While there are different types of loans available to single mothers, acquiring financing for a business can be challenging for many small business owners. It is harder for female entrepreneurs to obtain business loans than for males. A LendingTree study revealed that only 22.2% of U.S. businesses are owned by women, while 14.5% have equal male and female ownership. Enhanced access to financing could help reduce gender disparity.
While limited loan programs are designed specifically for women, we have identified several lenders offering flexible options for entrepreneurs of all backgrounds.
This article discusses the different types of small business loans for single mothers.
Types Of Small Business Loans For Single Mothers
Numerous financing options are available to support the growth of your business. Several online business lenders provide these loans and often have more relaxed requirements and quicker funding times than traditional banks. Additionally, grants and development programs are available to help women establish their businesses without relying on personal finances. Some common small business loans for single mothers include:
Long-term business loans, or term loans, are issued for a specific amount and have a set repayment schedule. Terms can last up to 20 years or longer. Interest rates are usually fixed, meaning your rate remains constant throughout the loan period. Term loans are suitable for women-owned small businesses seeking to make large investments, such as acquiring a point-of-sale system or commercial equipment. However, ensure that the loan is used for something that will benefit your company long-term.
Where To Look: SBA Loans For Women
SBA loans for women involve standard business loan programs from the U.S. Small Business Administration (SBA), which guarantees loans provided through banks. Although not specifically intended for women, SBA loans offer favorable interest rates and repayment terms and can be a viable option for business owners who cannot secure financing elsewhere.
Popular SBA Loan Programs Include:
7(a) loans: Up to $5 million for general business expenses, with terms between 10 and 25 years, variable rates ranging from prime + 2.25% to prime + 4.75%, and fixed rates between prime + 5% and 8%.
CDC/504 loans: Up to $5 million for real estate or equipment purchases, with 10 to 25 years repayment terms, and interest rates based on current market rates.
Microloans: Up to $50,000 for women, minority, low-income, and veteran business owners, with rates averaging between 8% and 13% and terms up to six years.
Obtaining an SBA loan can often take two months or more, as both the lender and the SBA need to review your application. However, some institutions are SBA-preferred lenders and can independently approve loans, potentially expediting the process.
Short-term loans are similar to regular-term loans, but they must be repaid within a shorter period (typically 3 to 24 months). Payments are more frequent, often weekly instead of monthly. Short-term business loans are usually for smaller amounts and often carry high-interest rates and fees. These loans are ideal for women-owned small businesses with immediate financial needs, such as inventory purchases or temporary cash flow gaps.
Where To Look: Ondeck
OnDeck, an online business lender, offers short-term business loans ranging from $5,000 to $250,000, with up to 24 months repayment terms. Rates start at 29.90%, but your rate could be significantly higher. OnDeck requires business owners to have at least one year in business, $100,000 in annual revenue, and a personal FICO score of 625 or higher.
Business Lines Of Credit
A business line of credit differs from a loan in that it provides a maximum credit line from which business owners can draw as needed. Interest is only paid on the amount used, and the full credit amount becomes available once the debt is repaid. A line of credit may be better than a business loan for financial emergencies or short-term funding needs, such as purchasing supplies and inventory.
Where To Look: Bluevine
BlueVine offers lines of credit up to $250,000 with 6 or 12 months repayment schedules. Rates start at 6.20% simple interest for a 26-week repayment schedule. To qualify, borrowers need at least six months in business, a FICO score of 625 or higher, and $10,000 in monthly revenue.
Working Capital Loans
Working capital loans are short-term loans designed to finance a business’s daily operations. They must be repaid quickly and tend to have higher interest rates due to the short repayment terms. However, these can be useful when you need extra funds to cover day-to-day expenses.
Where To Look: Credibly
Credibly, another online lender offers working capital loans up to $400,000 with terms between 3 and 15 months. Credibly calculates interest by using factor rates, which are decimal figures instead of percentage points. To determine the cost of your loan, multiply your factor rate by your loan amount to find the total repayment amount. Credibly’s factor rates start at 1.15 for working capital loans. Business owners must have at least six months in business, $15,000 in monthly bank deposits, and a minimum credit score of 500 to qualify for funding.
