No matter what kind of business you’re running, a $100k business loan can go a long way. Your financing can be a great way to purchase new equipment, expand to a new location, cover working capital expenses, and much more.
But getting the right kind of loan for your business is essential, and knowing how to secure it makes all the difference.
We’ll explore which types of financing options are available, what the requirements for securing financing are, and how to get the right loan for your business.
First, determine the type of business loan you require. Next, submit an application with a lender that’s likely to approve your request.
Once you’ve been approved, sign the proposed loan agreement. Depending on which financing option you chose, it should take anywhere from a couple days to several weeks to obtain the funds you need.
Types of $100k Business Loans
Merchant Cash Advance
A merchant cash advance (MCA) is an alternative form of business financing, so it’s technically not a business loan.
This kind of financing is great for businesses that have a considerable amount of credit and debit card sales, as getting approved is relatively easy if you can show a decent history of card sales.
Here’s how a merchant cash advance works.
First, you’ll need to submit your application. This is a pretty simple process that relies on your business’s card sales. Instead of interest, you’ll be charged a “factor rate” that’s based on the entire loan amount. So if you secure $100,000 in financing, and the factor rate is 1.5, you’ll owe a total of $150,000. The loan is then paid back daily or weekly, as a percentage of card sales, also known as holdback.
Some of the advantages of a merchant cash advance include:
- Higher approval rates with more than 90% of applicants get approved, including those with bad credit.
- Depending on your business, you can secure the funds you need quickly.
- Collateral isn’t required.
Some of the disadvantages of merchant cash advances include:
- Repayments are required soon after you obtain the funds.
- You cannot build credit with this kind of financing.
- MCAs are not subject to usury laws, so borrowing fees can be as high as 50-100% or more.
- You can potentially refinance an MCA, but you may have to pay interest on interest if you do.
Business Term Loans
A business term loan is the most common form of business financing that offers a lump sum that gets paid back, with interest, over a fixed period of time.
Repayments can be made on a daily, weekly, bi-weekly, or monthly basis, and the term can vary from a few months to 20 years.
Business term loans can come in all shapes and sizes. Some will feature fixed rates while others could offer variable rates depending on your needs. Additionally, business term loans can be secured or unsecured. Secured loans are backed by collateral, which can provide a lower interest rate and longer term. Unsecured loans aren’t backed by collateral, so the term is usually shorter and the interest rate tends to be much higher.
Some of the benefits of a term loan include:
- It’s easier to secure a large amount of financing with good credit and a history of meeting obligations.
- Interest rates are more favorable.
- The loan terms can be longer, offering more flexibility.
- The funds can be used to cover most business-related expenses.
- Paying on time will help you build credit.
Some of the drawbacks include:
- You will need to have sufficient credit for approval.
- It can sometimes take many days or weeks to obtain the funds in your bank account.
SBA Loans
An SBA loan is backed by the Small Business Administration and is a perfect option for businesses that can’t meet the criteria for a standard business term loan.
The term on one of these loans can range from 10-25 years, and the repayment terms can be more flexible. Even businesses with bad credit or limited history can secure these loans making them more accessible to businesses that may otherwise not qualify for financing.
Some of the most common SBA loans include SBA 7(a) loans, SBA Express loans, and Economic Injury Disaster Loans (EIDL). Each of these have their own criteria for approval and uses, so it can be helpful to explore all of your options before completing your application.
It usually takes 30-90 days to secure an SBA loan, but it can depend on a variety of factors including your credit worthiness, what you intend to use the loan for, and the lender you choose.
Wondering if an SBA loan is right for your business? Some of the advantages include:
- Much more lenient approval process when compared to standard business term loans.
- The interest rate is capped, keeping your costs down.
- The amount of financing you can secure is quite large.
Some of the downsides to SBA loans include:
- Down payments are usually required, so you’ll need some cash upfront.
- You might need to put up collateral to back your financing, which might not be available for some borrowers.
- You may be personally responsible if the business defaults.
- The approval process tends to be lengthy.
Business Lines of Credit
When you can’t secure a business term loan, but you don’t want a business credit card, a business line of credit (BLC) can be a happy medium.
With this type of financing, a lender will extend a fixed line of credit, that is based on a variety of factors, such as your personal credit score, repayment history, and business income.
It’s very similar to a credit card in that interest accrues once you draw on the credit line. And once your limit is reached, you can’t borrow anymore. However, as you make payments on your credit, the amount you can borrow from is replenished giving you more flexibility with your financing.
Most business lines of credit are unsecured, but you may need to put up collateral if your credit line is greater than $25,000. Typically, this kind of funding is used to meet short-term obligations, and the interest rate is usually variable which should be considered before applying.
Of course, this kind of funding has some advantages and disadvantages that you’ll want to weigh. Here are some of the advantages:
- A business line of credit is much easier to obtain than a business term loan.
