Business Financing in Puerto Rico: Everything You Need To Know

Wed | October 2024

Are you looking for the right financing to grow your business in Puerto Rico? Whether you need to cover daily expenses, buy equipment, or renovate your workspace, you have access to different financial products.

From traditional banks like FirstBank, Banco Popular, and Oriental Bank to innovative revenue-based financing solutions from One Park Financial, it's essential to know your options—and that each one has its unique benefits and requirements.

By choosing the right financing, you can maximize your investment and focus on achieving sustainable growth. Let's not wait any longer! Take the next step toward getting the capital you need for your business today!

1. Traditional Business Financing in Puerto Rico

As you might already know, Puerto Rican banks offer several business options, from term loans to lines of credit and business credit cards (which we will not discuss in this article). The financial products offered by Puerto Rican banks can help you access more significant amounts of capital—up to 5.5 million dollars.

However, you'll typically face stricter requirements, such as an excellent credit score and a longer time in business (at least 3 years in some cases). Still, this option is worth considering if you meet these requirements and don't need immediate access to capital.

Term Loan

A business term loan gives you access to a fixed amount of money from a bank, which you pay back over time with a set interest rate. Loan terms typically range from 3 to 7 years in Puerto Rico, although they vary depending on the lender and loan purpose.

To qualify, you'll generally need to:

• Provide financial records.

• Pass a credit check.

• Demonstrate your ability to repay the loan.

Now the question is, how do term loans work, and how do you use them?

Business owners often use term loans for more significant investments. For example, you might use one to purchase equipment, expand or renovate your location, or buy property. The bank provides the entire loan amount upfront when you take out a term loan. You'll repay it in fixed monthly installments, which consist of:

• Principal: A portion of the amount you originally borrowed.

• Interest: The cost charged by the bank for lending you the money.

The repayment schedule is structured, meaning the amount and timing of your monthly payments are predetermined. For instance, if your loan term is 5 years, you'll make regular monthly payments until you pay the entire balance.

A note here: when exploring term loans, you must understand whether the interest rate is fixed or variable. Here's the difference:

• Fixed Rate: Stays the same throughout the loan term, making payments predictable.

• Variable Rate: Fluctuates with market conditions, which may affect the total cost of your loan.

Also, remember that to qualify for a term loan, you need to provide a strong credit history, tax returns, financial statements, and a clear business plan.

Line of Credit

Banks in Puerto Rico also offer a business line of credit. Unlike a term loan, this flexible financing option works like a credit card, meaning you don't get the capital upfront. Instead, you withdraw funds as needed, giving you flexibility to handle specific expenses as they arise.

The bank sets a limit on how much you can borrow. You can borrow any amount up to that limit whenever you need it. Once you pay back what you borrowed, you can borrow it again, up to your credit limit. And you only pay interest on the money you borrow.

So if your limit is $200,000 but you only borrow $50,000 on a particular month, you'll only pay interest on that $50,000.

This financing can help you manage cash flow, cover daily expenses, or take unexpected costs. It provides the flexibility to meet both big and small needs. In Puerto Rico, lines of credit require business credit and annual renewals. This means the bank must reassess your finances and credit score to ensure you qualify.

There are two main types of lines of credit available to businesses:

• Secured line of credit: Requires you to offer an asset as collateral, such as property, vehicles, or a savings account. If you fail to make payments, the bank may seize the collateral to recover the borrowed funds.

• Unsecured line of credit: This type of credit line does not require collateral. Approval is based on your credit history and repayment ability. It is typically more accessible for small businesses that lack assets to pledge but often comes with higher interest rates.

Both types of lines of credit are available in Puerto Rico. However, terms can vary between banks, and even unsecured credit lines may require additional guarantees or documentation.

A line of credit can be a powerful tool for building your business credit. By consistently making payments on time, you'll improve your credit score. A strong credit score opens doors to better financing options and lower interest rates in the future.

