Lending Library

Every small business owner looking for financing should understand the fundamental differences between a business line of credit and a term business loan. 

Both types of financing can be useful, but they do serve slightly different business needs. Applying for the right type of capital at the right time ensures that you don’t run into any problems down the road—or create more problems down the road.

Here, we’ll look at term loans and lines of credit, the requirements, benefits, and drawbacks of each, to help you determine which is the right option for your small business.

What is a business term loan?

A term loan is a fixed funding transaction. It is a one-time loan based on the current cash flow of your business (often plus collateral that you pledge to secure the loan). 

With a term loan, all of the proceeds are available at the time of closing. The lender bases your payments, interest, and principal on the amortized loan terms. For example, your business might take out a $100,000 loan at an 8% fixed interest rate over a 5-year term. Interest rates and monthly payments on term loans are generally fixed for the life of the loan. 

If your term loan is secured (many are), the bank will assume an ownership position on the collateral you offer. This means you cannot transfer or liquidate the collateral you use to secure the term loan until you make the final loan payment.

The typical use for a term loan is to finance a major expenditure. However, it can also be used to cover daily cash flow expenses.

What is a business line of credit?

A business line of credit (LOC) is like a cross between a short-term business loan and a business credit card. When you open a business LOC, the lender approves you for a credit limit on the account. This credit limit represents the maximum amount of money your business can borrow at a given time. 

As your business uses its credit limit, less money is available to borrow in the future. But your business can repay the money it borrows (plus interest) and regain access to the same credit line—as long as the business LOC remains in good standing. 

As you borrow against the available credit limit, you accrue interest charges each month. You’ll only pay interest on the amount of money withdrawn.

A line of credit has the potential to be a great cash flow management tool. A study by Intuit found that 61% of small businesses face cash management challenges.

Smart uses for a line of credit include stocking up on discounted inventory, financing for marketing campaigns, covering temporary payroll needs, and more.

Making the choice: Term loan or line of credit?

To determine which option is better for your business,start by answering the following questions:

• Why does your business need financing? How do you plan on using the capital?
• What type of products or services do you offer (and what is the life of those goods)?
• Is your business able to satisfy stricter lender borrowing requirements (with regard to credit, revenue, and time in business) or do you need a more lenient approval process?
• Are your capital needs long-term or short-term?
• What is your standing as a borrower (i.e. credit score, time in business, revenue, etc.)?

Based on the answers to these questions, you can decide whether a loan or line of credit is more appropriate.

If you have great credit, along with sufficient revenue and time in business and you want to borrow money to expand your business, a business term loan would be a solid choice. However, if you have credit problems, your business is relatively new, or you need repeated access to a cash flow financing solution, a line of credit is likely better for you.

In some cases, you may have access to a lender who offers both.

When it comes to deciding between your two options, understanding the differences between these financing products is important.

Differences between business lines of credit and term loans

A term loan can be an attractive financing solution due to its competitive interest rates and borrowing terms. That said, lender qualification criteria for a business term loan can be more challenging to satisfy compared to other types of financing for small businesses.

A business line of credit is a flexible funding resource that can be useful for many small businesses. Interest rates may be higher with LOCs compared to some term loans and other business financing options, but lender qualification standards are often more forgiving as a tradeoff.

The key differences generally lie in what costs are included, and how you're required to repay your loans.

Lender requirements

Ideally, in either case, you’ll have a credit score above 700, annual revenue that exceeds $100,000 and have been in business for at least 2 years. Depending on the lender, however, these levels may vary. There are always options.

The recommended minimum requirements for each are generally as follows:

Repayment structure

Term loans offer many benefits to small businesses, including the fact that borrowers can often repay the funds they borrow over a longer period of time. Lenders typically require borrowers to make monthly (sometimes bi-weekly) payments with term loans. Longer repayment structures with less frequent payments can be friendly for investments in business growth that take time to provide returns. 

Lines of credit allow business owners fast access to capital during a time of need. 

As a tradeoff for speedy and flexible financing, business owners must often repay the money they borrow over a shorter period. In addition to expedited repayment terms, the payments themselves may also occur on a more frequent basis. Some lenders may require borrowers to make weekly payments toward the money they borrow from their LOC, though others may offer a less demanding payment structure.

Interest rates and fees

Term loans often feature lower interest rates than other types of business financing, including lines of credit. At the time of writing, you might find interest rates as low as ~6% with a business term loan, depending on your creditworthiness and other factors.

In addition to the interest rate a lender charges on your loan, it’s also important to factor in additional fees that could increase your overall costs. That might include origination fees, application fees, late fees, and prepayment penalties, as well as factoring fees and factor rates.

If you’re comparing term loans from multiple lenders to search for the best deal available, this free business term loan calculator from Lendio can help you crunch the numbers. 

Lines of credit often feature higher interest rates compared to business term loans and other sources of financing. Interest rates commonly range between 8% and 24% on business LOCs.With lines of credit, many lenders also charge annual fees, origination fees, maintenance fees, late fees, and other expenses. So, read the fine print before you sign any financing agreement. You can also use this free line of credit calculator from Lendio to compare the cost of multiple business LOC options. 

When should you apply for a business term loan?

If your business needs financing for any of the following reasons, a term loan is likely the better fit.

• Opening a new location - Expanding to a new business location requires a sizable upfront investment that might take time to produce a profit. A term loan can help you amortize the investment over several years.

• Hiring new employees - A term loan is a great way to handle the upfront costs associated with bringing on new staff and can provide a cash cushion for your business to manage increased payroll expenses.
• Renovations and capital improvements - A term loan can stretch out upfront renovation costs, enabling your business to continue to run without a sizable cash outlay.

When should you apply for a business line of credit?

