You own a successful small business. Now you want to reinvest for growth, maybe open another location or hire extra staff. But what if all your cash is tied up and bad credit or strict bank requirements are keeping you from getting a business expansion loan from a bank?
Online small-business lenders can solve the funding gap left by banks, typically offering higher approval rates and faster funding.
Jump to our recommendations:
- If you have $100K+ in revenue and 500+ personal credit score
- If you have $150K+ in revenue, 620+ personal credit score and collateral
- If you’ve been in business for two years and have solid finances
- If you have three or more employees and 600+ credit score
Online lenders often focus less on your personal credit and assets and more on the health of your business when granting approvals. But they often come with higher borrowing costs due to speed, convenience and higher approval rates.
“I think small-business owners love the convenience and speed” of online lending, says Jennifer Martin, founder of Zest Business Consulting. “You can get a loan in your pajamas at 1 o’clock in the morning watching a late-night show.”
Interest costs, fees and loan terms vary by company, so it’s important to compare all of your options before picking one, Martin says. Nerd note: Borrowers also should be certain the profits from the expansion will exceed the total cost of the loan.
Here we compare some of the best business expansion loans:
OnDeck offers the best business expansion loan if:
- You have at least $100,000 in annual revenue
- Your personal credit score is 500 or higher
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Minimum qualifications | Typical borrower |
|---|---|---|
| Personal credit score | At least one owner with 500 or higher for term loans and a majority owner with 600 or higher for lines of credit. | Most borrowers have a personal credit score over 600 |
| Time in business | At least 12 months | Median of 7 years in business |
| Annual revenue | $100,000 or more in the last year for term loans and $200,000 or more for lines of credit. | Median of $600,000 |
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OnDeck offers term loans of $5,000 to $500,000, which are repaid daily or weekly over a period of three to 36 months. OnDeck’s annual percentage rate ranges from 9% to 98% on its term loan (APR is the true cost of the loan, including all fees). The term loan is a better choice for an expansion than its line of credit, which is better suited for managing cash flow or handling unexpected costs.
The main benefits of OnDeck’s loans are speed and convenience. The application process should only take about 10 minutes, according to the company, and can be completed online or over the phone. Applicants can receive funding as fast as 24 hours. To apply, you’ll need your business tax ID number, Social Security number, driver’s license number and credit card and bank statements.
Besides meeting the lender’s minimum qualifications, borrowers must be bankruptcy-free for at least two years, and your business can’t be on the company’s restricted industries list. Finally, OnDeck requires a personal guarantee, which makes you personally liable for the debt if your business can’t repay it. The lender also takes a blanket lien on all business assets for its term loan, so the company can take ownership of these assets to repay the loan.
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Funding Circle offers the best business expansion loan if you:
- Have at least $150,000 annual revenue
- Have strong personal credit
- Can provide collateral
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Minimum qualifications |
Typical user |
|---|---|---|
| Personal credit score | 620 | Average personal credit score is 700 |
| Time in business | 2 years | About 10 years |
| Annual revenue | $150,000 | About $2 million |
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At Funding Circle, you can borrow from $25,000 to $500,000, with repayment terms of one to five years and APR ranging from 7% to 26%. The lender doesn’t impose prepayment penalties.
Many Funding Circle clients use the funds for expansion, the company says, borrowing on average $120,000 that is repaid over a three-year period.
Funding Circle is also a good option for franchise business owners, as the company has partnered with franchisers such as Domino’s and Fatburger.
Besides meeting Funding Circle’s minimum requirements for revenue, credit score and time in business, borrowers can’t have had any bankruptcies in the last seven years. All of Funding Circle’s loans require collateral, although a wide range of assets qualify, such as home equity, equipment, accounts receivable and cash savings or deposits. The company also requires a personal guarantee.
SmartBiz offers the best business expansion loan if you:
- Have strong credit and a healthy business
- Don’t mind a lot of paperwork due to SBA requirements
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Minimum qualifications |
Typical borrower |
|---|---|---|
| Personal credit score | No minimum listed, but most borrowers have at least a 600+ personal FICO score | Average is 705 |
| Time in business | 2 years | About 10 years |
| Annual revenue | No minimum listed, but most borrowers make at least $50,000 | About $1 million |
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SmartBiz uses its online platform and streamlined application process to provide SBA loans at a much faster pace than traditional banks. Borrowers can receive funds within a week’s time.
These loans have a 10-year repayment term, so your total monthly payment is much smaller than with other online lenders.
With an APR of 7% to 8%, it’s also one of the cheapest business loans you’ll find, which makes SmartBiz a solid choice when you want a loan for a large business acquisition, to purchase real estate or to refinance existing debt.
Besides meeting the minimum time in business requirement, applications must also have no bankruptcies or foreclosures in the past three years, no outstanding tax liens, no recent charge-offs or settlements, and borrowers must be current on government-related loans.
Due to an SBA requirement, Smartbiz’s banking partners also take a lien on your business’s assets. All business owners who own more than 20% of the company also must sign a personal guarantee.
Required paperwork for the application includes two years of business and personal tax returns, a lease agreement, photo of your driver’s license, and a home mortgage statement.
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Fundation offers the best business expansion loans if you:
- Have at least three employees
- Earn at least $100,000 in revenue
- Have at least 600 personal credit score
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Minimum qualifications |
Typical Fundation borrower |
|---|---|---|
| Credit score | 600 | 680 to 720 |
| Time in business | 2 years | 5 to 10 years |
| Annual revenue | $100,000 | $250,000 to $750,000 |
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If you don’t qualify for an SBA loan, Fundation is a good option for a large expansion. The online lender provides fixed-rate term loans up to $500,000, with repayments made twice per month over a period of one to four years. It’s a much faster application process than with traditional banks; the online application can be completed in less than 10 minutes. Borrowers typically receive funds within two to five days of loan approval, according to the company
However, you’ll pay a bit more for this speed and convenience, as Fundation loans carry an APR from 8% to 30%.
Besides its minimum qualification requirements, Fundation also requires a personal guarantee and takes a lien on business assets.
Business expansion loans: the bottom line
With the right type of business expansion loan, your small business can access the capital it needs to power its growth. Besides comparing the APR, loan repayment terms and speed of funding, borrowers also should pay close attention to each lender’s application requirements and minimum qualifications.
Find and compare small-business loans
To find the best business loan to fit your small business, be sure to compare:
Steve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.
To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
This post was updated. This post originally was published on Aug. 24, 2015.
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