Should you consider a “low-dollar loan” for your business?

Business term loans can help accelerate your growth, but they’re not all created equal. If you’re still in the early stages of establishing your business or building business credit, you might have a harder time getting approved for a large term loan. 

That’s where a low-dollar loan can come in handy. Low-dollar loans are smaller term loans that may be slightly easier—and faster—to obtain. Below, we’re sharing everything you need to know about low-dollar loans, including what they are, who they’re for, and when you should consider them. 

What is a low-dollar loan? 

A low-dollar loan is a smaller business term loan, usually between $25,000-$75,000. You can use a low-dollar loan for a variety of purposes, including: 

• Refreshing your inventory 
• Remodeling your storefront or office
• Buying a piece of equipment or machinery
• Purchasing new furniture or fixtures
• Launching a new marketing campaign 
• Upgrading your business software
• Ordering supplies and materials 
• Filling a cash flow gap

Because small loans are less risky for lenders (compared to larger term loans), these loans typically have looser qualification standards and fast approvals. 

Who are low-dollar loans for? 

Low-dollar loans are great options for businesses that need a relatively small amount of money to invest into their business, and value speed over the lowest possible interest rates. 

A low-dollar loan might be right for your business if:

• You’re still building business credit or you don’t have an excellent business credit score.
• You just need a small amount of cash to meet your needs. 
• You operate as a sole proprietor or just have a handful of employees. 
• You need quick funding. 

Low-dollar loans versus traditional term loans 

The biggest difference between low-dollar term loans and traditional term loans is the loan size. Traditional business term loans from banks are usually six figures, while low-dollar loans are generally five figures. The average small business loan amount from a large national bank is $593,000; from an online lender, it’s $50,000-$80,000. 

Low-dollar loans from online lenders may also have shorter repayment periods and higher interest rates than term loans from banks. The average interest rates for bank term loans are 3-6%, while average rates for online term loans range from 11-44%. At Funding Circle, our fixed interest rates start at ____. 

Low-dollar loans versus microloans

Low-dollar loans and microloans are both smaller term loans, but microloans have greater range—in both approval requirements and loan amounts. Whereas low-dollar loans cater primarily to small operations that need small infusions of capital, microloans are designed to uplift businesses that can’t access traditional financing because of their location or credit score. For that reason, microloans generally have low barriers to qualification. 

Depending on the lender, a microloan can be as small as a few hundred dollars or as large as $50,000 with the Small Business Administration (SBA). The SBA’s microloan program supports small businesses that need help with working capital, equipment, furniture, inventory, or supplies. 

Though certain businesses can get approved for up to $50,000, funds are generally more limited with microloans; the average size of an SBA microloan is $13,000. Microloan interest rates vary by lender, but they’re usually between 8-13%, which is higher than interest rates for SBA 7(a) loans as well as certain low-dollar loans with online lenders. 

3 reasons to consider a low-dollar loan

Whether or not you apply for a low-dollar loan depends on your business’s size, current growth stage, funding needs, and long-term goals. It’s a good idea to discuss your financing options with a business accountant before you make any decisions, but here are three reasons to consider a low-dollar loan: 

1. Easier approval 

Loan qualifications vary from lender to lender, and are based on a variety of factors, including your credit score, business history, business plans, and funding needs. However, if you don’t have excellent business credit, you may have a better chance of qualifying for a low-dollar loan with an online lender than getting approved for a bank term loan. 

Many banks don’t prioritize low-dollar loans, since they take just as much time and resources to process on the backend, but aren’t as profitable for the banks as larger loans. For most alternative lenders, however, small loans are the norm—and their qualification standards are more relaxed. While banks typically require FICO scores of 680 or higher to approve business term loans, some online lenders accept scores between 500-600. 

2. Efficient growth

Bigger loans aren’t necessarily better for your business. Smaller business loans can give you the capital you need to invest in your growth—without taking on a major financial commitment. If you’re a fairly small operation or if you’re still ramping up, you want to ensure you have enough cash flow to improve your business, but not so much debt that you’re in over your head. 

You can use a low-dollar loan to cover startup costs, streamline operations, refine your offerings, or enhance your customer experience. Depending on your growth goals, you may want to redesign and revamp your ecommerce site, for example, or purchase inventory management software. If your growth investments boost profits at a good rate, you may be able to pay off your loan before your repayment period ends. 

3. Faster funds

Low-dollar loans typically mean faster funds. Lenders who offer smaller loans don’t just have simple online applications—they also have more efficient underwriting processes thanks to advanced underwriting technology. Depending on the lender, you may be able to get funds within a matter of days. At Funding Circle you can get your money in as little as three days if you’re approved. 

That speed gives you more freedom to take advantage of growth opportunities and get ahead of potential problems. Let’s say, for instance, that you need a big inventory rush order to keep up with customer demand; you can use a low-dollar loan to pay for inventory upfront without tying up your cash flow.

Other types of financing to consider

Low-dollar term loans are a great solution if you need a small amount of capital, but they’re not your only option. Consider these other types of business financing: 

• Business line of credit: With lower credit requirements than term loans, business lines of credit are a good choice if you need to bridge a short-term cash flow gap or pay for ongoing operating expenses. 
• Business credit card: A business credit card is helpful if you need to start building up business credit, or if you want to make specific business purchases. 
• Equipment financing: If you need to purchase an expensive piece of machinery, equipment, or technology, equipment financing can give you the funds you need with potentially lower interest rates. 
• Invoice factoring: If you have a lot of unpaid invoices from clients, you can sell them with factoring companies to free up your cash flow. 

Get a low-dollar loan with Funding Circle 

If you need a small cash infusion to grow your business, consider applying for a Funding Circle business term loan. We offer loans starting at $25,000 for small businesses that need flexible funds. Our set monthly payments make it easy to budget, and our no prepayment penalty policy means you can pay back your loan as early as you want—with no extra fees.  
Applying online takes just a few minutes. If you qualify, you can get funds deposited in your bank account in as few as three days. Ready to get started? Learn more about our streamlined approval process or apply now.

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