Small business loans (SBA) are loans specifically intended for business purposes. Like all loans, it involves the creation of a debt that will be repaid with interest. The types of business loans available include bank loans, mezzanine loans, asset-based loans, invoice loans, microloans, business cash advances, and cash flow loans.
A small business loan (SBA) will allow you to borrow money to cover company-related purchases and operating expenses. Whether you’re just starting out or trying to grow, you can get the capital you need.
Learn how to qualify and find the right financing for your business needs by comparing the best small-business loans, including business lines of credit, term loans, and equipment financing.
Small-business loans are partially guaranteed by the U.S. Small Business Administration and issued by participating lenders, such as banks and credit unions. A variety of business expenses can be financed with small business loans, which offer low-interest rates and long repayment terms.
A 7(a) loan, available in amounts up to $5 million and with terms up to 25 years, is the most popular type of SBA loan. It is important to have good credit (690 or higher), strong finances, and several years of business experience before applying for an SBA loan. As the loan application process is slow and time-consuming, you should also be able to wait for funding.
What are the requirements for obtaining a business loan?
While lenders have different underwriting guidelines, they generally consider similar factors, including your credit score, time in business, and revenue. They also look at your cash flow and ability to repay the loan.
In addition to qualifying for lower rates, having strong credit can give you more loan options. Building your credit score is a good idea if you don’t need business financing right away. On the other hand, you may still be able to qualify for a business loan with poor credit if you need more immediate access to capital.
You can track your progress and open more doors for financing your business if you don’t know your credit score and want to monitor it consistently.
What are the steps to getting a small business loan?
You can increase your chances of getting a business loan by understanding your business’s qualifications and finding the financing option that suits your needs.
You can follow these steps:
Choose the right loan option based on your needs:
A term loan might be a good option for financing a large purchase or business expansion, while a business line of credit might be a better option for funding day-to-day expenses.
Make sure you are qualified:
It’s important to consider factors like your personal credit score, time in business, and annual revenue. Banks and SBA lenders will likely have stricter eligibility requirements than online lenders.
Make sure you can afford the payments:
Your business’s financials, especially cash flow, should be carefully examined, as well as how much you can afford to pay toward loan repayments each month. Your total monthly income should be at least 1.25 times your total expenses, including the new repayment amount.
Collateralize the loan if you want to:
A conventional business loan can be secured or unsecured. A secured loan requires collateral, such as property or equipment, that the lender can seize if you fail to repay the loan. Putting up collateral is risky, but it can increase the amount lenders let you borrow and get you a lower interest rate. Keep in mind, however, that although some lenders don’t require physical collateral, they may still take out a UCC filing on your business assets. This official document allows a lender to claim your assets in the case of default.
Lenders for small businesses can be compared:
It’s usually best to choose a business loan that offers the best terms, but there are other factors, like funding speed and customer service, that may be more important to your business.
Get a business loan:
Among the loans you qualify for, choose the one with the lowest interest rate and best terms — as long as you are able to meet the loan’s regular payments — and prepare your business loan application. Documents such as tax returns, bank statements, and cash flow statements may also be required.
