Cash Flow or Asset Based: How to Get a Small Business Loan

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Written by Sarah Li Cain
Last updated on October 3, 2022

Managing a small business isn’t easy. When the economy is good (and you do your fair share of marketing) you can be making plenty of sales and increasing your profits. However, there are times when a recession is looming and you find you’re struggling to make sure your cash flow is intact.

That’s where small business loans come in. Of course, it’s best to fund your business with cash, but getting a business loan, especially one with a competitive interest rate may be the next best thing. It could mean the difference between closing your doors or keeping your company afloat.

Keep reading for our simple guide on how to get a business loan, including the types you can get and other alternatives to think about.

Types of Small Business Loans

There are different types of loans for small businesses that can be for different industries such as real estate, or ones where you need cash for inventory or to maintain your equipment (such as replacing your vehicle). These types of loans typically fall into two categories: cash flow and asset-based loans.

Cash Flow Loans

In a nutshell, cash flow loans allow companies to receive loan proceeds based on their company’s projected future cash flow. Basically, you’ll need to show past cash flow statements to show lenders that you’ll have the future income to pay the loan back, plus interest. Your credit rating is also used by lenders to determine whether or not to grant you a loan.

To put it another way, these types of loans are made so you can meet your cash flow needs right now, such as paying your employees or needing to purchase a large amount of inventory to anticipate seasonal demands. That means it’s typically meant for businesses that have a high number of expenses like restaurants.

Since this is a type of unsecured business loan, you don’t need any collateral. However, origination fees for cash flow loans can be higher compared to traditional loans and may have higher fees for late payments. Plus, interest rates may be higher since you don’t have anything to back up the loan, so if you must take out a cash flow loan, try to pay it back as quickly as possible.

Asset Based Lending

Asset-based lending is where a lender will let you borrow money based on the amount of assets you have. Basically, you’ll need to offer up some sort of physical asset to back up the loan. Businesses who use this type of lending typically provide collateral such as machinery, land, vehicles or company inventory.

Typically, cash flow statements are considered along with your credit history, it’s not as important as the type of asset you have. So if you fail to repay your loan, the lender will have the right to seize the collateral.

While interest rates and origination fees may be lower, lenders will require a more stringent application process. So it could mean inspecting all aspects of your business and getting your assets appraised since that’s what your loan amount will be based on. Plus, your credit history will determine how much you can borrow, which is typically up to a certain percentage of the current value of your asset.

Companies that tend to do better with asset-based loans include companies with large inventory and require a lot of money to grow but don’t have a lot of cash flow potential. Think commercial real estate companies.

Government-Backed Loans

Some credit unions and banks have partnered up with the Small Business Administration (SBA)–a government agency–to offer SBA loans that are guaranteed by the government. The two main types are SBA 504 loans and the SBA 7(a) loan program, which are small business loans for veterans.

Lenders consider these types of loans less risky because they are backed by a government agency. That means you may be able to find lower origination fees, down payment requirements, better terms and resources to help you with your small business.

You can borrow from $500 to $5.5 million and funds can be used for a number of purposes but it depends on the lender. Some requirements include your business is operating in the U.S., it’s a for-profit entity, you’ve invested your own time and money and you weren’t able to receive a loan from other lenders.

How to Get a Business Loan

Here are some steps you can take if you’re interested in getting a business loan:

  • Make sure you do an assessment of your business to see whether taking out a small business loan is really necessary.
  • Look at your company’s financial situation. This includes your business’ credit history, cash flow statements and any collateral you have.
  • Gather all necessary paperwork. It’s a good idea to reach out to lenders to see what you’ll need, or connect with a SCORE small-business mentor (it’s free) for assistance in helping prepare your loan documents.
  • Make sure to provide all necessary documentation depending on what your lender requires.

Shopping Around for For Small Business Loans

Before you apply for a business loan, it’s a good idea to shop around to see what rates and terms you can get. That way you can pick the best one for your needs.

Here are a few lenders you can consider:

  • Monevo – Search and compare over 30 lenders with this online lender marketplace. You can receive a quote in as little as 60 seconds and it won’t affect your credit score. Read our Monevo review here.
  • Prosper – This lender offers unsecured loans to those who may not qualify for traditional loans (In other words, you may have a less-than-stellar credit score). Loans are issued to an individual and not a business, so it could affect your personal credit score. Read our Prosper review here.
  • LendingClub – This is a peer-to-peer lender which means that individual investors will fund your loan instead of a bank or credit union. You’ll need to declare why you need a loan and LendingClub will put out a profile. Your rate and origination fee will be based on your credit profile.
  • Even – Even is an online loan marketplace where you can find and compare loans from a range of companies. APR starts from 3.84% to 39.99% and you can receive funds as soon as the next business day. Read our Even review here.
  • Sofi – Typically for businesses or individuals with higher credit scores, SoFi offers some of the most attractive rates around. Read our Sofi review here.

Open BlueVine Account and Get a Line of Credit

In addition to the options above, BlueVine is another lender worth your consideration.

While its business checking account is an industry leader, there’s another product that sets the company apart from the competition: access to many different types of loans and lines of credit.

With the option to secure a line of credit—which is something many online business lenders don’t offer—you gain access to funds on an as-needed basis.

For example, the BlueVine line of credit can be used to cover everything from expanding your business to paying operating expenses. And with the option to borrow as much as $250,000, you can quickly get your hands on the funds you need.

Furthermore, BlueVine does not charge any setup fees or maintenance fees, thus allowing you to avoid a common pitfall associated with other lenders.

Through the BlueVine website, you can complete a credit application and receive an (almost) immediate approval. Of course, this is contingent on meeting the following requirements:

  • 650+ FICO
  • 2+ years in business
  • $30,000 in monthly revenue

BlueVine isn’t the only online bank for small businesses, but it’s one of the most comprehensive in regards to financial product offerings.

Using a Small Business Credit Card

Sometimes using a credit card is a better idea, especially if you only need a small amount of money or would rather have a small business line of credit on hand. It’s also a great way to earn cash back or travel rewards, helping you save some money on expenses.

Here are some of our favorites:

  • The Capital One Spark Cash Plus Credit Card – Earn unlimited 2% cash back on all purchases, receive free employee cards and pay no foreign transaction fees. It also has a $150 annual fee and a cash bonus for new cardholders.
  • The Business Platinum Card® from American Express – It comes with a $695 annual fee but you get a bunch of premium benefits such as airport lounge access, a $200 airline credit and 10 Gogo inflight wifi access. There are no cash advances available. Terms Apply. Learn more about this offer.
  • Ink Business Preferred℠  Credit Card – One of the best flexible rewards cards, it offers such perks like cell phone protection, trip delay reimbursement and primary car rental coverage. This card has a 17.49% – 22.49% Variable APR and a cash advance APR of 26.49%. Learn more about this offer.

If you need to carry a balance from month to month, it’s a good idea to compare APRs (including any 0% introductory offers) so that you’re saving as much as you can on interest. That also includes if you need to get cash advances for emergencies.

Bottom Line

Sometimes your business needs an extra boost. That’s where small business loans can come in. Before applying, make sure you really need a loan and compare lenders to find the best rates and terms for your needs.

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