The following situations are examples of when a business line of credit could be helpful to a business. 

• Cash flow management - Many small businesses struggle to bridge the gap between accounts payable and accounts receivable. With a line of credit, a business can use this resource to pay its vendors and repay the funds it borrowed once its customers pay their invoices.
• Seasonal sales cycles - Businesses that have a busy season could use a line of credit to ensure a cash cushion during slower months.
• Inventory purchases - A business can draw on the line of credit to purchase inventory and pay it down when it sells the inventory at a later date.

The last thing to keep in mind– term loans and business lines of credit are not your only two options. Although these are two of the most popular and useful small business funding resources available, there are other types of small business loans you can consider if you feel like your business needs alternative financial resources.

Starting a new business can be an exciting journey, but it also comes with its own set of challenges. One of the biggest hurdles can be securing the right funding to get your startup off the ground. As a small business owner with poor credit, it can be even more difficult to find the financing you need. However, there are still options available to you. In this article, we’ll explore the possibilities of getting a startup business loan with no credit check or poor credit, as well as alternative forms of financing to consider.

Getting a business loan with no credit.

When you apply for a business loan, many commercial lenders will review your credit history to get a sense of how you’ve handled debt in the past. Reviewing previous credit history and checking your credit scores helps lenders predict risk. The problem for many entrepreneurs is that their new business hasn’t yet had a chance to establish a track record when it comes to managing credit obligations. 

If a lender’s usual qualification metrics are based on longevity (aka time in business and length of credit history), they need to take a different approach for startups. Rather than look at business credit, a lender may focus on your personal credit score and overall business experience instead. 

This alternative approach to risk assessment can work because a business owner’s personal credit scores can also provide a lender with valuable predictive analytics. At its core, a credit score (both business and personal) is a formula that lenders use to predict whether you’ll repay the money you borrow as promised. And that key information—the likelihood of repayment—is what a lender really wants to know when you apply for a loan.

The best small business loans with no credit check.

There are many loan products available to small business owners. Yet entrepreneurs with low credit scores or those who prefer to avoid a credit check for other reasons often find the most success with invoice factoring, ACH loans, or business lines of credit. 

The qualification criteria for the three financing options above depend less on your credit scores and more on other factors. This doesn’t mean you will receive an automatic approval even with a very poor credit score. But if you have experience in your industry and some positive credit history, you may have a fighting chance at qualifying.

Below are some important details to consider regarding these three financing options:

1. Invoice factoring

With invoice factoring, the majority of lenders do not have a minimum credit score requirement. As a result, your application for funding from a factoring company may not involve a credit check at all. Here’s an overview of how this financing option works. 

Invoice factoring involves selling your company’s outstanding B2B invoices to a financing company for cash. In general, a factoring company might advance you 70% to 90% of the value of your invoices. The factoring company then works directly with your client to collect the money owed when the invoice due date arrives. Once it collects the funds, the factoring company will return the remaining balance to you, minus a factoring fee (often 3% to 5%).  

Lenders don’t typically check your credit when you’re seeking financing through an invoice factoring arrangement. Instead, the credit of your customers could matter. With this type of financing, a factoring company will collect payment from your customers, not you or your business. Therefore, your customer’s creditworthiness could impact your ability to qualify for financing and the fees a lender charges you as well. 

2. Revenue-based financing

Revenue-based financing (sometimes called a business or merchant cash advance) could be another financing solution to consider if you need business financing for bad credit or no credit. Most lenders that issue revenue-based financing require a minimum credit score of 500 to 625. (These lenders often perform only a soft credit inquiry that won’t impact your credit score.) However, a handful of providers may not require a credit score review at all. 

Revenue-based financing is so popular among entrepreneurs because of their rapid funding speed. Once a lender approves you, you can often receive your loan proceeds within a couple of days. This funding agility can present a substantial advantage for a small business in the startup phase.

Of course, just as with ultra-fast sports cars, you are likely to pay a premium for the speed of cash advances. On either a daily or weekly basis, the lender will take an agreed-upon amount from your bank account as an ACH deduction. The amount you can borrow tends to be lower than the loan amounts you might receive via other financing options. But many small business owners feel that the trade-off is fair, thanks to the convenience of revenue-based financing.

{{block="/blocks/calculator"}}

3. Business lines of credit

Lenders are likely to review your credit when you apply for a business line of credit (LOC). However, some lenders will only perform a soft credit inquiry to assess your business LOC application. (Remember, soft credit inquiries do not have any impact on your credit score, unlike hard credit inquiries that have the potential to impact your credit score.) Other lenders may perform a soft credit check for the pre-approval process and follow up with a hard credit inquiry at the time of funding.

In some cases , when you apply for funding through a service provider you already use, they can make decisions based on the data already available.

When researching a business line of credit, you’ll notice it's similar to a business credit card in a few ways. An LOC comes with a credit limit, often ranging from $1,000 to $500,000. Depending on the lender, you may have access to the funds within one to two weeks. The financing typically has a one- to two-year maturity.

Perhaps the best feature of a business LOC is its flexibility. If your restaurant needs a new fryer, buy it. If you need to hire employees, go for it. If you want to bulk up your inventory, do it. Nearly any expense that goes toward starting and sustaining your business is fair game.

Like credit cards, this type of financing also gives you access to revolving credit. This differs from most loans, which provide you with a lump sum of money upfront. With an LOC, you simply use the credit line whenever necessary. There’s no pressure to spend it, and you’ll pay interest only on the funds your business borrows.

Work to bolster your credit score.

It’s true that invoice factoring, ACH loans, and sometimes even business lines of credit can provide financing even when your credit is unimpressive. But that’s no reason to accept the status quo. You should put effort into improving your credit. 

