property. Most banks provide different types of commercial real estate loans, so make sure to research your options before making a decision. 

Click here for the best banks to work with for commercial lending.

SBA 504 Loans

SBA 504 loans can purchase buildings, land, facilities, machinery, and other real-estate related assets. 504 loans are long-term, fixed rate, and low down-payment loans designed for commercial real estate purchases. The maximum loan amount for a 504 loan is $5 million.

Click here for more information on SBA 504 loans.

Acquisition Loans

Business Acquisition loans are designed specifically for entrepreneurs and small business owners that wish to purchase or merge with another business. Acquisition loans can be taken out from banks, online lenders, and SBA lenders.

Practice Loans

Practice loans are given to healthcare professionals to buy a medical practice. Loan amount maximums and interest rates vary for each provider.

Microloans

Microloans provide small businesses with small loan amounts and short repayment terms. Interest rates are low or nonexistent, and there are usually fewer restrictions and requirements on application for the loan and use of the funds. Microloans typically have a maximum loan amount of $50,000.

Click here to see the best microloan providers of 2023.

SBA Loans

SBA loans fall into many categories and can be used for equipment and real estate purchase as well as other business-related financing. SBA loans are small business loans offered by banks and online lenders that are partially guaranteed by the United States government. Most SBA loans fall into the category of either 7(a) or 504 loans.

 Click here to see the pros and cons of SBA loans.

SBA 7(a) Loans

SBA 7(a) loans can be used for short and long term working capital, purchasing and installing machinery and equipment, purchasing furniture, fixtures, and supplies, constructing or renovating buildings, refinancing existing business debt, establishing or expanding a business, and purchasing commercial real estate.

Standard 7(a) Loan

Standard 7(a) loans are used for large and long term projects. Standard 7(a) loans offer up to 10 years of payment, a maximum loan amount of $5 million, and an 85% maximum SBA guarantee for loans under $150,000, 75% for loans above $150,000.

7(a) Small Loan

A 7(a) small loan offers a maximum loan amount of $350,000, and an 85% maximum SBA guarantee for loans under $150,000, 75% for loans above $150,000.

SBA Express Loans

SBA express loans guarantee that the SBA will respond to your loan application within 36 hours, have a maximum loan amount of $500,000, and a 50% maximum SBA guarantee.

Click here to view every loan offered by the SBA.

SBA 504 Loans

SBA 504 loans are used to build new facilities, purchase existing buildings or land, or purchase long term machinery and equipment. The significant difference between 504 loans and 7(a) loans is that 504 loans cannot be used to purchase working capital. 504 loans can only be used for purchasing real estate or equipment. The maximum loan amount for a 504 loan is $5.5 million.

Alternative Financing

Not all small business financing has to come directly from a bank, although most financial services source their money from a bank or other financial institution. Alternative financing options include business credit cards, community development financial institutions, grants, borrowing from family and friends, and crowdfunding.

Business Credit Cards

Business credit cards are used to make everyday purchases for your business. Unlike personal credit cards, they allow you to build credit history for your business. If you’re looking to redeem or build up your business credit, a secured credit card may be right for you. A secured credit card requires a deposit that serves as collateral against the purchases made on the card.

Pros of Business Credit Cards: Business credit cards give businesses a safe way to secure funds and build credit history, some cards even offer rewards programs and cash-back on certain purchases.

Cons of Business Credit Cards: Business credit cards often have lower credit limits and higher interest rates compared to other lending options, as well as personal guarantees to pay for purchases if the business can’t afford to.

Chase Bank, Capital One, and American Express are popular providers of business credit cards.

Community Development Financial Institutions Fund

The Community Development Financial Institutions Fund (CDFI Fund) aims to expand economic opportunity for underserved communities by supporting a network of lenders, investors, and financial service providers. Certified CDFIs provide specific financial services to low-income communities and individuals lacking access to financing. There are four main categories of CDFIs; CD banks, CD credit unions, CD loan funds, and CD venture capital funds. 

 Click here to view a list of all certified CDFIs.

Grants

A business grant is a financial award given to a business to help it get started or expand. There are four main categories of grants; federal, state, local, and corporate. 

Pros of Grants: Grants are free, winning one grant means other funders and investors are likely to notice your business, grants help your business gain credibility and positive recognition.

Cons of Grants: Most grants have very specific requirements that must be followed; you must keep a strict record of how grant funds are spent, and there may be restrictions on how you can spend the funds. Grants can also take some time to be approved, processed, and paid.

Find grants at grants.gov.

Federal Grants

The United States government offers federal grants to promote businesses and help them gain financial stability. Businesses can obtain federal grants from many different federal agencies including the Department of Commerce and the Small Business Administration (SBA).

SBIR and STTR Grants

The SBA provides SBIR and STTR grants to businesses that require funding for planning and initial business research. 

Minority Business Development Agency

The Minority Business Development Agency (MBDA) provides financial and technical assistance to minority-owned businesses through grant projects.

Natural Resource Sales Assistance Program

The SBA runs the Natural Resource Sales Assistance Program, which provides financial assistance and exclusive opportunities to businesses involved in developing natural resources like gas, minerals, oil, and timber.

Rural Energy for America

The US Department of Agriculture runs the Rural Energy for America Program, which provides grant funding to agricultural producers and rural small businesses for creating renewable energy systems and making energy efficiency improvements.

State and Local Grants

Similarly to the US Government, state and local governments also provide funding for businesses through various different types of grants.

Formula Grants

Formula grants are non-competitive and are given to predetermined recipients. If you have interest in applying for a formula grant you must meet the census criteria for the grant and review the application guidelines before entering your business.

Click here to view the Massachusetts Formula Funding Program. 

Click here for a list of available corporate grants or research companies offering specialized grants to minorities, DEIs, and veterans in your area.

Family and Friends

Although it may sound informal, family and friends are an easy and safe way to secure business funds. Even Nike, a sports industry giant, started with borrowed funds from its founders’ friends and family. Family and friends have no strict eligibility requirements or application process in order to secure funds; all you need to do is ask. It is not likely that they will demand high interest rates, restrictions on what the funds can be used for, or strict payment deadlines. They might not even ask you to pay them back if you’re lucky!

Crowdfunding

Crowdfunding is a way to generate funds through many different funders, each donating small amounts of money. Crowdfunding has the potential to generate a large amount of funds but relies on the purpose and awareness of the campaign. 

Pros of Crowdfunding: Crowdfunding can generate limitless funds, provide access to a large and diverse pool of investors, build community, double as marketing for your business, and will likely not require a credit check.

Cons of Crowdfunding: Most crowdfunding sites do not pay out the money raised if the donation goal is not met, fees can be very steep, campaigns require an intriguing backstory to create investor interest, and everything is public; negative publicity and intellectual property theft may occur.

GoFundMe, Kickstarter, and Patreon are popular platforms for crowdfunding.