Small business loans Minnesota

Whether you apply for a traditional loan, SBA loan or online loan, the application process will generally include the following steps:

1. Researching lenders: Start by taking a look at potential lenders, whether they’re local or national banks, credit unions, online lenders or government-backed programs. Make a spreadsheet of qualifications, interest rates, terms and fees. Swoop can help you narrow down programs that meet your needs. 
2. Understanding your business needs and qualifications: Check your personal and business credit scores, as these are the number one way lenders determine your creditworthiness (ability to repay a loan). Determine how much money you need for your project and how much you can afford to repay. Make sure your business plan makes a good case for how you’ll use any funds you get, as lenders will also use this to determine whether or not to approve your application.
3. Gathering documentation and information: Lenders may have specific requirements for information or documentation, but you should expect them to ask you for the following documents at a minimum:
   1. Three years of business and personal tax returns
   2. Business financial statements such as profit and loss statements, annual revenue and projections
   3. Bank statements
   4. Eligible collateral documentation
   5. Personal identification
   6. Business licenses
   7. Business plan
4. Filling out the loan application: Many lenders will allow you to fill out an application online, in which case you’ll need digital copies of all your documentation. You may need to apply in-person or mail in copies of your documents to some lenders. Make sure your application is accurate, too – you can get help from business consultants or accountants to help you review your application before your submit it. 
5. Responding to requests: Lenders may need more information as they review your application, and the sooner you respond with accurate details, the sooner they can approve your loan. Underwriting and review are often the longest part of the application process, so be patient and responsive while your lender makes their decision.
6. Reviewing any loan offers: Read the fine print on any loan offer to make sure you understand repayment terms, interest rates and any fees. Some loans may require you to pay a fee if you pay the loan off early, which can be a big surprise if you didn’t know about it. You may use a consultant to help you understand the terms and conditions before you sign. 
7. Using the funds correctly: In order to avoid defaulting on your loan, you need to make sure you use the loan funds as outlined in your loan agreement, for instance you have to use equipment financing to pay for equipment. You should also be prepared to repay the loan in the structured plan outlined in the agreement. 

Lenders will often assign you a loan officer to guide you through the application and approval process, so make sure you use them as a resource. The more prepared you are for every step, the faster you can receive your approval and funding.

What credit score do I need? 

Every lender and loan program will have its own requirements for an acceptable credit score to secure a business loan. If your credit score is 700 or above, you generally have a better chance of getting loan approval as well as the most favorable rates and terms. Alternative lenders and online platforms may approve loans for those with credit scores between 550-650, although they’ll generally charger higher interest rates to make up for the risk. Some SBA loan programs may offer approval to those with credit scores below 680, but they may require collateral or a personal guarantee in order to do so.

Of course, while your credit score is a major factor in determining your creditworthiness, business lenders will look at other aspects of your business’s financial health, like revenue, cash flow and time in business. They’ll also consider your business plan and how you intend to use the funds in their evaluation processes.

It’s always a good idea to check with the lender about their specific credit score requirements before you apply. Review your credit report to make sure it’s accurate. If you have a lower score, you can take some time to build your credit before you apply for a loan, or be prepared to provide more documentation to justify your ability to repay the loan.

What are typical interest rates on a business loan in Minnesota?

Interest rates on business loans vary based on your qualifications, the amount of the loan, the type of loan and general economic conditions. In 2023, the average business loan interest rates ranged between 5.9% – 12.23% – but note that this was an average.

For a traditional bank loan, you can expect an interest rate between 5.89-12.23%. SBA loans, which are tied to the U.S. prime rate (currently 8.5%), will range between 11.5-15%. Online or alternative loans can be as low as 6% or as high as 99% based on qualifications.

For alternative funding, average rates can vary widely:

• Equipment financing: 4-45%
• Lines of credit: 10-99%
• Invoice financing: 10-79%
• Merchant cash advance: 40-350%

This is why it’s so important to research rates based on your qualifications before you sign a loan or other financing agreement. You can use a loan calculator to determine how much you’ll pay for the loan before you agree to the funding.

How long does it take to get business loan funds?

Different lending programs take different amounts of time to fund. The timing will also be affected by the amount of money you are seeking and how complete your application is. Again, underwriting and approval processes tend to take the longest time of any part of a loan process. 

An online or alternative loan may fund in as few as 48 hours. This may be a good option for borrowers who need quick access to cash and can afford higher interest rates. Traditional bank loans tend to have a longer approval process and can take several weeks or months. You may be able to access expedited loan approval processes, although these usually come with fees or higher costs. 

SBA loans have a longer processing time than other loans because they’re backed by the U.S. government. Approved lenders can take six months or more to approve larger SBA loans. Because SBA programs are very popular, there tend to be hundreds of applications in need of review at any given time.

What alternative types of business financing are available?

If a business loan isn’t right for your organization, your Minnesota business still has many options available to find funding. 

• Business lines of credit provide your business with access to funds up to a pre-set limit which you can often re-use after repaying the balance. You only pay interest on the funds you use.  
• Invoice financing allows you to “sell” unpaid invoices to a third-party financial institution that will take over gathering payment on the invoices and charge you a percentage or fee.
• Merchant cash advances provide you a lump sum payment from a financial institution that you repay through a percentage of daily credit or debit card sales. 
• Crowdfunding allows individuals to give you money for your business idea or product, usually in exchange for early access to products or services or other rewards. 
• Venture capital and angel investors where investors provide capital in exchange for equity in your business. This option is usually best for high-growth start ups.
• Business grants provided by economic development agencies, government agencies or community organizations give your business a lump sum of cash to use however you need to and often provide marketing, mentoring or other help with your small business.