Working to earn better credit could open doors to you in the future. Not only can good credit help you qualify for more loan products, but it may also help you receive more favorable interest rates and repayment terms from lenders.

Paying credit obligations and vendor accounts on time is the best way to improve your business credit scores. (And, of course, you’ll want to make sure those accounts report to the credit reporting agencies.) 

To maintain a stellar payment history, sign up for automatic payments whenever possible. If you can’t sign up through the payee, consider adding them to your banking system. At the very least, set up a regular calendar reminder so you won’t be forced to rely solely on your memory.

Alternative financing options

1. Crowdfunding – Crowdfunding is a way to raise money online by collecting small amounts from numerous people. 

2. Family and Friends – Small business owners can borrow from family and friends, but there are risks. If the business fails or the loan can’t be repaid, important relationships may suffer. 

3. Grants – Small businesses and startups may find it appealing to apply for grants as they don't need to be repaid. Although challenging, winning a grant isn't impossible.

4. Angel Investors –An angel investor funds small businesses in exchange for equity. It's a good option when businesses need more funding than they can get from friends and family, but not enough to attract venture capitalists.

5. Venture Capitalists – Venture capitalists provide funding to startups and receive a percentage of the company’s equity in return. Venture capitalists are typically looking for businesses with high-growth potential and a solid business plan. 

Whether you’ve gone through a personal or business bankruptcy, lenders will consider past bankruptcies when making a loan decision. This post will cover common questions about bankruptcy and how it impacts your loan application.

Can you get a business loan after bankruptcy?

Yes, you can qualify for a business loan if you’ve had a bankruptcy. However, lenders will want to see that you’ve rebuilt your credit and will have varying waiting periods before you are eligible.

However, each platform will have rules about when you could have last had a bankruptcy, such as not within the last 24 months.

When can you qualify for a loan after bankruptcy?

Bankruptcy policy will vary by lender. Some will require waiting seven years when the bankruptcy will be removed from your credit report. Others will consider your application within two to three years after the bankruptcy is closed if you’ve rebuilt your credit score. Some lenders will disqualify you if you have had multiple bankruptcies.

Can you get an SBA loan after bankruptcy?

Yes, you can qualify for an SBA loan if you’ve had a previous bankruptcy. The policy will vary by lender but generally starts at no bankruptcies or foreclosures in the past three years with no more than two total bankruptcies. 

Types of bankruptcy.

Chapter 7 bankruptcy

Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, involves the sale of a debtor's non-exempt assets by a trustee. The proceeds are used to pay off creditors. This type of bankruptcy is designed for individuals or businesses that don’t have the means to pay back their debts. For businesses, this usually means the end of operations. However, individuals might see it as a fresh start, albeit with a significant impact on their credit report for 10 years.

Chapter 11 bankruptcy

Chapter 11 bankruptcy is primarily for businesses, allowing them to continue operations while reorganizing their debts. It’s a complex process that involves negotiating with creditors to modify the terms of the debt without selling off assets. This form of bankruptcy can be expensive and time-consuming but offers businesses a chance to recover and eventually return to profitability.

Chapter 13 bankruptcy

Chapter 13 bankruptcy is aimed at individuals with a regular income who want to pay their debts but are currently unable to do so. It involves a repayment plan lasting three to five years, allowing debtors to keep their property while making more manageable monthly payments towards their debt. The successful completion of the payment plan can lead to the remaining debts being discharged. Chapter 13 bankruptcy remains on an individual's credit report for seven years, offering a less severe impact compared to Chapter 7.

Waiting periods

Typically, a bankruptcy will remain on your credit report for at least 7 years. However, because the court filings are public, the fact that you declared bankruptcy would remain part of the public record if someone searches for it.

Steps to qualify for a loan post-bankruptcy.

Rebuild your credit.

Rebuilding your credit after bankruptcy is crucial for qualifying for a business loan. It may seem daunting, but it's possible with a strategic approach:

Start by regularly checking your credit report for inaccuracies. Dispute any errors that can negatively impact your score.

Consider obtaining a secured credit card. This requires a deposit acting as your credit limit.

Make small purchases with this card and pay off the balance in full each month. This shows lenders your responsible credit use.

Always make payments on time, keep your credit utilization low, and be patient. Credit rebuilding takes time, but consistent effort will gradually improve your creditworthiness.

Research lenders.

Find out which lenders will work with business owners with a prior bankruptcy and the thresholds you'll need to meet before you apply.  If you apply through Lendio, we can help match you with lenders who will work with someone with your credit history.

Grow business income.

Lenders will also consider your business's current financial standing and future potential when evaluating your loan application. Focus on increasing revenue and building strong cash flow to demonstrate the ability to repay a loan.

Have you ever wondered why lenders pay such close attention to your credit score? It’s because they’re protecting their assets and want to determine whether they can trust you to consistently repay the money. If your credit score reflects a solid track record, you’ll get serious consideration. If you have major blemishes in your past, many lenders take defensive action.

Of course, we realize the life of an entrepreneur is full of risk. We’ve all collected our share of bumps and bruises along the way. So there’s no shame in a less-than-stellar credit score. And if you feel like your bad credit is keeping your business from achieving its potential, you’re not alone. However, don’t let one or two rejected loan applications keep you down. It is possible to get still business loans with bad credit.

Best business loans for bad credit.

The following list highlights lenders from our selection of best business loans that offer minimum credit requirements below 650 and have a lower minimum credit score requirement than their counterparts.

How a bad credit score impacts your business loan options.

Credit score requirements for business loans vary by lender and the type of loan. No credit requirements are the same, so you’ll always need to do your due diligence to find your best opportunities. This is especially true for bad credit loans online.

