Can I get a $20k small business loan?
Yes! From the Small Business Association to private online lenders, there are several options for business owners to get a $20,000 business loan. As you prepare your application, using mySMBscore can help you review personalized $20,000 loan options that fit your needs and budget. Read on to learn more about how to get a $20,000 business loan.
How to Get a $20k Business Loan
Getting a $20k business loan could be easy depending on your qualifications as a business owner. Here is a step by step guide on how to get a $20,000 business loan:
- Review Your Credit Score: Credit score is very important when applying for a $20k business loan. Lenders review your credit score to make sure you will pay back the loan you’re borrowing. If you have a credit score below 600, consider improving it before applying for a business loan. That way you can get a better loan with better terms.
- Research Lenders: Explore different lending options such as banks, credit unions, online lenders, and peer-to-peer lending platforms. Each has different requirements and interest rates. It’s important that you apply with different lenders to determine what business loan is right for you.
- Prepare Documentation Needed to Apply: It takes time to apply for a $20k business loan or any business loan for that matter. Lenders ask for many different documents so you need to be prepared. Gather documents such as tax returns, bank statements, business financial statements, and legal documents such as business licenses and registrations.
- Check Loan Requirements: Lenders may have different requirements when applying. Some lenders might need a minimum time in business, minimum revenue, or specific credit score. Make sure you meet these criteria before applying.
- Compare Interest Rates and Terms: Compare interest rates, repayment terms, and fees from different lenders. Consider the overall cost of the loan, not just the interest rate. It’s important to compare the different business loans offered by each lender to determine which is right for you.
- Apply for the Loan: Complete the application process. Be accurate and honest in your application. Lenders appreciate transparency. Once you apply for a $20,000 loan, sit back and wait for the lender to respond. It could take as little as 24 hours or longer depending.
How much money do you need for a $20k business loan?
The amount of down payment necessary to receive a business loan will depend on the type of loan you get and the size of the loan. Each loan will have different requirements but will consider how much money you’re borrowing, the type of the loan, the repayment terms, the borrower's personal credit, and what the loan is being used for. Borrowers with poor credit might be required to pay a higher down payment.
While the amount will vary, some general guidelines include:
- SBA Loan: While the SBA offers several different types of loans, if you plan on applying for a 7(a) or a CDC/SBA 504 loan, you will be required to pay a down payment. For a 7(a) loan, you must pay 10% or 2,000 on a $20,000 business loan. A CDC/SBA 504 loan can range from 10-20% depending on your credit and other factors.
- Commercial Loan: Purchasing a commercial property is a significant expense for most business owners. Like purchasing a home, a commercial real estate loan also requires a down payment. Borrowers should expect to pay up to 25% of the loan amount as a down payment, while some offer terms as low as 10 or 15%.
- Business line of credit: This is one of the options for business owners that doesn’t require a down payment. Business lines of credit sometimes might require collateral, but generally, you’re only required to pay interest on the funds you borrow.
- Business term loans: Term loans don’t require a down payment, making it another good option for business owners without additional funds to offer. Remember that these loans could have added fees and a wide range of interest rates.
- Equipment loans: When borrowers apply for an equipment loan, most lenders will consider the equipment they plan to purchase as collateral, eliminating the need for a down payment. However, there are certain situations where the borrower will only get approved for a percentage of the loan, requiring a down payment to pay the difference.
Can a start-up get approved for a $20,000 business loan?
Considering that the average small business loan in 2022 was around $50,000, borrowing $20,000 for a business loan is well below the average. Since a $20,000 business loan is on the smaller end, it is an easier option for startups or those with bad credit to obtain. Most online lenders will offer personal loans that can be utilized for startup costs. You can also explore community programs or startup-specific funding options that provide loans to borrowers with minimal business history or revenue.
What would a loan payment be on $20,000?
Your loan payment on a $20,000 loan will solely depend on the type and terms of the loan. Depending on the interest rate and repayment length, your loan payment could range from a few hundred dollars to a few thousand.
As you shop for your $20,000 business loan, you should consider how much you can afford to pay monthly and any fees or added costs associated with the loan. The lower your interest rate is, coupled with the length of the loan, will determine how much your loan payment will be.
