Mid-prime small business loans are a type of loan that is provided by commercial and institutional lenders to companies with good credit, good cash flow, and solid revenue, but that still cannot qualify for bank rate or SBA loans. Mid-prime loans typically range from $10,000 all the way up to $500,000. They usually have terms that range from one to five years. Although mid-prime loans have higher rates than traditional loans, the rates and overall costs are far lower than merchant cash advance loans or other types of quick, high-interest types of financing. Mid-prime loans are true lines of credits and loans as opposed to a business-to-business deal such as a cash advance. Mid-prime loans also have true APRs. Since it is a true loan, the associated interest on the loan is tax deductible. One of the biggest advantages of mid-prime financing is that the loan can be funded with a traditional loan or line of credit already in place. Since it is a second position type loan, all other types of traditional financing can remain in place without being interrupted. Mid-prime lending partners take the second position as long as the first position lender is a traditional lender and not another alternative source of financing. The process of underwriting mid-prime financing is a lot different from traditional financing. This is due to the loan relying less on personal or business credit and more so on the actual cash flow of the company.
Another advantage of a mid-prime loan is that the processing is quick and simple. From start to finish, the process usually takes about 2 weeks. Approval rates for these types of loans can be as high as 75%. A mid-prime loan does not require a minimum amount of documentation unlike bank loans and traditional financing. One disadvantage that is associated with mid-prime financing is that the rates are higher than one would receive from a traditional lender. These rates can be as much as 100% higher than loans provided by a credit union or a bank. Origination fees are also higher by about 1% to 5% making mid-prime financing much more expensive than bank financing.