Small Business Loans for Immigrants in the U.S.: What You Need to Know

The average small business owner spends $40,000 during their first year to cover startup costs and expenditures. If you're an immigrant looking to start a business, this may seem like a daunting figure. However, small business loans can help.

Small business loans can provide capital for starting a business. Here, we'll explore the different types of small business loans and help you get familiar with loan eligibility requirements before choosing one.

What are the types of business loans?

Not all loan types are available for every business, and each type has its benefits and drawbacks. Here are some of the different types of loans you might encounter.

Term loans

With a term loan, a financial institution gives you a lump sum of money, and you agree to repay the amount borrowed plus interest within a certain time period. Usually, you make monthly payments on the principal and interest to pay off the loan.

Benefits of business term loans for immigrants

• Access to a large sum of money upon closing
• Potentially larger amount of funds available vs. other loans

Drawbacks of business term loans for immigrants

• Often requires you to pledge an asset for collateral or to personally guarantee the loan; you may lose the collateral or become personally responsible for the debt if you default
• Need to go through the application process all over if you need money again

SBA loans

SBA loans are partially guaranteed by the U.S. Small Business Administration. The backing of the SBA can make financial institutions more willing to lend money to entrepreneurs.

Typically, SBA loans are term loans. You can use them for various things such as working capital, buying equipment, or purchasing real estate.

Benefits of SBA loans for immigrants

• Low interest rates
• Access to funding of up to $5 million
• Long terms that can lead to smaller payments

Drawbacks of SBA loans for immigrants

• Complicated application process
• Strict eligibility guidelines
• Lengthy wait time for approval

Business lines of credit

With a business line of credit, a lender gives you access to funds that you can draw from as needed. The loan only accrues interest when you draw from the line, and you only make payments when you access money. As you pay back the line of credit, the money becomes available for you to draw from again.

Benefits of business lines of credit for immigrants

• Gives you quick access to funds
• Typically doesn't require collateral

Drawbacks of business lines of credit for immigrants

• May involve paying annual fees and additional fees each time you draw from the line
• Strict lending criteria may make many entrepreneurs ineligible

Equipment loans

Equipment loans are term loans for a specific piece of equipment that you want to purchase. The loan usually lasts for the expected life span of the equipment, so you can pay the loan off before you need to replace it. If you default, the lender will take the equipment back to pay off the loan.

Benefits of equipment loans for immigrants

• May have more relaxed lending criteria
• Interest rates may be low for applicants with good credit and strong finances

Drawbacks of equipment loans for immigrants

• Often requires you to make a large down payment upfront
• Equipment may become obsolete or break down before you pay off the loan
• Can only be used for purchasing equipment

Invoice financing

While your company is awaiting invoice payments from customers or clients, you may be able to take out a short-term loan through invoice financing.

With this type of loan, you pledge the money owed to you as collateral and a lender gives you access to the cash now.

Benefits of invoice financing

• May quickly improve cash flow
• May have more relaxed eligibility criteria

Drawbacks of invoice financing

• Can't be used for a brand new venture that lacks invoices
• Risk of default if customers don't pay
• May incur high interest rates and fees

Merchant cash advances

If your business accepts credit card payments, you may be able to get an advance on sales revenue from your merchant processing company.

With this type of agreement, the merchant processor gives you a lump sum of money. Subsequently, they either keep a percentage of your future credit card purchases or automatically withdraw payments from your bank account on a weekly or monthly basis until you repay the loan.

Benefits of merchant cash advances for immigrants

• Quick processing time
• No need to pledge collateral
• May have relaxed eligibility criteria

Drawbacks of merchant cash advances for immigrants

• May incur high interest rates
• Payments may reduce cash flow
• May not be available for a new business with no sales
• May need several months of merchant account activity before eligible

Personal loans

Entrepreneurs may have the option to fund their small businesses by taking out personal loans, such as:

• Unsecured installment loans: receive a lump sum and make regular payments on the principal and interest for a set time.
• Mortgage or second mortgage: installment loan that uses your home as collateral.
• Home equity line of credit: works similarly to a business line of credit, but uses your home as collateral.

Potential benefits of personal loans

• Based on personal creditworthiness
• May have lower interest rates than some business loans
• Unsecured installments may receive fast approval

Potential drawbacks of personal loans

• Makes you personally responsible for finances if your business fails
• Mortgages and home equity lines of credit may have high fees and lengthy application processes

Business credit cards

A business credit card works like a personal credit card. The lender issues a physical card that you can present as payment for goods and services. A credit line with a set limit is attached to the card.

When you use the card, the lender assesses interest on the balance owed and charges you a minimum monthly payment. As you make payments, money is returned to the credit line for you to borrow again as needed.