Traditional banks typically require good or excellent credit to qualify for a business loan. This means you should have a personal credit score of at least 670, although some banks will consider applicants with credit scores in the low 600s. If you’re applying for a long-term or SBA loan, banks may want to check your business credit score in addition to your personal credit score. In this case, you’ll want to have excellent business credit, as well—a Dun & Bradstreet score of 80 or above should suffice.

Where to find business loans for bad credit.

There’s still hope for business owners with bad credit. While big banks tend to offer the lowest interest rates, plenty of other affordable lenders out there offer bad credit loans online.

Service providers

As embedded financing unlocks new ways for business service providers and platforms to service their customers, financing options are now available in places you already frequent. From accounting software to e-commerce platforms, many tools you already use to run your business may offer access to capital directly within their interface—often with faster approvals and tailored options based on your business data.

Lending Marketplaces

Lending marketplaces have opened the door for a new range of business owners to access business loans. These marketplaces are home to a wide range of lenders and leverage technology to connect borrowers with a loan that suits their needs and credit profile.

Loans from these lending marketplaces have a much higher approval rate than those from traditional banks. They also tend to be much easier to apply for, and you’ll often receive funding very quickly. This makes them an ideal source of loans for people with bad credit.

Microloans

Microloans are exactly what they sound like⁠—small loans. These loans are geared toward entrepreneurs and are, therefore, easier to qualify for than traditional loans. 

No credit? That’s not necessarily going to be a roadblock. Your microloan will typically be fulfilled by several lenders pooling their money together, so each lender can spread their risk among many different small loans. This feature makes peer-to-peer lenders more willing to lend to people with bad credit. However, if you don’t have good credit, you will end up paying higher interest rates.

CDFIs

Community Development Financial Institutions (CDFIs) are non-profit or community-based financial institutions that offer loans to individuals and businesses in underserved communities. These institutions prioritize helping those who have historically been denied access to traditional financing options, which often includes business owners with bad credit.

CDFIs typically perform a more holistic evaluation of an applicant's creditworthiness, considering factors such as their character, community involvement, and potential for success. This approach to lending has made CDFIs a popular choice for business owners with bad credit.

Some examples of CDFIs include Accion and the Opportunity Fund. You can find more information about CDFIs through the CDFI Fund.

Types of loans for bad credit.

It’s important to know how to get a business loan if your credit isn’t in a great place. And there is a trio of financing products that often fit the bill perfectly. These loans for bad credit options are different from typical loans both in their structure and their low barrier to entry.

Let’s review each of the types of loans for bad credit and some of their unique attributes:

1. Business lines of credit 

A business line of credit is a financing option that functions a lot like a credit card. To qualify, you’ll need to have a credit score of 600 or higher, have a business that’s been operating for at least six months, and make $50,000 or more a year.

2. Revenue-based financing

Revenue-based financing is a strong choice for business owners with bad credit because the financing eligibility is primarily based on the company’s revenue and other financials. The approval process is typically fast, so it’s also good for companies that need immediate access to capital. Lenders usually require daily payments that are automatically debited from your business account. In addition to the principal balance, you’ll also pay a factor rate. Your daily payments are usually calculated as a fixed percentage of that day’s sales, which can help you avoid overleveraging your business.

3. Invoice factoring

Lenders who offer invoice factoring focus on your business’ future earnings based on your current accounts receivables, so most lenders won’t look at your credit score. Some will have other minimum requirements, such as time in business and monthly revenue. Most lenders will also have limitations on the industries with which they will work, with some specializing in e-commerce and others focused solely on B2B or B2G brands.

4. Equipment financing

Equipment financing helps you finance specific purchases, whether it’s a piece of heavy machinery or software to help run your company more efficiently. In the case of equipment leasing, the purchased asset is used as collateral, which helps to widen eligibility requirements and keep interest rates lower than with many other options. 

Most lenders have a one-year minimum time in business requirement, as well as a minimum annual revenue. A personal credit score is required, but minimums start in the 500’s.

Boosting your odds of qualifying for a business loan despite bad credit.

It's not just about finding the right lender—you also have to make yourself more appealing to them. Here are a few strategies to consider:

Improve your credit score - It’s easier said than done, but the most reliable way to make yourself attractive to lenders is by fixing your credit. Pay off outstanding debts, make sure you’re making all your current payments on time, and check your credit report for errors.

Offer collateral - If you can provide assets that the lender can seize in case you default on your loan, they may be more willing to work with you. These assets could be equipment, real estate, or other business properties.

Find a co-signer - If someone with a better credit score is willing to co-sign for your loan, that can greatly increase your chances of approval. However, remember that this person will be responsible for your loan if you can't make the payments.

Increase your cash flow - Lenders want to see that you'll be able to pay back the loan. If you can show that your business has a steady cash flow, you're more likely to secure the loan.

Build a strong business plan - As mentioned earlier, a solid business plan can go a long way. It shows that you're serious about your business, and it gives the lender confidence in your likelihood of success.

By following these steps, you can improve your chances of being approved for a business loan, even with bad credit. Remember, bad credit isn't a death sentence. It’s just a hurdle to overcome—and with the right approach, you can do it.

How to improve your credit score.

Improving your credit score takes time and effort, but it is worth it in the long run. Here are some steps you can take to improve your credit score:

Pay off outstanding debts - Focus on paying off any outstanding debts as soon as possible. This will not only improve your credit score, but also save you money in interest.

Make your payments on time - Late payments can significantly impact your credit score. Make sure you are making all of your payments on time, whether it's for a loan, credit card, or bill.

Monitor your credit report - Regularly check your credit report for any errors or discrepancies. If you find any, dispute them with the credit bureau to have them corrected.