Equipment financing helps businesses purchase costly equipment, such as vehicles and machinery, with the equipment as collateral. Equipment loans are ideal for women-owned startups without a long operating history, strong credit, or valuable assets. You can pay for expensive equipment over time, but keep in mind that interest payments may cause you to pay more than the equipment’s value, and lenders may require a down payment.
Where To Look: National Funding
National Funding, another online lender, provides equipment financing up to $500,000 with repayment terms of up to 60 months repayment terms. However, the lender does not disclose interest rates. Eligible borrowers need at least six months in business, a FICO score of 650, and an equipment quote from a vendor.
Accounts Receivable Factoring
Accounts receivable factoring, or invoice factoring, involves a business selling its accounts receivables at a discount for immediate cash. The factoring company then collects the invoices, charging a fee before sending the remaining amount to you. This funding option can have high fees, but it could be suitable for women-owned small businesses with poor credit, as factoring companies typically do not require high credit scores.
Where To Look: Noble Funding
Online lender Noble Funding offers an accounts receivable line of credit up to $8,000,000. The amount you can borrow depends on your invoices, with Noble Funding lending up to 90% of the value of invoices that are less than 90 days old and at least $500,000. This company is best suited for high-revenue companies. Still, you can also consider lenders mentioned earlier in this list, such as BlueVine, which requires a minimum of $10,000 in monthly revenue.
Alternative Small Business Financing Options For Women
Small business loans can be a valuable way for female entrepreneurs to fund their ventures. However, other funding methods are also available.
Women’s Small Business Grants
Small business grants are monetary donations organizations provide for specific purposes, such as companies focused on social good. Unlike loans, grants usually do not require repayment. Numerous small business grants exist for women running nonprofits, though fewer are available for women-owned businesses.
Securing a grant is highly competitive and often involves an application process. Typically, you must explain why your company requires the funds, how you plan to use them, and why your business is the best candidate for the grants. Various online resources, such as Grants.gov, list grant opportunities.
Crowdfunding is raising money for your business by collecting small amounts from the general public through an online platform, such as Kickstarter or Indiegogo. In most cases, businesses don’t need to repay the funds raised through crowdfunding. However, businesses usually offer investors some incentive, like a first-run product or a company-branded item. Fees are generally reasonable: Kickstarter charges a 5% fee on the total amount raised, plus payment processing fees.
Peer-to-peer lending is a practice that connects individual lenders with potential borrowers. Instead of borrowing from a financial institution, you borrow from a person or a group of people who view your loan as an investment that offers a return. In some cases, peer-to-peer loans can help you obtain funding that you may not be able to secure through traditional loans. However, peer-to-peer loans have higher interest rates and are available in smaller amounts.
Commercial real estate loans are similar to residential mortgages but are linked to commercial properties. Unlike residential mortgages, which usually have 30-year terms, commercial mortgages offer more flexible terms. In addition to considering the property’s value, lenders evaluate its income potential.
Merchant Cash Advances
A merchant cash advance is a lump-sum payment to a business from a lender. The business repays the advance over time using some of its credit card transaction revenue. The lender takes a small percentage of these transactions daily until the borrower repays the advance. Businesses that use merchant cash advances incur fees for the convenience of receiving money upfront based on future earnings.
Find The Right Business Loan To Kick Start Your Business
Various small business loans for single mothers entrepreneurs to fund their businesses, including loans, grants, crowdfunding, and more. You can find the best funding solution for your specific needs and goals by researching and considering these alternatives. Starting and running a successful business as a single mother is not easy, but it is possible.
By understanding their challenges and the available resources, single mothers can secure the financing they need to achieve their goals. Whether it’s a traditional bank loan, an SBA loan, a microloan, or a loan from an online lender, there are options available to help single mothers start and grow their businesses. With determination, hard work, and the right support, single mothers can overcome obstacles and succeed as entrepreneurs.
There are numerous loans that are available that can help single mothers. Discover different government loans available for single mothers in our Single Mothers Help resources.