Best Small Business Loans In The US
- OnDeck – Best for Short-term Loans
- Lendio – Best for Lender Comparison
- QuickBridge – Best for Fast Funding
- American Express Business Blueprint™ – Best for Lines of Credit
- National Funding – Best for Small to Mid-Sized Business
- Fundbox – Best for Quick Approvals
- BlueVine – Best for Flexible Lines of Credit
- Biz2Credit – Best Loan Option
- TD Bank – Best for Healthcare Professionals
- Funding Circle – Best for Established Business
- Smarbiz – Popular government-backed loan
OnDeck
| APR range | Starting at 35.40% APR |
| Loan amount | $5,000 to $250,000 |
| Term (months) | Up to 24 months |
| Min. credit score | 625 |
| Fees | A maximum origination fee of 4.00% |
| Time to funding | Up to 3 business days |
Smartbiz
| APR range | 11.00%-12.00% variable |
| Loan amount | $30,000 to $500,000 |
| Term (months) | 120 to 300 months |
| Min. credit score | 650 |
| Fees | Up to 3.5% of guaranteed portion up to $1,000,000, plus 3.75% of guaranteed portion over $1,000,000 |
| Time to funding | As short as 7 days |
Funding Circle
| APR range | 12.45% to 40.51% |
| Loan amount | $25,000 to $500,000 |
| Term (months) | 6 to 84 months |
| Min. credit score | 660 |
| Fees | Origination fee of 4.49% – 8.49% |
| Time to funding | 2 days |
Bluevine
| APR range | Simple interest rates starting at 6.20% for a 26-week repayment term |
| Loan amount | Up to $250,000 |
| Term (months) | 6 to 12 months |
| Min. credit score | 625 |
| Fees | N/A |
| Time to funding | 1 to 3 business days |
Credibly
| APR range | Factor rates starting at 1.11 |
| Loan amount | Up to $400,000 |
| Term (months) | 3 to 15 months |
| Min. credit score | 500 |
| Fees | 2.50% origination fee |
| Time to funding | May be same business day |
Tycor Financial
| APR range | 3.49% to 28.00% |
| Loan amount | Up to $2,000,000 |
| Term (months) | 12 to 84 months |
| Min. credit score | 550 |
| Fees | Doc fee (amount not disclosed) |
| Time to funding | Typically within 24 hours |
Elevation Capital
| APR range | Factor rates starting at 1.12 |
| Loan amount | $5,000 to $10,000,000 |
| Term (months) | 120 days average repayment |
| Min. credit score | 550 |
| Fees | N/A |
| Time to funding | Within 10 days |
Reliant Funding
| APR range | Factor rates starting at 1.10 |
| Loan amount | $5,000 to $400,000 |
| Term (months) | 3 to 15 months |
| Min. credit score | 525 |
| Fees | Origination fee of $499 for funding amounts up to $50,000; No origination fee for higher amounts. |
| Time to funding | As little as 24 hours |
Uplyft Capital
| APR range | Factor rates starting at 1.24 |
| Loan amount | $3,000 to $1,000,000 |
| Term (months) | 2 to 12 months |
| Min. credit score | 500 |
| Fees | No fees on MCAs |
| Time to funding | Could receive on same day requested |
Fundbox
| APR range | 4.66% to 8.99% |
| Loan amount | Up to $150,000 |
| Term (months) | 12 to 24 weeks |
| Min. credit score | 600 |
| Fees | No origination fee |
| Time to funding | Next business day after approval |
Fora Financial
| APR range | Factor rates starting at 1.10 |
| Loan amount | Up to $1,500,000 |
| Term (months) | Up to 15 months |
| Min. credit score | 500 |
| Fees | Origination fee of 2.5% of the loan amount or $300, whichever is higher |
| Time to funding | 72 hours upon approval |
National Funding
| APR range | Factor rate: 1.11 |
| Loan amount | Up to $400,000 |
| Term (months) | Up to 60 months |
| Min. credit score | 600 |
| Fees | Origination fee 1.00% to 2.00% |
| Time to funding | 24 hours after approval |
What is the amount of your most recent business loan?
Types of Small Business Loans
It’s important to find the right small business loan for your needs since there are several types of small business loans.
Loans from the SBA:
SBA loans are small business loans that are guaranteed by the Small Business Administration, including the SBA 7(a), 504, CAPLines, Export, Microloan, and Disaster loan programs. Low-interest rates and extended repayment terms—up to 25 years—are characteristic of these loans, which typically range between $30, 000 and $5 million. However, the application process typically takes more time than other loans that aren’t backed by the government and have more stringent qualification requirements.
There are several types of SBA loans, including:
SBA 7(a) loans:
With a maximum loan amount of $5 million, the SBA 7(a) loan program is the most popular SBA loan program. In addition to obtaining real estate loans, SBA 7(a) loans can also be used for working capital, debt refinancing, and business supplies. Interest rates range from 5.5% to 11.25% as of Oct. 7.
SBA 504 loans:
In addition to major fixed assets, such as existing buildings or land, new facilities, and long-term machinery and equipment, SBA 504 loans can be obtained for up to $5 million. Therefore, 504 loans cannot be used for working capital, inventory, or other common business purposes. The rates on 504 loans are lower than those imposed by the 7(a) program.