Comparison Table: Lines of Credit and Term Loans in Puerto Rico

To help you evaluate your options, we’ve created a table comparing the features of lines of credit and term loans from three popular banks in Puerto Rico:

• FirstBank

• Banco Popular

• Oriental Bank

Use this information to compare financing options. Then, contact the banks directly for more details about their financial products and requirements.

Notes:

1. Interest Rates: Rates may vary and are subject to market changes.

2. Additional Requirements: Lenders might ask for interim financial statements, personal financial statements, filed income tax returns, or other specific documents.

3. Fields Marked as "Not Disclosed": Information for Oriental Bank may not be available yet, but efforts are ongoing to gather more details.

Before deciding, consider an appointment with a financial advisor. They can review your options and answer your questions. Additionally, request quotes from many banks to compare interest rates, terms, and requirements. This will help you negotiate better terms and select the most suitable financing option.

Here are links to check each bank’s specific requirements and available products:

• Commercial credit products with 1First Bank.

• Credit solutions for your business with Banco Popular.

• Online commercial credit with Oriental Bank.

Now that you’re familiar with traditional financing options, it’s time to explore more flexible alternatives. We will discuss how SBA loans and other options, like revenue-based financing, can help you get funding, even with bad credit.

2. SBA Loans Puerto Rico

Small Business Administration (SBA) loans offer small businesses the financing they need to grow and expand, with competitive interest rates and flexible repayment terms.

These loans are backed by the U.S. government, which reduces the risk for lenders and allows businesses to access better financing conditions. However, due to the government guarantee and eligibility requirements, these loans can take between 30 and 90 days to be approved, as the SBA reviews each loan to ensure it supports economic growth.

SBA loans are versatile and can be used for a variety of business needs, including:

• Starting or acquiring a business: Financing the creation or purchase of an existing business.

• Acquiring machinery and equipment: Obtaining capital to purchase income-generating fixed assets.

• Purchasing inventory: Financing the necessary stock for business operations.

• Improving or purchasing commercial property: Funding the acquisition or renovation of real estate.

• Debt refinancing: Consolidating existing debt to improve cash flow.

Entrepreneurs in Puerto Rico can enjoy several advantages with SBA loans:

• Competitive interest rates: Thanks to the SBA guarantee, lenders can offer lower rates, which may be fixed or variable.

• Longer repayment terms: SBA loans can extend up to 10 or even 25 years, allowing for lower monthly payments.

• Higher financing amounts: The SBA offers loans ranging from $500 to $5.5 million, providing significant capital for growth projects.

SBA Loan Comparison Table in Puerto Rico

This table summarizes key features of SBA loans offered by FirstBank and Oriental Bank in Puerto Rico, allowing you to compare loan types, available amounts, permitted uses, and basic requirements.

Glossary of Terms:

• 7(a) Loan: The most common SBA loan program, designed to provide small businesses with flexible funding that can be used for various purposes, including working capital, purchasing equipment, and acquiring property.

• 504 Loan: A specialized SBA loan used specifically for financing fixed assets, such as commercial real estate and equipment, through a shared funding model. This program involves three parties: a lender, the SBA, and the borrower, each contributing a portion of the project's cost.

• 50-40-10 Formula: This is the funding structure used in the SBA 504 loan program, where the lender provides 50% of the project cost, the SBA guarantees 40%, and the borrower contributes 10%. This model reduces the borrower's financial burden and makes it easier to acquire high-value assets.

• Working capital is the funds a business needs to support its daily operations, including expenses like inventory, payroll, and other ongoing costs essential to keeping the business running.

• Real estate: This means physical properties owned by a business, such as land, buildings, and other structures used for commercial purposes.

Specific requirements and terms may vary depending on the lender and your business's situation. For personalized information, it is recommended that you consult a financial advisor or bank representative. For more details, visit the SBA website, where you can find additional information on the different types of loans and their requirements.

3. Alternative Business Loans

Alternative financing refers to any type of funding obtained outside the traditional banking system. If your business doesn't qualify for a bank loan or SBA loan due to strict requirements, alternative financing options can provide much-needed capital to fuel your growth.