Potential benefits of business credit cards

• May have fast approval
• Ongoing access to funds
• No collateral necessary
• May earn rewards on your purchases

Potential drawbacks of business credit cards

• May have high rates of interest
• Repayment can take a long time when only making minimum payments
• May include annual fees and other additional fees

Which is the best loan for a business?

The short answer: there isn't any type of loan that is considered the best. It all depends on your personal financial situation, goals, and preferences. Expert advice from an attorney or a certified public accountant (CPA) can help you make an informed decision.

Who is eligible for business loans?

Eligibility requirements for business loans vary from institution to institution. When deciding whether to extend a loan for a new business, banks may consider:

• Creditworthiness of the business owner
• Value of assets owned by the business owner
• Value of assets owned by the company
• Line of business
• Financial projections
• Details of the business plan

Can an immigrant get an SBA loan?

Yes, many immigrants can qualify for SBA loans under the U.S. Small Business Administration rules.

SBA loans are generally available for:

• Businesses owned by naturalized citizens
• Businesses owned by lawful permanent residents who hold a green card or have a Customs and Border Protection (CBP) stamp
• Businesses owned by temporary U.S. residents or non-immigrant aliens who hold some type of visa

Immigrants who wish to apply for SBA loans will need to submit certain documentation. An attorney with experience assisting immigrant entrepreneurs can provide you with specific advice regarding eligibility and required documentation.

Can a foreigner get a loan in the USA?

Yes, foreigners can generally get loans in the U.S. However, it is up to each financial institution to determine whether they're willing to extend loans to non-residents or non-citizens.

Depending on the type of business loan, you will likely need to submit extra documentation in this case.

Do I need credit history in the U.S. to get an SBA loan?

The SBA doesn't determine whether a financial institution approves an SBA loan. Each individual lender establishes their criteria.

Credit history is often a key factor for getting a loan approved by U.S. banks. In some cases, financial institutions won't count credit history from other countries. This can mean that even if you have stellar credit in another country, you need to build credit in the U.S.

To build credit in the U.S., you can:

• Apply for a credit card: Some credit card companies will give cards with low credit limits to individuals without established credit history. If you get one of these cards, you might use it for basic purchases and then pay off the balance in full each month. This could help you quickly build credit history.
• Pay rent and other bills on time: Some property management companies report on-time rent payments to the credit bureaus. If yours doesn't, you can use a third-party bill payment service that does make these reports to pay your monthly rent and utilities.

Can you get a loan with no SSN?

Newcomers to the U.S. do not often have Social Security Numbers or SSNs at first. If you don't have one, you can still apply for a business loan. You will likely need to have an ITIN (Individual Tax Identification Number) instead.

Any immigrant who pays federal taxes in the U.S. may apply for an ITIN when submitting a tax return through a Certifying Acceptance Agent or at an IRS Taxpayer Assistance Center.

Can you get a loan with an ITIN number?

Immigrants who hold ITIN numbers instead of Social Security Numbers can legally apply for loans in the U.S.

Remember that financial institutions ultimately decide whether or not they wish to extend business loans to immigrants. Having an ITIN doesn't guarantee that every bank allows you to apply for a loan.

How can an immigrant get a loan for a small business?

Whether or not you'll get a loan is up to the bank or the lender. However, following these steps can help you prepare for small business loan applications:

1. Obtain an ITIN number;
2. Write a detailed business plan to submit to lenders;
3. Research the best banks for non-U.S. citizens;
4. Contact financial institutions to discuss your options;
5. Weigh the available lending options by considering the type of loan, the repayment terms, and payment amount;
6. Select a lender and gather the necessary documentation for the application; and
7. Complete the application process.

Expert advice can also help you make an informed decision about which loan is right for you.

How much money can you get in a business loan?

Each lender will decide how large of a loan you qualify for based on the information you submit about yourself and your business.

According to research conducted by Fundera, in 2021, the average small business bank loan was $633,000, and the average SBA loan was $107,000. However, Fundera also points out that more than 50% of small business loan applications are for less than $100,000.

More tips for applying for business loans

If your loan application is denied, first consider the reason for the denial, and see if there is a way you can address it. Before you apply for a loan, pay attention to your credit history. If you lack personal credit history, work on building your credit in the U.S. before you apply to increase your chances of getting a loan.

Take a second look at your business plan before you submit any applications. If it lacks detail in any sections, revise it and then submit.

You can also explore other ways of funding your business, such as grants, crowdfunding, saving money on your own, or borrowing from friends and family. Take a look at these 10 common ways to find funding for your business here.

Further reading

• Public Service Loan Forgiveness in the U.S.: How Does It Work?
• Do You Qualify for a First Draw PPP Loan? You Might Be Surprised
• How to Start a Business as an Immigrant to the U.S.