SBA microloans:
Microloans from the SBA can reach $50,000 and are intended to help small businesses start or grow. Loans typically range from 8% to 13%, depending on the lender, and can be used for working capital, inventory, machinery, equipment, and other fixtures and supplies.
Loans with a fixed term
Traditional financing methods, such as loans, are repaid over a set period of time. Short-term loans tend to be between three and eighteen months, whereas long-term business loans may last up to ten years. Loans can be used for a variety of purposes, like funding equipment or inventory, but term loans typically can be used for most large purchases. Term loans are available up to around $500,000, with APRs starting around 9%.
Credit lines
Unlike a term loan that’s paid out in a lump sum, a business line of credit is a set amount of money that a business owner can access on a revolving basis. If the borrower pays back a portion of the credit line early, they can access it again until the draw period ends, which means they can draw against it for a set period of time—usually up to five years.
After the draw period ends, the borrower cannot access the revolving funds again. Instead of paying interest on the entire amount, as with a term loan, a business owner who accesses a line of credit only has to pay interest on what they actually use.
Borrowing limits range from $2,000 to $250,000, and APRs range between 10% and 99%, making lines of credit an excellent choice for businesses that need cash on an as-needed basis.
Factoring and financing of invoices
The purpose of invoice factoring is to sell a business’ outstanding invoices in exchange for a lump sum cash payment. The third-party factoring company purchases invoices at a discount, so you won’t get paid in full for them. Invoices sold to factoring companies are then collected by the factoring company.
This form of financing can, however, be an effective method of obtaining cash quickly without having to wait 30 to 90 days for customers to pay their invoices. Consequently, invoice factoring can be a useful strategy for short-term financing or cash flow management. Generally, invoice financing is available for amounts up to $5 million with an APR between 10% and 79%.
Cash advances from merchants
As part of a merchant cash advance (MCA), business owners give the lender a portion of future sales receipts in exchange for a lump sum of cash. As opposed to a traditional business loan, merchant cash advances, and their fees are repaid on a daily or weekly basis through individual sales or automatic clearing houses (ACH).
As part of this strategy, a business owner borrows a set amount of cash at a factor rate between 1.2 and 1.5. In order to repay the loan, the business must repay a set percentage of daily credit card sales over an estimated repayment period. If a business experiences a high volume of sales and needs access to cash quickly, a merchant cash advance may be an effective option.
Financing for equipment
It can be used for everything from office furniture and electronics to manufacturing equipment, equipment financing is a form of small business loan that helps businesses buy equipment they need to begin and maintain operations.
The size of an equipment loan is based on the value of the equipment and the down payment, however, the best equipment financing companies offer terms and limits of up to 25 years and $1 million.
In general, equipment financing offers lower interest rates than other types of financing and typically ranges from 8% to 30%. Rates vary by lender and borrower creditworthiness.
Small business loan alternatives
Credit line for businesses
In contrast to a business loan, which disburses funds in a lump sum, a business line of credit allows you to take advantage of a predetermined credit line. When you draw on this credit line, you only owe interest on the amount you borrow, not the entire credit line. The repayment period begins after the draw period ends when you must repay the outstanding balance plus interest and fees.
As a rainy day fund, business lines of credit are more flexible than business loans.
Credit cards for businesses
In some cases, business credit cards may have higher rates than business loans; however, their qualification requirements tend to be more flexible. Business credit cards work similarly to consumer credit cards, except the card is only used for business expenses.
If you don’t need to borrow a large sum, a business card may be a better alternative than a business loan. Plus, some cards offer cash back or points-based rewards. In some cases, you may be able to find cards with no-interest financing, which can be equivalent to an interest-free loan if you repay your balance during the introductory period.
The crowdfunding process
It is possible to raise funds for your business or product through crowdfunding sites such as Kickstarter and Indiegogo without taking out a loan. You can set a funding goal on these sites and create reward levels for people who pledge funds. If you don’t reach your goal, you usually don’t get anything.