How much is a $20k business loan monthly?
Your monthly payment on a $20,000 business loan can vary significantly by lender and loan type. The longer your repayment term is, the lower your monthly payments will be, as they’re spread out over a more extended period of time. However, if you have a high-interest rate, the longer it takes you to repay, the more interest you’ll likely pay.
As you start shopping for your business loan, compare rates and terms to understand how much you can afford every month. Each lender can offer different repayment terms, allowing you to find the loan option that fits your best.
What are the requirements for a $20k business loan?
While each lender will have different business loan requirements, there are some standard requirements for obtaining a $20,000 business loan. These can include:
- Minimum credit score - As you apply for a business loan, lenders should check the credit score of both the borrower and the business. To obtain the best terms and conditions, applicants should have a credit score of at least 650 or so, which is categorized as “Fair” credit by FICO. If you have poor or bad credit, you might still be able to obtain a loan, but you’ll likely pay more in interest rates and fees.
- Industry - Your business's industry can impact your approval chances for a business loan. Some lenders are less likely to approve loans or businesses in risky or unstable industries like seasonal businesses or those in the gambling, adult entertainment, or marijuana industries.
- Revenue minimums - Most banks and lenders will have revenue minimums that businesses must meet to be eligible for funding. While these can vary from bank to bank, you can explore alternative financing methods if you cannot qualify based on minimum funding.
- Time in business - Lenders are more likely to loan money to well-established businesses with a proven revenue history. Because of this, banks will often put a minimum time in business requirement on their loans. Depending on the loan, this can range from six months to two years.
If you’re looking to strengthen your loan application, mySMBscore can help. You can view your business credit through the lens of a lender, giving you insight and actionable steps to improve your credit.
How much does a $20,000 business loan cost?
The cost to borrow $20,000 for your business will depend on the terms and rates of the loan you obtain. For example, a $20,000 term loan with a 5% interest rate and a 24-month repayment period will cost about $877 monthly. However, that loan with a 12-month repayment will cost $1,700 monthly.
As you shop around for the best rates and terms for you, consider any borrowing fees, like an origination or servicing fee, that can create added costs.
How do I apply for a $20k business loan?
Thanks to the internet, applying for a business loan has never been easier, with quick online approvals and simple applications. The basic steps for applying include:
- Determine how much money you need - With several different lending products for business loans, it’s important to calculate how much you need, what you plan to use it for, and how much you can afford in repayment every month.
- Gather relevant documents - Almost all business loan applications will ask for financial documents for your business and your personal credit. This can include tax returns, business plans, and profit/loss sheets.
- Shop around for the best option - Since each lender and loan product will offer different terms and conditions, shopping around and comparing rates will help you understand your options.
- Submit application - Once you’ve found the right lender and terms that fit your needs, you can submit your application and get your approval. If you’re approved, you can usually receive funds within a matter of days.
How do I qualify for a $20k business loan?
Since $20,000 is a smaller amount than most business loans, qualifying for those with minimal time in business or a lower credit score could be easier. However, borrowers should still have a good credit score and a minimum of six months in business. It can also help to have the following:
- Business plan - Having an organized and complete business plan can give lenders confidence that you have a clear path forward. This plan should include how you plan to use the money, how it will benefit your business, and also profit/loss statements. With strong management skills and a solid plan, lenders will be more likely to approve your loan application.
- Strong relationships with lenders - It can help your application if you’ve already established a relationship with a local lender and have a proven track record of being a responsible borrower.
- Collateral - If you cannot qualify for a loan due to a lower credit or other disqualifying condition, having collateral to offer in exchange can help your chances of getting approved. This assures lenders that they can seize your collateral in exchange if you cannot pay the loan back.
Considering a business loan? Empower yourself with information that will help you qualify for a loan at a better rate. At MySMBscore, business owners can access their SMB credit score, receive a breakdown of score components, and understand what information will hold the most weight with lenders. With this information, business owners can better understand what they should qualify for and what steps they can take to improve their financial position. Business owners can also connect with lenders that can help with a $20,000 small business loan.
Information empowers business owners. . . check your SMB score today!