Reduce your credit utilization - Your credit utilization ratio is the amount of available credit you're using. Aim to keep this below 30%, as it could positively impact your credit score.

Don't apply for too many new lines of credit - Each time you apply for a new loan or line of credit, it results in a hard inquiry on your credit report. Too many of these can negatively impact your score.

In conclusion, having a bad credit score isn't a dead end for business owners. There are several avenues available (Ex: lending marketplaces, microloans, and CDFIs) that are designed to help businesses with less-than-stellar credit histories. Compare small business loans from multiple lenders with a single application through Lendio.

In today’s fast-paced, mobile-first world, it’s essential for businesses to prioritize customer convenience. Embedded finance is one creative (and often profitable) way that companies can accomplish this goal. With embedded finance features, non-financial companies can offer key services—like credit and banking products—while customers are already at the point of sale.

Whether a person is buying a pair of sneakers online or hailing a ride on their smartphone, consumers have grown to expect seamless financial transactions right where they’re located. And embedded finance is how many businesses—especially those that don’t sell financial products—are providing these services. 

Embedded finance helps non-financial companies offer services like payments, lending, insurance, and banking directly through their own platforms. Understanding this technology can help your business improve customer satisfaction, unlock new revenue streams, and stand out in the digital marketplace.

Understanding embedded finance

Embedded finance refers to the integration of digital banking and financial products or services into a non-financial company’s platform or mobile app. More plainly, it means offering financial products—like credit, payments, or insurance—to customers right when and where they need them.

From a customer perspective, embedded finance provides added convenience and, in some cases, access to a financial product they might not find easily on their own. Meanwhile, for B2B platforms, retailers, and other businesses, embedding financial capabilities can unlock cross-selling opportunities while enhancing customer satisfaction and brand loyalty.

How does embedded finance work?

At its core, embedded finance is powered through APIs (application programming interfaces) and banking-as-a-service (BaaS) platforms. These services give non-banks the capability to “plug in” financial tools into their existing platforms without the burden of maintaining their own financial institution charters. When customers use these embedded services, they never leave the familiar platform where they initiated their original purchase. Behind the scenes, however, licensed financial institutions or third-party fintechs are powering the transactions and services.

Here are a few real-life examples of embedded finance in action.  

• A retailer integrates BNPL (Buy Now, Pay Later) services like Afterpay or Klarna into its platform or mobile app.
• A department store offers a branded retail store credit card featuring discounts, rewards, and other benefits. 
• Lyft drivers use embedded banking services (including an in-app checking account and debit card) to access instant earnings, manage funds, and request cash advances.
• Starbucks customers use the brand’s mobile app to store their credit or debit card information for one-tap payments while earning loyalty rewards. 

By embedding financial services directly into their platforms, companies can offer more convenient, personalized, and stickier user experiences. And this trend is only gaining momentum. Experts predict the global embedded finance market will reach $7.2 trillion by 2030, according to Harvard Kennedy School.

Difference between embedded finance and fintech

At first glance, the terms “embedded finance” and “fintech” may sound interchangeable. But there are key differences that are important to understand. 

• Fintech refers to companies that develop financial technologies for consumers and businesses including tools for payments, budgeting, investing, lending, and more. Examples of fintechs include Stripe, Plaid, and Robinhood, among others. 
• Embedded finance is the integration of financial technologies into non-financial platforms through APIs. It refers to the financial service, not the developer.

In short, most embedded finance capabilities wouldn’t be possible without the fintech companies that develop and maintain the technologies. And fintech partnerships can help solve regulatory hurdles for non-financial companies that wish to offer embedded finance products as well.It’s also important to understand how BaaS (banking-as-a-service) providers fit into this landscape. BaaS allows regulated financial institutions to deliver services through non-bank businesses. For example, when Uber (a non-bank) offers debit cards to drivers, it partners with a regulated banking partner like Branch as a BaaS provider to deliver those services.

4 Types of embedded finance (with examples)

1. Embedded banking

Embedded banking brings banking functionality into non-bank platforms. Key features may include account creation, debit card access, deposits, money transfers, and more.

Examples of embedded banking include: 

• Shopify Balance offers merchants a business account, debit card, and rewards for eligible business-related purchases—all without leaving the Shopify system.‍
• Lyft Direct business debit card and banking app provides drivers with instant access to earnings, cash back, and other perks. These benefits reduce driver incentives to switch to competitors.

2. Embedded payments

Embedded payments are perhaps the most common example of embedded finance. This technology lets customers pay within an app or platform without being redirected to an external site (and without having to pull out their wallet to re-enter a credit card number). Instead, customers can save their payment method to use again for future purchases. 

An example of embedded payments is: 

‍Starbucks integrates payment capabilities and rewards into its app. This enables customers to earn stars, reload their balance, and check out in a single mobile location.

3. Branded payment cards

Many companies offer co-branded credit or debit cards which they tailor directly to the needs of their customers. Branded payment cards have been around for many years. But fintech has expanded capabilities in this space and increased opportunities for companies to offer embedded credit to customers—especially in the B2B space.

Example: 

‍BILL offers a corporate card with scalable credit limits, built-in expense controls, and seamless integration into its financial operations platform.

4. Embedded lending

Non-financial business platforms can embed personal or business loans, working capital, and other credit tools directly into the customer experience. This technology enables companies to offer customers more payment options by turning customer pain points into convenient problem-solving opportunities. 

Examples of embedded lending include:

Buy Now Pay Later platforms like Afterpay and Klarna let consumers split retail purchases into smaller payments. ‍

Lendio’s embedded lending marketplace helps digital platforms offer curated funding options to small business users in a single, convenient location—unlocking new revenue for site owners and new funding opportunities for small businesses.