- Unlike business term loans, a line of credit doesn’t have to be designated for a specific purpose.
- Business lines of credit can have lower interest rates than business credit cards.
- Making payments on time builds credit.
Some of the drawbacks include:
- There are a significant amount of fees, including origination fees, maintenance fees, annual fees, and possibly draw fees.
- Business lines of credit have higher interest rates than business term loans.
- If you have a balance when the draw period ends, you may only have 12-24 months to pay it off.
Invoice Factoring
Invoice factoring is another kind of alternative financing that’s typically used to cover short-term obligations.Here’s how it works.
First, you sell your unpaid invoice to a third party at a discount to get cash quickly. In most cases you’ll get 85-90% of the invoice amount.
Then, you’ll wait for the factoring company to be paid the full invoice amount by your customer. Once the factoring company has the full invoice amount, they’ll send you the remaining 15-10% minus fees.
What you’ll pay in fees is based on a variety of factors, but the total usually amounts to 1-10% of the full invoice amount.
However, there are a few main types of factoring you can consider, recourse and non-recourse factoring.
With recourse factoring, you’ll be responsible for paying the full invoice amount if the customer fails to do so. Because of this, the fees with recourse factoring are often less. With non-recourse factoring, the factoring company assumes the risk of non-payment and charges higher transaction fees for doing so.
Some of the advantages of invoice factoring include:
- You can obtain the funds you need immediately.
- You can serve customers who need extra time to pay.
- It’s relatively easy to get approved with sizable invoices and customers with good credit.
- You won’t need to put up collateral.
Some of the disadvantages include:
- Fees can take a big chunk out of your invoices if customers take a while to pay.
- Only available to businesses that do invoicing.
- The factoring company may negatively affect your relationship with a customer.
Equipment Financing
When you need money to purchase a new piece of equipment for your business, choosing equipment financing may be your best option.
This kind of loan usually has a term of 3-10 years with a fixed interest rate and it’s secured by the purchased equipment so it doesn’t require collateral for approval.
In most cases, a down payment of 10-20% is required, and repayments can be weekly, bi-weekly, or monthly which can make it easy for your business to budget.
When applying for equipment financing, lenders will typically take a look at the business’ credit score, how long the business has been operating, the business’ profit and loss (P&L) statement, and the value of the equipment the business intends to purchase.
It’s possible to get this kind of financing with bad credit or limited business history, but the trade-off is a higher interest rate.
Some of the benefits of equipment financing include:
- Financing can be secured in 24-48 hours.
- Payment terms are usually flexible.
- You can build business credit with this kind of financing.
Some of the downfalls of equipment financing include:
- Interest rates can be higher depending on your credit rating.
- A down payment is often required.
- The loan could last longer than the equipment.
Qualifications & Requirements for a $100,000 Business Loan
Personal And Business Credit Scores
Your personal credit score and business credit score are incredibly important when you apply for a business loan, especially if you’re looking to get one from a traditional lender.
A personal credit score of 690 or higher is regarded as favorable by most lenders, as is a business credit score higher than 80.
High personal and business credit scores indicate that you consistently meet debt obligations, which is exactly what lenders want to see.
Online lenders, however, tend to be more lenient when it comes to credit scores. In some cases they may be able to approve loans for applicants with personal credit scores between 500 and 650.
Depending on the type of financing you require, you may still qualify even if you suffer from a lackluster credit score. Be sure to check with your lender to see which options are best for your business.
Time in Business
Most lenders will want to see that your business has been operating for at least two years, however, there is some leeway with this requirement. If you have stable revenue of at least 12 months, many lenders might be able to approve you for some type of financing.
Time in business is a good indicator of how stable your business is and if you’ll be able to pay back your financing or not.
Annual Revenue
Before a lender can approve an application for a business loan, they’ll need to confirm that the business is profitable. They’ll want to see monthly and annual revenue statements and detailed financial projections for your business.
In this area, every lender has different requirements, but online lenders usually want to see $20,000-$100,000 in annual revenue, whereas traditional lenders tend to require a minimum of $250,000 in annual revenue.
Business and Financial Documentation
When applying for a business loan, the lender may ask for the following:
- Personal and business income tax returns
- Personal and business credit ratings
- Personal and business bank statements
- P&L statements, balance sheets, and cash flow statements
- Proof and appraisal of collateral
- Legal contracts and agreements
- Financial projections
- Business licenses
- Commercial leases
- Business plans
The requirements for financing will vary spending on the type of financing you opt for and your lender. If you’re unsure, it’s best to contact your lender to understand the requirements for your financing.
Business Type and Size
Business type and size are two major factors that lenders consider when a business applies for a loan.
Some businesses, such as restaurants or bars, can be seen as riskier because revenue tends to be inconsistent, so it can be more difficult for these businesses to secure financing.
