Editors choice: SmartBiz
- Large network of SBA lenders
- Low potential APR
- Fast turnaround for an SBA loan
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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.
Business loans reviewed
Hours of extensive research
Business loan experts
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.
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.
Fixed-term business loans come with interest and fees:
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.
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.
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.
Look into these features when you are considering business loan options.
Here’s what you can expect to happen when you apply for a small business loan.
Business loans typically start at around $5,000 and can top $5 million. How much you can borrow depends on several factors:
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.
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:
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.
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.
Getting a loan can help your business in more ways than one. These include:
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:
You can learn more with our article on credit score requirements for different types of business loans.
The main reason businesses get rejected for loans have to dow with its ability to repay. These include:
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.
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.
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:
Learn about financing options tailored to your business’s industry.
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.
Don’t think you’ll qualify for a business loan? Explore alternative options for borrowing.
|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|
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