Revenue-Based Financing

Since 2015, One Park Financial has been recognized in Puerto Rico for providing alternative financing solutions to small and medium-sized businesses, especially for those with growth potential (monthly gross revenue of at least $7,500) who may face challenges with their personal credit history.

One of the most popular options offered by One Park Financial is Revenue-Based Financing (RBF). This model links financing directly to the business's revenue streams. This type of financing works as follows:

• Application and document submission: To start the process, complete an online application and submit your business's financial statements from recent months. This helps assess your business's revenue flow.

• Advance on future sales: Once approved, you receive an advance of capital, ranging from $5,000 to $500,000, which can be used for various needs, such as purchasing inventory, payroll, or acquiring equipment. This capital can be available within just 48 hours after completing the application and submitting documentation.

• Payment based on a percentage of revenue: Instead of fixed monthly payments, you make payments based on a percentage of your future revenue, either daily or weekly. This means your payments adjust to your business's performance—if you have less income in a period, you pay less.

• No collateral required: You don't need to provide collateral to access this type of financing.

To qualify for financing with One Park Financial, your business must meet the following requirements:

• Time in business: You must have at least 3 months of operation.

• Monthly revenue: Your business should generate $7,500 or more in revenue.

• Credit history: Applications are accepted with a credit score of 500 or higher.

• Industry: One Park Financial works with most industries.

One Park Financial’s financing could be ideal if:

• You need capital quickly.

• You have recurring and stable revenue.

• You don't qualify for a traditional bank loan.

• You're looking for a flexible financing solution.

If your business meets these essential criteria, you could be an ideal candidate. Complete the online application and pre-qualify today. One of our agents will contact you to discuss the available financing options.

Caribe Federal Credit Union

Founded in 1951, Caribe Federal Credit Union is a nonprofit cooperative with over 70 years of experience in Puerto Rico. According to its website, it has the support of more than 54,000 members and assets exceeding $693 million.

Caribe Federal offers a variety of financial products and services, as well as financial education resources for its members. However, it's important to note that, as a cooperative, its processes may take longer.

For business loans, specific terms and conditions at Caribe Federal Credit Union may vary based on the type of loan, application evaluation, and the applicant's credit score. While their website provides full details of each loan option, we've created a summary of the main business loans available from Caribe Federal Credit Union in Puerto Rico, along with the key details you should know:

Comparative Table of Business Loans from Caribe Federal Credit Union

General Loan Features:

• Terms: Vary depending on the type of loan, from 90 days to 25 years.

• Interest Rates: Can be fixed or variable, depending on the specific product.

• Collateral: Some loans require mortgage collateral or a guarantee on the financed equipment.

• Requirements: Specific requirements vary by loan type but generally include a good credit history and stable cash flow.

Benefits:

• Flexibility: A variety of options to meet different business sizes and needs.

• Competitive Rates: Offers attractive interest rates.

• Personalized Attention: Specialized advice for each client.

• Community Support: Committed to Puerto Rico's economic development.

In summary, Caribe Federal Credit Union is an excellent choice for entrepreneurs looking for financing to grow their businesses. Keep in mind that the application process may take additional time due to the cooperative structure.

Take the Next Step: Secure Your Business's Future

As we've covered throughout this article, choosing the right financing is essential for growing your business. Each type of financing offers unique benefits, from traditional bank options to alternative solutions and credit unions.

The most crucial step is to evaluate all your options and understand your business's specific needs, including cash flow and investment opportunities, to make the best decision and build your business credit. We hope you found this article helpful and that you now have a better understanding of how to get your business funded in Puerto Rico.

If you have an immediate investment opportunity in your business and need capital fast, we can help. For over 10 years, we have helped thousands of small business owners on the island acquire capital quickly to take advantage of a growth opportunity. Don't wait—fill out this quick 2-minute pre-qualification form and get an offer for your business today!

Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.