The business funding guide

The main types

Each solves a different problem. Matching the product to the need is most of the decision:

• Term loan — a lump sum repaid over a fixed period. Suits a defined one-off investment
• Business line of credit — a limit you draw on and repay as needed, paying interest on what you use. Suits uneven cash flow
• SBA loan — partially guaranteed by the Small Business Administration. Generally the lowest cost and the slowest and most paperwork-heavy to obtain
• Equipment financing — the equipment secures the loan, so approval leans on the asset as much as the borrower
• Invoice financing — borrowing against unpaid invoices. Fast, and priced accordingly
• Merchant cash advance — a lump sum repaid from a share of daily card takings. Fastest to get and typically the most expensive by a wide margin
• Business credit card — revolving, usually personally guaranteed for younger businesses

What a lender is actually assessing

Underwriting varies, but the same questions recur:

• Time in business — many lenders want two years; some work from six months at higher cost
• Revenue — consistency matters as much as size
• The owner’s personal credit — checked for most small-business lending regardless of business credit
• Business credit, where a file exists
• Existing debt and how much of revenue already services it
• Industry — some are restricted by policy regardless of the numbers
• Bank statements — typically three to six months, read for overdrafts, negative days and cash-flow rhythm

The documents to have ready

Having these prepared shortens the process considerably, and their absence is a common reason an application stalls:

• Business bank statements, three to six months
• Business and personal tax returns, usually two years
• Profit and loss statement and balance sheet
• Formation documents, EIN letter, and any licences
• A debt schedule listing existing obligations
• Photo ID and proof of ownership percentage

Read the cost, not the rate

This is where the real money is won or lost, and where the marketing is most misleading.

Some products quote a factor rate rather than an interest rate. A factor rate of 1.3 on $50,000 means repaying $65,000 — and if that is repaid over four months rather than a year, the annualised cost is far higher than the number suggests.

Always ask for the APR, the total amount repayable, and the repayment schedule. A low weekly payment over a long term can cost more than a high monthly one over a short term.

Ask one question of every offer: what is the total amount I will repay, and over what period? Anyone unwilling to answer plainly has told you something.

Costs that are not the rate

Read the agreement for these before signing:

• Origination or administration fees, often deducted from the amount you receive
• Prepayment penalties — some products charge the full cost regardless of early repayment
• Daily or weekly repayment, which affects cash flow far more than a monthly schedule
• Personal guarantee — you are liable if the business cannot pay
• A UCC lien, which can affect your ability to borrow elsewhere
• Covenants requiring minimum balances or revenue

How applying affects your credit

Most lenders begin with a soft inquiry for pre-qualification, which does not affect your score. A full application usually triggers a hard inquiry, which does.

Applying to many lenders in a short period leaves a run of hard inquiries and reads as distress. Shortlist first, then apply narrowly.

Checking your own credit is always a soft inquiry.

Strengthening the application before you send it

The things that most reliably improve an outcome, in the order they take effect:

• Clear up inaccuracies on your personal credit report — they affect business lending decisions too
• Bring personal credit utilization down before applying
• Keep the business account free of overdrafts and negative days for several months
• Separate business and personal spending properly
• Reduce existing debt service where you can
• Have the document pack ready before you start

What nobody can promise you

Approval, an amount, a rate, a limit or a timeframe are all decided by the lender, on their criteria, using information you have not seen.

A readiness score — including the Funding Score in Storehouse — is an estimate of how a profile is likely to be viewed. It is not an offer, an approval, or a guarantee of credit, and any service telling you otherwise is describing something it does not control.

Where Storehouse fits

Storehouse shows funding readiness built from your own credit file and verified balances, and surfaces options that fit that profile. Matches are not offers and do not guarantee approval.

Funding Center access is on the Plus plan; business credit building is on Elite.