Editor's choice: First Down Funding business loans
- No prepayment penalties
- Competitive rates
- Works with bad credit and most industries
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Business Loan Finder
Grow or start your business with the right financing: Compare top lenders in 2020.
Finding the right business loan involves knowing how fast you need the funds, how long you need to repay the loan and how much you’re willing to pay in costs. To help you choose the best fit, we’ve reviewed over 130 business loans — SBA loans, term loans, lines of credit, merchant cash advances and more — to help you compare.
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What's in this guide?
130
Business loans reviewed
1000
Hours of extensive research
8
Business loan experts
At Finder, our goal is to simplify the process of finding the right financing for your business. Our team of experts research business loan offers and constantly update our guides to provide you with the best comparisons.
Meet Finder’s business loan experts
Zak Ali
Loans Publisher
Kellye Guinan
Writer
Anna Serio
Staff Writer
How do business loans work?
Business loans work by providing your company with funding to grow, cover cashflow gaps and other expenses.
With a traditional business loan, you can typically borrow from $5,000 to $5 million at rates starting at 5%. You repay the funds plus interest and fees in monthly installments, often over over five to 20 years.
Some business lenders require collateral, while others offer approval on your creditworthiness, revenue and other factors. If you can’t qualify for a business loan, there are alternatives.
What types of small business loans are available?
There are several different types of business financing out there, each offering different terms and benefits. Which one is best for your business depends on its specific situation. If you’re buying machinery for your business, you might want to consider equipment financing. If you’re struggling with cashflow, a merchant cash advance, invoice financing or factoring might be the way to go.
How much do business loans cost?
Fixed-term business loans come with interest and fees:
- Interest. A percentage of your loan balance that your lender applies daily, weekly or monthly, depending on your terms. Typically 6% to 60%.
- Fees. One-time fixed costs, typically a percentage of the amount you borrow or a flat rate. Term loans also often come with an origination fee, usually from 2% to 5% of the loan amount.
The total interest and fees is express as an annual percentage rate, or APR. It’s the easiest way to understand how much your loan is going to cost you over time. However, not all business loans display their costs as an APR.
Rates
Business loan rates can range from 6% to 60% APR depending on a variety of factors. These include the type of loan, your time in business, industry, owner credit scores, monthly revenue and lender. They’re typically higher than what you’d get with a personal loan or mortgage — even if it’s secured.
With merchant cash advances, you’ll run into something called a factor rate, which is a number your lender multiples your loan amount by to come up with the amount you’re on the hook to pay back. Rates range from 1.14 to 1.18 but can get as high as 1.30.
Alternative business loans that typically serve high-risk industries and owners with bad credit can come higher costs. The pricing usually works like a factor rate — lenders often express it as cents on the dollar.
Fees
Some business lenders charge the loan cost as a fee rather than an interest rate. Invoice factoring, for instance, typically charges something called a discount fee, often 0.5% to 6% of the value of your invoices. It can be a fixed rate, but the longer your clients take to pay off an invoice, the more you’ll likely pay.
List of costs to expect with a business loan
How to compare business loans
Look into these features when you are considering business loan options.
- Eligibility criteria. Most lenders list basic eligibility requirements online. Otherwise, speak with a representative to learn if your business can qualify.
- Loan amounts. If your financing needs don’t fall into the lender’s range of loan amounts, you might want to move on.
- Turnaround time. Do you need money this week or can you wait several months? Invoice financing is known for shorter turnaround times while SBA loans can take months to fund.
- Repayment term. If you’re applying for a loan with interest, your loan term affects both your immediate and long-term costs.
- Repayment frequency. Use our business loan calculator to find out how much you might potentially owe. Make sure to consider whether repayments are daily, monthly or weekly.
- Rates. The rate lenders charge depends largely on your credit profile and business profits.
- Overall cost. In addition to rates, many lenders charge other fees for taking out the loan. The fastest way to compare business loans is to look at the APR — as long as the lenders offer similar repayment terms.
- Customer reviews. Customer reviews can give you an idea of what your experience might be like. Check out their ratings on sites like the Better Business Bureau (BBB) or Trustpilot.
How to get a business loan
Here’s what you can expect to happen when you apply for a small business loan.
- Know what your business needs.
Is it generally short on working capital? Then a line of credit, invoice factoring or a merchant cash advance might be a good place to start. Need a fleet of vans? Look into vehicle loans. Armed with this information, you can begin narrowing down lenders. - Compare lenders.
