Not all businesses need huge loans to expand their operations–sometimes a small loan can make a huge difference. Many lenders consider “microloans” to be loans that are for $50,000 or less. Loans in this range can help small businesses grow while building credit. If you’re an entrepreneur looking for business loans (50k and under), here’s a guide to help you understand where to look and how to obtain this type of financing.
Business Loans (50k and Under): Where To Find Them
Many institutions offer loans of $50,000 or less. You should therefore compare multiple lenders to find the one that best suits your needs. While some lenders may offer competitive interest rates and a quick application timeline, others might offer less desirable terms and conditions. Here are some places where you may be able to find business loans for up to $50,000.
Online Lenders
Many borrowers appreciate how quick online lenders operate. Online lenders can often approve loans in record time compared to other types of institutions, especially when the loan amount is less than $50,000.
Credit Unions and Banks
Traditional banks and credit unions typically offer loans of all sizes, including loans for less than $50,000. Some traditional banks and credit unions can offer competitive interest rates compared to online lenders. If you’re looking for a loan of up to $50,000, a great place to start looking may be your local bank or credit union.
Small Business Administration (SBA) Lenders
SBA 7(a) loans are backed by the Small Business Administration, meaning the SBA will pay off a large part of the loan if you default. This arrangement minimizes the risk for the lender. Because of the minimized risk, these loans present a great opportunity for businesses with limited revenue and credit, since these types of borrowers may have trouble getting approved for other types of loans.
You can apply for SBA loans through credit unions, banks, and other types of financial institutions that partner with the SBA. The SBA insures loans of many different sizes, including loans for less than $50,000. Though the SBA-backed loan application process can be lengthy, it can be worthwhile given the competitive terms and the lower eligibility requirements.
Community Development Financial Institutions (CFDIs)
Community Development Financial Institutions (CFDIs) support businesses in underserved areas. CFDIs focus on helping businesses that might not otherwise have access to capital for their operations. Backed by the U.S. Department of Treasury, these entities offer a variety of financial products, including microloans of less than $50,000, to help businesses from underserved communities.
Minority Depository Institutions (MDIs)
Minority Depository Institutions (MDIs) offer a variety of financial products, including loans of up to $50,000, to minority-owned businesses. Similar to CDFIs, these federally-insured credit unions focus on helping businesses and communities that might not otherwise have access to funding opportunities.
Types of Loans That Can Be 50k and Under
When people think of a loan, the first thing that comes to mind is usually a term loan. However, this isn’t the only type of business loan offered. If you’re looking for a business loan of up to $50,000, be sure to explore the different types of loan products available to find the one that’s best for you. Here’s an overview of some types of loans that entrepreneurs can get for $50,000 or less.
Microloans
Lenders usually consider microloans to be any loan that’s for $50,000 or less. Microloans can be backed by the SBA, nonprofit organizations, or other entities. Lenders also may offer unsecured microloans, since the small amount poses less of a risk.
Business Lines of Credit
A business line of credit can be an excellent tool for short-term financing. This product works similar to a credit card. When you need capital, you withdraw the amount you need (up to a certain limit) from your line of credit. You only pay interest on the amounts you withdraw. Many lenders offer small business lines of credit to entrepreneurs with limited credit history or revenue. As your business grows, you can discuss a credit increase with your lender.
Term Loans
Term loans are a more straightforward form of financing. The lender sends you a sum of money and then you repay the lender with interest over a predetermined period of time. Many lenders offer term loans of $50,000 or less.
Equipment Loans
If you’re looking for a loan to cover the cost of new equipment, you may want to consider an equipment loan. This type of loan is exclusively for the purchase of assets, such as equipment and machinery. Your lender may require you to use the items you purchase as collateral to minimize the risk for the lender.
SBA Loans
The Small Business Administration (SBA) backs loans of many different sizes, including loans of up to $50,000. SBA 7(a) loans are especially popular among business owners. You can apply for an SBA loan through a financial institution that partners with the SBA. If you default on the loan, the SBA will pay a large portion of the amount you owe. This significantly minimizes risk for your lender.
Pros and Cons of Loans For Less Than 50k
One of the pros of loans for less than 50k is that lenders might not require as high of a credit score as they would if you were applying for a larger loan. Therefore, loans of 50k can be great “stepping stones” to larger amounts of capital in the future. If you take out a small loan and pay it back responsibly, you can strengthen your creditworthiness and increase your chances of getting a large loan in the future.
Another pro of loans for less than 50k is that the monthly payment amount is more manageable. This minimizes your risk of default in the event of slow sales or unexpected business expenses.
The main con of business loans for 50k is that they may not be enough to cover large purchases. If you’re planning to purchase extremely expensive equipment or real estate, a business loan of $50,000 may not be sufficient.
How To Compare Loans and Lenders
Be sure to carefully compare loans and lenders when you’re shopping around for a business loan of $50,000 or less. Here are some things to consider.
Interest Rates
Interest rates vary depending on the type of loan and the lender. You can usually negotiate interest rates by offering collateral or signing a personal guarantee. To minimize your monthly payments, it is worthwhile to seek a loan with competitive interest rates and check to see if the rates are negotiable.
Loan Fees
What types of fees will your lender charge? Will your lender provide this information clearly from the beginning? This information can make a major difference in the overall cost of financing your business operations.
Repayment Terms
Will you have to pay a fee if you pay off the loan early? Is the interest rate variable? How long will it take to pay off the loan? It’s important to gather this information so you understand how your loan will work.
Collateral and Personal Guarantees
Will your lender require collateral, such as any real estate or equipment you own? Will your lender require you to sign a personal guarantee? A personal guarantee is an agreement that requires the borrower to personally repay the debt if the business defaults on the loan. In some cases, you can use collateral or a personal guarantee to improve the terms of your loan.
How To Apply For Loans That Are Under 50k
The process of applying for a loan of $50,000 or less is similar to the process of applying for larger loans. One of the key differences is that lenders may have more flexible eligibility requirements when the loan is for less than $50,000.
To apply for a business loan of $50,000 or less, you’ll first need to prepare documentation that paints a picture of your ability to repay the loan. Financial documents showing your businesses revenue, or business plans that explain how you will grow your revenue, play an important role in establishing your creditworthiness.
You will also want to check your personal credit score. If your business lacks credit history, you may be able to strengthen your application if you have a high personal credit score.
Once you’re ready, you should research and compare lenders. Once you’ve found a loan that works for you, follow the lender’s instructions to apply. Be sure to provide the lender with all required documentation and information. You should also be prepared to be patented, as some loan applications take longer than others to process.
Business Loans (50k and Under): We Can Help You Get One!
If you’re looking for business loans, 50k loans can be a great way to finance your business. We at BusinessLoans.com are committed to helping entrepreneurs like yourself obtain loans of all sizes–including loans of $50,000 or less. If you’re ready to get funded, answer some questions for us and we’ll connect you with the right lenders.