Benefits of embedded finance

As a business, offering embedded finance to your customers isn’t just about convenience. It’s a way to create a competitive advantage and standout in the marketplace. 

Some of the top advantages of offering embedded finance tools to customers include: 

• New revenue streams: Embedded financial services empower you to monetize your platform through transaction fees, revenue sharing, or white-label financial products.
• Increased customer loyalty: The integration of financial tools simplifies the overall user experience. This reduces friction for customers and keeps users engaged by offering key financial services where and when they need them.

Competitive edge: As more businesses embrace the inclusion of embedded financial services into their platforms, consumer expectations are evolving. Meeting those expectations can help your business stand out and remain relevant in the marketplace.

Challenges of embedded finance

Despite the upsides, implementing embedded finance comes with hurdles as well—especially where compliance and data management are concerned. Some of the top challenges companies commonly face in this area are: 

• Regulatory risk: It’s important to partner with reputable, licensed providers to stay compliant with financial regulations. 
• Data privacy and security: Customers and regulators expect transparency and safety when your business handles sensitive financial data. ‍
• Integration complexity: Choosing the right fintech, API, and BaaS partners is critical for a smooth rollout and long-term scalability where embedded finance products are concerned.

Future of embedded finance

Embedded finance is still somewhat early in its development. Nonetheless, its impact is already reshaping how businesses serve customers. And experts predict that momentum will only continue to grow. 

Emerging trends in embedded finance include:

• More personalized financial tools tailored to user behavior. 
• Wider adoption by small and mid-sized businesses. 
• Deeper industry disruption in industries like B2B, retail, and travel.

To prepare, consider exploring potential fintech partnerships and evaluate your customer journey for potential embedded finance opportunities. Most of all, be sure to choose wisely when it comes to integration providers—especially where data security, privacy, and compliance are concerned.

Navigating the world of small business loans can be complex, and changes in policies or procedures by the U.S. Small Business Administration (SBA) add a new layer of challenge. However, staying informed about SBA updates isn’t optional - it’s essential for business owners who want to capitalize on growth opportunities or secure working capital in today’s environment.

In early 2025, the SBA released new guidance that goes into effect on June 1, 2025. These changes impact eligibility criteria, loan classifications, and documentation expectations across SBA 7(a) and 504 programs. If your business is considering a government-backed loan - or already relying on one - this guide breaks down what’s new, what it means, and how to prepare.

Why this matters now

The SBA SOP 50 10 8 (Lender and Development Company Loan Programs) is 448 pages long - not exactly light reading for a busy business owner. But within it are critical shifts that could impact your funding journey.

‍

SBA loans offer some of the most favorable terms on the market, supporting everything from working capital to equipment, disaster recovery, and growth. Missing these changes could mean: 

• Being disqualified from overlooked criteria
• Delays in the loan process due to missing documentation
• Leaving money on the table while competitors secure better funding

Key 2025 SBA Updates Every Business Should Know

The latest SBA Standard Operating Procedure (SOP 50 10 8), replaces SOP 50 10 7.1 and brings substantial changes across the board. Here’s what small business owners need to know:

Citizenship requirements just got stricter

To qualify, 100% of owners, guarantors, and key employees must now be U.S. citizens, nationals, or lawful permanent residents (green card holders). This replaces the previous 51% threshold and disqualifies any company with foreign stakeholders, even indirectly.

With the new rule, all direct and/or indirect owners or SBA guarantors must be U.S. citizens, U.S. nationals, or lawful permanent residents. SBA lenders must certify that no owners or guarantors are ineligible persons in E-Tran.

‍

The new rule also defines an ineligible person:

• Foreign nationals
• Those granted asylum
• Refugees
• Visa holders
• Nonimmigrant aliens
• Deferred Action for Childhood Arrivals (DACA) recipients
• Undocumented aliens in the U.S. illegally

‍

Finally, the SBA has introduced a six-month lookback requirement. Applicant businesses are ineligible if any associate of the business was an ineligible person in the six months before the SBA loan number was issued unless they have completely divested their ownership interest and severed all relationship with the applicant and company for the life of the loan.

‍

More industries are now ineligible

SOP 50 10 8 introduces a dedicated section for types of ineligible businesses in the update, with criteria for determining eligibility by business type. Businesses involved in marijuana, hemp, and cannabidiol (CBD) operations are now officially excluded again, reinstating pre-2023 policies. 

Higher SBSS score minimum for 7(a) small loans

Previously, the minimum acceptable SBSS score to be eligible for a 7(a) small loan was 155. The SBA has updated the minimum to a 165 score as of June 1, 2025.

‍

There’s another change worth noting. Regardless of the SBSS score obtained, a business is ineligible if it has an existing 7(a) or 504 loan that is not current (required payment not made in more than 29 days).

Stricter “Credit Elsewhere” documentation

Demonstrating that credit is not available elsewhere on reasonable terms from non-federal, non-state, or non-local sources has been a longtime requirement for eligibility. This hasn’t changed; however, where lenders had to give a broad certification and substantiation that credit wasn’t available elsewhere, they now have to give specific reasons why the applicant doesn’t meet conventional loan policy, with supporting documentation.

Lenders also can’t certify based on the applicant's credit score alone, which means a more thorough analysis of why a small business won’t meet standard loan policy requirements beyond a poor credit score. 

‍

As part of this, an applicant's personal liquidity, not just business liquidity will be assessed, and if an applicant has significant personal cash or assets they may be disqualified, even if the business would otherwise qualify on paper.

Lenders are now responsible for verification

While not a direct requirement, it’s worth noting that lenders are now accountable for verifying applicant eligibility. Before the rule change, the SBA took responsibility for verifying applicant eligibility requirements. Now, specific processes and frameworks have been developed for lenders to take on the burden of reviewing and documenting eligibility for an SBA loan directly, except for certain determinations that will be handled by the SBA.

