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Updated: December 18th, 2023
The last 12 months have been a roller coaster for most small businesses. You’ve likely struggled up and down through pandemic lockdowns, changing restrictions, civil unrest, political turmoil, and economic uncertainty. It might be a stretch to say there’s a light at the end of the tunnel, but on the bright (and pragmatic) side of things, you’re still here—and that’s an amazing accomplishment.
If you’re looking for a business loan in 2021, then that means you’re likely trying to rebuild, restore, reinvest, and get things moving in the right direction. We’re here to help.
Below, we’ll walk you through your six best loan options this year. We cover financing types for everything from converting your IOUs into cash to trading tomorrow’s earnings for capital today.
Paycheck Protection Program (PPP) loans were set to end in March, but President Biden signed an extension that moved the application deadline to May 31, 2021—that means there’s still time to apply.
If you haven’t, consider getting a PPP loan—and if you have already, think about taking a second draw.
A PPP loan could get your business up to $10 million (for first-time drawers). You can spend these funds on payroll, rent, utilities, mortgage interest payments, supplier costs, worker protection investments, and more. Plus, if you use the funds appropriately, the government could forgive your entire PPP loan—tax-free. That essentially means it’s free money for your business.
When it comes to financing payroll and other essential expenses, there’s nothing better than a PPP loan. However, if you’ve already exhausted your PPP loan options or don’t qualify for one reason or another, you still have options. Let’s move on to the next loan type.
A business line of credit is a must-have financing tool for businesses in 2021. You can use your line of credit immediately, ongoing, or just keep it in your back pocket for just-in-case situations. Plus, it provides flexible funding to finance just about any business-related expense.
When you tap into your line of credit, you only pay interest on the funds you borrow—not the entirety of your loan. For example, if you have a $50,000 line of credit but only need to borrow $10,000, then you’ll only pay interest on that $10,000 you used. Once you repay the borrowed portion (plus interest), you get immediate access to those funds again—no need to reapply.
The revolving nature of a business line of credit makes it perfect for financing your business’s working capital expenses. If your cash flow is hurting due to a seasonal gap, an unexpected equipment failure, or an emergency (like COVID-19), you can just tap into your line of credit without waiting on loan application and approval processes.
A merchant cash advance is a lump sum that you can borrow in exchange for your future earnings. A lender will give you the cash you need, and you’ll repay the advance with a percentage of your daily sales. Cash advances aren’t the cheapest financing option, but they’re quick, reliable, and great if you have no credit or poor credit.
Merchant cash advances could help if your business has seasonal or fluctuating revenue. It gives you the capital you need now by trading money that’ll soon be coming into the business. You can use a cash advance to invest in more inventory, purchase equipment, upgrade your business, or tackle an emergency.
Plus, you don’t need collateral for a cash advance—your future earnings are the collateral. You just need to prove from cash flow statements and projections that future sales will cover the advance.
Invoice factoring (also known as accounts receivable financing) lets you trade your unpaid invoices for cash now. If you’re constantly waiting on late-paying customers to get your business much-needed cash, turn to invoice factoring. You’ll receive up to a 90% advance on the unpaid invoices, and then you’ll receive the remaining money (minus the lender fees) when your factor collects the payment.
Use invoice factoring when you need to make payments on short-term expenses and upfront investments. It can smooth out your cash flow and help you avoid late payments on your own bills. Factoring can be a bit expensive, but sometimes today’s money is worth more than tomorrow’s cash.
Small Business Administration (SBA) 7(a) loans are one of the most coveted small business loans—and for good reason! These loans have massive maximum loan amounts ($5 million), competitive interest rates, and generous repayment terms. When it comes to business financing, you’ll struggle to find anything better than an SBA 7(a) loan.
The SBA doesn’t do the actual lending—they just back the loans. Approved lenders provide the funding, and with guarantees up to 85%, they’re more willing to lend large amounts to small businesses (even if the companies don’t have perfect qualifications).
However, due to the advantageous nature of SBA loans, they’re incredibly competitive. Every small business owner wants one, and that makes them harder to get. Plus, the application process is notoriously long and paperwork heavy. It doesn’t have to be, though.
Let us help. We compiled a comprehensive guide to SBA 7(a) loans that’ll show you the in’s and out’s of this financing option. We’ll even give you a few helpful tips to accelerate your application process.
Business term loans are the classic tried-and-true financing option. It’s reliable, predictable, and yet oh-so effective. A term loan gives your business a lump sum of cash that you’ll pay back in regular increments over the life of the loan. You’ll always know how much you owe every month, making it easy to plan and budget accordingly.
You can use a term loan to finance just about any business need: purchase land, buy inventory, hire staff, consolidate debt, and more. Thanks to its flexible nature and set repayment schedules, it’s also a great tool to build your business credit.
On the downside, you’ll typically need good to excellent credit to qualify. If you want cheaper monthly payments, you’ll need to stretch out the loan, which can sometimes lead to years of debt payments. However, it takes money to make money, and a business term loan is stable financing that you can trust.
While a business credit card isn’t technically a loan, it is a great financing option for businesses big and small. It’ll extend your working capital, and it’ll also help consistently build your business credit score. Plus, it can help you score sweet rewards, like cashback bonuses, flyer miles, and fantastic perks.
Fortunately, you don’t need to go somewhere new to find an excellent loan for your business. Funding Circle offers various loan types to fit your small business needs:
Make this year better than the last. Start your application process now to find the perfect loan for your business in 2021.
Michael Jones is a Senior Editor for Funding Circle, specializing in small business loans. He holds a degree in International Business and Economics from Boston University's Questrom School of Business. Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans. He has written extensively about small business loans, entrepreneurship, and marketing.