You know what you’re looking for. Now it’s time to start comparing lenders. Ask yourself questions about the loan amount, cost, repayments and the company’s reputation while narrowing down your choices. - Get prequalified.
After you’ve narrowed down your options to a handful of lenders, prequalify for a few before making a decision. Most online lenders offer prequalification through a quick form on their website. Large banks might need you to to call customer service or visit a local branch in person. - Submit requested documentation.
After preliminary approval, the lender will likely need to verify your documents. Some lenders ask for a long list of documents and information. Others don’t require any paperwork. - Complete the application.
The exact process depends on your lender. You’ll typically be assigned an account manager who can guide you through the full process. You might be asked to submit additional documentation. More involved business loan applications might involve a site visit from your lender or even an interview. - Review and sign your documents.
Make sure you understand the terms and conditions of your business loan before you sign the business loan agreement. If you don’t understand a clause or term, ask your lender — or better yet, a lawyer. That way, you won’t be hit with any surprises down the road.
How much can I borrow?
Business loans typically start at around $5,000 and can top $5 million. How much you can borrow depends on several factors:
- Minimum and maximum amounts offered by the lender
- Monthly and annual revenue
- Monthly debt obligations
- Personal and business credit score
- What you need the funding for
How much you can borrow with different types of business lenders
Where can I get a small business loan?
It used to be that banks and credit unions were your two main options for business loans. That’s no longer the case. Let’s take a look at some common business loan providers in 2020.
Online providers
Borrowing online is significantly easier than borrowing from a bank: There’s less paperwork and a shorter application. It’s now also easier to qualify for an online business loan as a small business.
Here’s a few types of loan providers you might find online:
- Direct online lenders. These lenders fund your loan themselves and often handle all aspects of the application process in-house.
- Peer-to-peer (p2p) platforms. These online platforms act as liaisons between borrowers and investor funding. The platform sets the terms and conditions and is your point of contact if you have questions about the process.
- Online connection services. Also called marketplaces, these free websites help you prequalify with multiple lenders by filling out one form. They’re typically free for business owners.
- Business loan brokers. Hiring a business loan broker works a lot like using an online marketplace. The difference is that you have a chance to sit down in-person and discuss your options. And you’ll have to pay a broker fee.
Banks and credit unions
Bank loans could be a good option for established businesses pulling in at least $1 million in annual revenue and need large amounts of funding — say, over $100,000.
Credit unions might be nonprofits, but they actually reject more applicants than any other type of lender, according to the 2016 Small Business Credit Survey by the Federal Reserve.
Where can I get an SBA loan?
The Small Business Administration doesn’t actually fund loans itself. You’ll have to go to a lender that offers SBA financing to apply. You can find SBA loans online through sites like SmartBiz, though the SBA’s top lenders tend to be banks.
Whether you apply online or through a bank, SBA loan applications are typically more involved than other types of business financing. And since they involve taxpayer money, and you can get disqualified for reasons that other lenders don’t even consider, like having a criminal record.
Benefits of getting a business loan
Getting a loan can help your business in more ways than one. These include:
- Get money to grow. You need money to make money. Done right, a business loan can more than pay for itself by funding revenue-growing projects or bring on new staff.
- Soften the blow of slow months. Lines of credit and other cashflow funding allow you to keep up your regular expenses when things naturally slow down.
- Access the value of business assets. Getting a secured business loan allows you to cash in on items you already own to help expand, get working capital and more.
- Build your credit. A business loan can help build your personal and business credit score if it requires a personal guarantee. This can help you qualify for more funding in the future.
3 main eligibility criteria
Business loan requirements vary by lender, loan type and how much you want to borrow. To find out if you meet most business loan requirements, see how your business stacks up in these three areas:
- Time in business. For a bank loan, you often need to be around for at least two years, while many online lenders are willing to work with a business that’s been around at least six months.
- Annual revenue. Some lenders want your business to bring in at least $10,000 a month, while others care more that your business makes at least $50,000 a year.
- Personal credit score. While it’s possible to find alternative loans for business owners with bad credit, most lenders require a minimum FICO score of 660 to 680.
You can learn more with our article on credit score requirements for different types of business loans.
Why was my business loan application rejected?
The main reason businesses get rejected for loans have to dow with its ability to repay. These include:
- Weak business performance
- Not enough collateral
- Low credit score
- Too much debt
- Short credit history
If you’re looking for funding to expand, you might want to waiting until your business is more established before reapplying. Taking steps to improve or strengthen your credit report could also help your chances of approval. Or, consider applying for a secured rather than an unsecured business loan.