Changes to SBA 7(a) loan categories

Another notable rule update is to 7(a) loan categories themselves, decreasing the upper limit for 7(a) small loans, and the lower limit for 7(a) standard loans.

SBA Franchise Directory reinstated

SOP 50 10 8 has reinstated the SBA Franchise Directory, creating a catalog of preapproved businesses for easier decision-making by lenders. As a positive, this helps franchise owners benefit from a streamlined certification process. However, if a franchise is not listed in the directory, or hasn’t submitted the required documentation to verify eligibility and receive new certification by July 31, 2025, they will be removed. 

‍

If a franchise is not in the directory, applicants will need to apply to get added to it before the SBA loan file can move forward.

Revenue-based financing and factoring debt can’t be refinanced

Previously, merchant cash advances (revenue-based financing) and factoring weren’t explicitly listed as being ineligible for refinancing. However, the SBA now defines merchant cash advances as “a purchase of future receivables”, not a traditional loan, so as of the effective date, these loans can’t be refinanced with SBA funds.

How SBA Rule Changes Affect Small Business Owners

The 2025 changes bring both new challenges and new responsibilities. For many small business owners, this means it’s time to:

Reassess your ownership structure

The SBA’s eligible person requirements are stricter than ever, and many small businesses that were eligible prior no longer are. You’ll need to carefully assess your current ownership structure and determine if your business meets ownership eligibility requirements.

‍

If it doesn’t, you can consider the path of changing your ownership structure, or explore your funding options through alternate sources beyond the SBA.

Strengthen your documentation

There's an increased need for strong documentation in multiple areas of the application process, from person eligibility to demonstrating why conventional credit isn’t available. Review your business's current documentation practices and make improvements in advance to reduce stress and errors in the updated SBA application process.

Confirm industry eligibility 

Not only do the 2025 SBA rule changes bar certain businesses from eligibility, but it also provides expanded context and examples of types of businesses that are ineligible or exceptions to each rule. Familiarize yourself with the SBA SOP 50 10 8 Section A, Chapter 1 to determine whether your business is eligible based on industry.

Know Your SBSS score

As the SBSS minimum score has increased, many businesses that were previously eligible for smaller SBA 7(a) loans may find themselves battling stricter credit requirements. Take steps to improve your score proactively to avoid being shut out of SBA eligibility.

Where Lendio can help

At Lendio, we’ve helped small businesses secure more than $535 million in SBA funding. We work with a trusted network of SBA lenders to help you:

• Understand your eligibility
• Compare loan options across lenders
• Navigate updated documentation requirements
• Explore alternatives if you’re no longer SBA-eligible

We know these rule changes are complex—but you don’t have to face them alone.

Final word: Stay ready, stay funded

The SBA’s 2025 updates reflect a shift in how government-backed capital is distributed—and who qualifies. While some of the changes may feel like roadblocks, they can also be navigated with the right information and support.

Whether you’re applying for your first SBA loan or reevaluating your funding strategy, now is the time to prepare. Review your structure, improve your documentation, and talk to a trusted partner.

‍

According to the U.S. Small Business Administration (SBA), small businesses account for 99.9% of all businesses in the U.S. But what exactly is a small business?

The SBA sets specific criteria to categorize businesses under the ‘small business’ designation, in order to determine eligibility for support initiatives and funding, like SBA loan programs. Below, we’ll dive deeper into how the SBA defines a small business, so you can determine whether you meet  and qualify for certain benefits.

The SBA definition of a small business.

The SBA defines a small business by the maximum number of employees, or maximum amount of annual receipts it has. However, these maximum limits depend upon the industry of the company, which we'll explore below.

Criteria for qualifying as a small business.

The SBA uses two possible size criteria that a business can qualify as “small” under - the Industry Size Standard, and the Alternative Size Standard.

SBA Industry Size Standard

For each industry classified by the North American Industry Classification System (NAICS), the SBA weighs economic characteristics like:

•  Degree of competition
• Average business size
• Start-up costs and entry barriers
• Distribution of businesses across the industry by size
• Technological changes
• Competition from other industries
• Growth trends
• Historical activity
• Unique factors

Then, the SBA establishes an industry size standard to define a small business in that industry, consisting of the maximum number of employees, or maximum amount of average annual receipts a business can have to be classified as small.

To find the specific size standard for your industry, here’s what to do.

1. Look up your NAICS code.

You’ll need to have your NAICS code on hand to find your size standards. This is a six-digit code number that helps companies explain what they do. You can use the NAICS search tool to find your industry, or read our guide on how to look up your NAICS code for more information.

2. Look up your SBA industry size standard.

Once you’ve found the NAICS code that best describes the primary activity of your business, or the one that produces the most revenue, you can find the SBA size standards for that industry.

Here’s a sampling of several industries and the maximum average annual receipts or number of employees that qualify them as a small business. In reality, there are hundreds of NAICS codes, so you should look at the complete listing in the SBA table of size standards.

3. Verify you meet the SBA size standard

Confirm your employee count, or your annual receipts meets the industry size standard. You can also use the SBA size standards tool to input your information and find out if you meet the SBA’s criteria for a small business.

In addition to maximum average annual receipts and maximum number of employees, the SBA will consider whether your company meets other eligibility requirements for SBA loans.

SBA Alternative Size Standard

Small businesses can also meet the SBA size requirement through the alternative size standard.

To meet this size standard, the business can’t have a tangible net worth over $20 million dollars, and the average net income after Federal income taxes (excluding carry-over losses) for 2 full years before the application can’t exceed $6.5 million.