Also, many lenders refuse to work with certain businesses types such as those that specialize in adult entertainment or gambling. Typically, lenders want to see the following:
- The business meets the standard “small business” definition.
- The business is profitable or likely to be profitable in the near future.
- The business has been meeting its current debt obligations.
Business Plan and Loan Proposal
Most lenders will want to know what you intend to use the loan for, so they’ll require a business plan or loan proposal.
A business plan explains exactly what the business’ goals are and how they’re going to be reached, whereas a loan proposal explains how the loan will be paid back.
The more detailed these documents are, the better your chances will be of getting approved for a loan so be sure to spend adequate time on these documents to increase your odds of approval.
Collateral
To secure business financing, you may need to put up collateral, such as real estate, equipment, inventory, or valuable assets. Depending on the asset, your lender may require that you get it appraised to determine the worth the the asset. The collateral you put up can be seized and sold by the lender in the event you default on the loan.
You may also need to agree to a business loan personal guarantee, which means your personal property may be subject to seizure if your business doesn’t have any assets, property, etc. that can be used to pay back the loan.
Step by Step Process to Secure $100k in Business Financing
1. Choose a Financing Option That’s Right for Your Business
Before you can determine which financing option is best for your business, you need to determine what you’ll be using the loan for.
If you need a large sum of money, but you don’t need it right away, consider a traditional business term loan or an SBA loan.
If you need money quickly to meet working capital expenses, a merchant cash advance, invoice factoring, or a business line of credit may be a better choice.
Finally, if you intend to use the loan to purchase a new piece of equipment, consider equipment financing.
Your lender should be able to help guide you through the process so you can find the best type of financing for your business.
2. Assess Your Business’ Financial Position and Creditworthiness
To ensure you don’t waste time during the application process, you’ll need to evaluate your business in the eyes of your lender.
First, determine how much revenue your business generates on a monthly or annual basis, and then consider your ability to make repayments in the future.
Also, consider your credit score and history, as most lenders will look at both as indicators of whether you’ll be able to pay back the loan or not.
Once you have a clear picture of your business’ financial position, you should know which kind of lender is likely to approve your business loan.
3. Compare Lenders
No two lenders are exactly alike, so take the time to compare your options.
When you’re comparing lenders, you’ll want to consider the following:
- Approval requirements
- Interest rates
- Loan terms
- Fees
- Incentives and perks 
Also, do your best to determine which lenders are flexible and which are rigid. In the event you can’t make a repayment because of unexpected financial hardship, having a flexible lender like Llama Loan will be a huge benefit.
4. Gather Necessary Application Materials
It’s best to gather all necessary materials before you apply for a loan to ensure the approval process isn’t iinterrupted because of missing documentation.
First, look up which financial and business documents are required by the lender you chose. Additionally, gather supplementary materials that other lenders require; your lender may request these during the review process.
5. Submit Your Application
Once you have everything you need, you can apply for the loan. In many cases, this can be done online, over the phone, or in person.
6. Review and Accept the Loan Agreement
Upon approving your application, the lender will send you a loan agreement. Thoroughly analyze this document to ensure it’s exactly what you’re looking for.
If something doesn’t make sense, or if you have any questions, don’t be afraid to reach out to the lender for further clarification. You could also pay a business attorney to review the agreement to ensure you don’t miss any critical details.
If everything is to your liking, you can sign the agreement. Once the lender confirms you’ve accepted it, they’ll send your funds directly to your business bank account.
How to Get a $100K Business Loan With Bad Credit
Have a Strong Business Plan and Loan Proposal
Presenting a strong business plan and loan proposal is essential for any type of business financing, especially if you have bad credit.
Lenders want to see a detailed, coherent plan that’s likely to succeed, and they want to know exactly how you intend to pay back the money you borrow.
If you need help with either, consider hiring an expert, as they’ll know how to structure the documents, which figures to include, and what to leave out.
Show Strong Cash Flow
When your personal and business credit scores are less than stellar, evidence of strong, consistent cash flow can make a big difference.
Attractive cash flow looks even better when you have minimal debt, so do what you can to get your current debt reduced before applying for a business loan.
Get a Co-Signer
Being backed by a co-signer with impeccable credit will work to your advantage when you apply for a business loan.
In the event that you can’t make repayments, the lender will have the right to collect these from the co-signer.
Choose a Suitable Financing Option
When you need a business loan, but your credit score is low, it’s imperative that you choose the right lender. Choosing the wrong lender could further harm your credit score and put you in a situation where you’re forced to default.
Most business owners with bad credit turn to online lenders or alternative sources of financing when they need a business loan.
Final Thoughts
There are several financing options available for businesses that are seeking a $100k business loan.
Between a traditional business term loan, a merchant cash advance, or invoice factoring – there are plenty of options that are perfectly suited to fit your needs.
If you need help determining which type of financing is best for your business, get in touch with Llama Loan today and our experts can guide you through the process.
Key Takeaways