Why was my business loan application rejected?
Can I get a startup business loan?
Yes, but it won’t be easy to get a traditional business loan. Even if you’ve already opened your business’s doors, you might not find many loan options if it’s younger than six months.
Startup loans tend to be more expensive and have shorter terms. They also typically come in smaller amounts than your average business term loan.
While some microlenders and the SBA 7(a) loan program offer startup loans, you might have better luck looking into other types of financing, like angel investors.
What types of documents will I need?
It depends on your lender and your business’s financials. Online lenders typically ask to see fewer documents than banks do. Younger businesses often need to provide more documents than businesses that have been around the block a few times.
However, there are some common documents almost every lender may request:
- Government-issued ID. The federal government requires lenders to verify the identification of all applicants. Typically, lenders do this by requesting to see a driver’s license, passport or other official ID.
- Business bank statements. Lenders often like to look at the past two to six months of your business’s most recent bank statements to get an idea of its current cash flow.
- Tax returns. Your taxes give lenders an idea of how much your business makes annually. Some lenders only ask for business tax returns, while others like to see your personal return as well.
- Business plan. More common with banks and credit unions, some online lenders also ask for a business plan — or at least financial projections.
- Profit and loss statement. Also called an income statement, your P&L breaks down your company’s net revenue and helps your lender verify how much debt your business can afford to take on.
Industry-specific guides
Learn about financing options tailored to your business’s industry.
Guides to other business financing options
Back to top
Repaying a business loan
Most term loans come with fixed monthly repayments, while others types of financing require weekly or even daily repayments. With invoice factoring, your business doesn’t make any repayments at all, because your clients pay your lender.
To save time, consider signing up for automatic repayments. If your lender doesn’t charge prepayment penalties, see if you’re able to pay off your business loan early to save on interest and lower your business’s debt load.
Business loan alternatives
Don’t think you’ll qualify for a business loan? Explore alternative options for borrowing.
- Personal loan
- Business grants
- Investor financing
- Crowdfunding
- Family and friends
- Rollover for business startups (ROBS)
| Alternative | Best for | How it works | |
|---|---|---|---|
| Personal loan | Entrepreneurs and business owners with good credit and high income | Take out a term loan in your name based on your personal creditworthiness. | Read more |
| Business grants | Nonprofits, tech industry Businesses owned by women, minorities or veterans Businesses located in economically disadvantaged areas | Complete an application for funding from the government or a private organization. You don’t have to pay it back, but grants tend to be smaller than loans and more difficult to qualify for. | Read more |
| Investor financing | Startups and potentially highly profitable businesses with a plan to expand | Sell a percentage of your business’s ownership — it’s equity — to venture capitalists in exchange for upfront financing. | Read more |
| Crowdfunding | Businesses and entrepreneurs with a strong social media presence | Set up a campaign asking for small donations from your friends, family and social network. Many platforms take a percentage of the funds you raise as a fee. | Read more |
| Friends and family | Business owners and entrepreneurs with friends and family interested in investing | Set up an informal agreement or use services like Loanable to make a formal business loan agreement outlining the terms and conditions for paying back a family loan. | Read more |
| Rollover for Business Startups (ROBS) | Startups | Invest your retirement savings in a new business without paying the usual taxes or fees that come with accessing your 401(k) or IRA early. | Read more |
Alternative business financing
Frequently asked questions
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How PPP loans work if you're self-employed Self-employed borrowers need to follow a different process to get a PPP loan and apply for forgiveness.
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How to defer a small business loan during the coronavirus Most lenders are pausing repayments for 60 to 90 days for business facing hardship due to COVID-19.
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Tiger Funding business loans review Tiger Funding gives business owners access to multiple business lenders with one application.
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Paycheck Protection Program statistics Small businesses may have gotten the highest number of loans — but most money went to big firms.
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PayPal business loans review Short-term loans for all credit types — but watch out for high fees.
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Loanry business loans review Use this connection service to get up to $100,000 for your business.
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InterNex Capital business loans review Get funding for your business up to $10 million — but expect high fees.
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Celeri Network business loans review This service offers low starting rates, but potentially high monthly payments.
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United Medical Credit business loans review Get connected with a merchant cash advance using a provider that specializes in medical and dental practice loans.
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