Benefits of being classified as a small business.

If the SBA does classify your company as a small business, this opens the door to several resources and benefits.

SBA loans

There are a number of SBA loan programs that offer low rates and longer repayment terms you might not be able to find elsewhere.

The 7(a) loan is the SBA’s most popular program and offers up to $5 million in capital for small business owners. Upon approval, you can use this capital to cover a variety of expenses, such as startup expenses, real estate, short- and long-term working capital, and equipment.

Business development programs.

The SBA has Small Business Development Centers (SBDCs) throughout the U.S. to provide small businesses with counseling, training, and technical assistance. Another organization called SCORE also offers free mentorship and resources. You can utilize these development programs if you qualify as a small business.

Government contracts. 

The SBA works partners with federal agencies to award 23% of prime government contract dollars to qualifying small businesses. If you meet the SBA definition for small business, you can submit bids and take advantage of government contracts, which offer an additional, reliable stream of income. 

Research grants

The Small Business and Innovation Research research grants are designed to encourage small business owners to dive into technology and commercialization opportunities. While this is a highly competitive program, it also offers small businesses the chance to expand your technological investment and potentially profit from commercialization.

Tax incentives

As a small business, you can also save money with tax incentives. The Small Business Health Insurance Tax Credit, for example, gives eligible small business owners the chance to save up to 50% of employee health care costs, if they buy insurance from the Small Business Health Options Program (SHOP). Some cities, like Philadelphia, also award tax credits to entrepreneurs and small business owners.

Bottom line

If you believe you’re a small business owner, there’s a good chance the SBA does, as well. But your average annual receipts and number of employees may position you as a medium sized or larger business instead. That’s why it’s wise to do some research and determine where you stand. If the SBA does consider you as a small business, you’ll have access to resources, funding options, and incentives that larger businesses won’t qualify for!

Considering small business financing? Whether you're looking for a small business loan, a business line of credit, equity financing, or another form of financing, the process is smoother when you have your ducks in a row before you start.

Why are you applying for small business financing?

Before beginning your application, work through the following questions:

• Why do you need financing?

  There are a multiple reasons to apply for small business financing, and knowing clearly your intent with the funds  can help a finance manager match you to the right product. Are you seeking financing to make repairs, to acquire much-needed equipment, to help your business bridge the gap between billing and invoice? Be sure you know how you'll use the money or credit you're requesting. While you may be able to manage with existing cash flow, a boost in funds could pay for your expansion or act as a just-in-case cushion. Remember, it's always better to apply for financing before you need it, and the terms you qualify for may also be more appealing if you apply while cashflow is strong. 

• How will the capital be used?   

  Lenders will want to know specifics. Are you investing in new equipment? Hiring more employees? Expanding or upgrading your office space? Don’t leave anything out. Specify what the funds will be used for—if you're applying for an equipment loan, state the type of equipment, the dollar amount, even the model and the brand, if you have that information. You’ll also want to articulate why you need these improvements and how will this investments will contribute to the growth of  your business. 

• When do you want/need the funds?

  Don’t wait for a crisis to apply for  small business financing of any kind. Look ahead and plan for growth and protection from potential crises.

• How much will you need?

  This is where you’ll really need to get into the details. Predict what you'll spend by doing research and getting quotes whenever possible. If you’re looking for funding to expand, it may be difficult to know if your financial forecasting is accurate. Take a big-picture view of everything you believe you'll need, then use the financial records you already have and apply this information to your future plans to give you a better idea of what you'll need to borrow.

• What's your ideal repayment schedule?

  There should be two parts to your answer: What is your preferred repayment plan? What happens if Repayment Plan A falls through? What if your sales are worse than projected—what’s your Plan B?

• How healthy is your personal/business credit?

  Your personal credit is just as important as your small businesses’s credit—especially if you’re a startup. If your business is young, lenders will want to see your personal credit as well. And, depending on the lender and the type/amount of loan or financing you're looking for, lenders will likely want to see your personal credit even if you’ve been in business for years. Lenders want to get an overall picture of your credit health. While your personal credit score may seem irrelevant, lenders view it as a great way to determine how you'll run your business

• What are the qualifications/capabilities of your management team?

  You've assembled an amazing team. Make sure you know their qualifications—this collective "resume" can be impressive to lenders.

Your 6-Item Small Business Financing Checklist

Next, it's time to gather the documents you'll need. Having these documents with you when you apply for small business financing can simplify—and speed up—the process.

1. Income Tax Returns from Previous Three Years.

Lenders will definitely want to see your tax returns—business and personal. BTW, the more profitable your small business appears on your tax returns, the easier it can be to obtain small business financing. So if you're planning in advance for a loan or other financing down the line, be sure you consider deductions carefully, particularly if they make your business seem not-so-profitable.

2. Financial Statements and Projected Financial Statements.

Balance sheet, assets, liabilities and net worth—be sure you have your financial statements available. Ensure they're accurate. Lenders will do a numbers crunch, and if you’ve manipulated anything in any way, discrepancies will raise a red flag. Tell it straight. Do your due diligence with the projected financial statements as well. 

3. Personal and Business Bank Statements.

Most lenders want to see both personal and business bank statements. Be prepared to explain any periods where you were low on cash or went negative.

4. Business License and Registration.

Hate paper records? Your business license and registration are probably online if you haven’t kept a physical copy handy.

5. Articles of Incorporation.

Are you incorporated? Have an LLC? Grab those legal documents! 

6. Your Business Plan.

Make sure you write and edit your business plan. Find other experts and professionals to read through it and find holes before lenders find them. You want to make sure you’ve covered everything that lenders could possibly ask. 

Once you've collected everything, it's time to apply. Get started here and see all of your small business loan options in one place,