Compare small business loans in 2021

Types of small business loans

There are several different types of financing that you can use to fund your business. Here are some of the most common small business loan options.

SBA loans

The Small Business Administration (SBA)’s government-backed business loan programs are designed to help small businesses access funding. SBA loans offer low rates and high loan amounts to businesses that are too small or too new to qualify for your typical bank loan. These are usually secured with collateral.

• Loan amounts: Up to $5 million
• Typical rates: Usually around 5.5% to 8%, but rates vary by SBA loan program
• Typical fees: SBA guarantee fee, other fees depending on the lender and loan program
• Typical terms: Five to 25 years
• Best for: Small businesses with strong financials and good credit but can’t qualify for a bank loan

There are several different SBA loan programs that cover almost every type of expense, from working capital to buying commercial real estate. The SBA also had several loan programs to help businesses struggling during COVID-19, such as the Paycheck Protection Program (PPP). The SBA is no longer accepting new PPP loan applications, but you can still apply for other government coronavirus assistance programs.

Term loans

Business term loans offer a lump sum that you repay in installments plus interest and fees. They’re best for funding a one-time expense, like buying a piece of equipment. Term loans can either be secured with collateral or unsecured. But even unsecured business loans typically require a personal guarantee from all small business owners.

• Typical loan amounts: $5,000 to $500,000
• Typical starting rates: 6% APR
• Typical fees: Origination fee
• Typical loan term: Three to 20 years
• Best for: Funding a one-time purchase or expense

Lines of credit

A line of credit gives your business access to cash as needed to cover working capital expenses. It’s a good option if you have a seasonal business, regularly need funds to purchase inventory or want to have funds available for unexpected expenses. Like a term loan, a business line of credit can require collateral or be unsecured.

• Typical credit limits: $5,000 to $250,000
• Typical starting rates: 8% APR
• Typical fees: Origination fee, monthly or annual maintenance fee, withdrawal fee
• Best for: Ongoing expenses and working capital

Most business lines of credit revolving credit, meaning that the credit limit replenishes as you pay it off. Typically, each withdrawal turns into a short-term loan, though some lenders might only minimum monthly payments on your valance.

Invoice financing and factoring

Invoice financing and factoring offer an advance on unpaid customer invoices. Invoice financing is generally available for invoice volumes under $20,000 while invoice factoring can run from around $20,000 to $10 million. Instead of interest, you pay a monthly or weekly fee based on the time it takes for customers to fill their invoices. These can be high compared to your typical business term loan or line of credit.

• Typical advance rate: 85% to 100% of unpaid invoice’s value
• Typical fees: 2% to 15% of your invoice’s value
• Typical terms: 90 days per round of financing
• Best for: Short-term financing needed to fill orders

Invoice financing allows you to maintain control of your unpaid invoices and offers up to 100% of the invoice value upfront. Invoice factoring involves selling unpaid invoices to a company. The factoring company usually offers 85% to 95% upfront and the rest, minus a fee, after your customers fill their invoices.

Government business loans

Federal, state and local governments are currently offering emergency loan programs to help businesses recover from the COVID-19 pandemic. These are highly local and options change frequently, as programs tend to run out of funding fast. You can learn about the government business loans available to you by visiting a small business center in your area.

Read about more types of small business financing to explore more financial products.

How to get a small business loan

Most small businesses can get a business loan by determining how much funding the business needs and comparing lenders. It can be difficult to qualify for a small business loan with:

• Less than three years in business
• A credit score under 670
• Less than $100,000 in revenue

But you may be able to find financing from an SBA loan provider or an alternative lender if bank loans aren’t an option.

Alternative lenders include microlenders, online business loan providers and factoring companies. They might not offer competitive rates compared to a bank, but they can help your business get to a place where it’s eligible for a bank loan.

How to compare lenders

Before you start comparing lenders, calculate how much you need to borrow, assess the state of your business’s finances, check your personal credit report and choose the type of financing you need.

Once you have a better idea of what you need, look for lenders offering the loan amount and type of financing you need — with basic requirements that your business meets.

Then, compare the rates, fees terms and turnaround time for each product. You might want to weigh other factors that are important to you, like no paperwork requirements or lower rates for repeat borrowers. If you’re applying online, you may also want to consider the steps lenders take to protect applicants information.

How the application process works

In most cases, you need to get prequalified for a business loan before you can apply. Prequalification often involves providing basic information about your business assets, revenue and cash flow.

If you accept an prequalification offer, you can move on to the full application. Typically, you need to provide more details and documents to verify the information on the application form. Many lenders also consider the personal finances and personal assets of all business owners with a 20% stake in the company.

If a lender offers online applications, you can typically get credit approval within 24 hours. You can often receive funds within one to two business days after closing. Bank loans and SBA loans often take a few weeks. An unsecured business loan also typically takes less time than a loan that requires collateral.

More ways to finance a business

Before you compare lenders, make sure it’s the right choice by looking into alternatives. For example, businesses with frequent, small expenses might want to compare business credit cards instead — you won’t have to pay interest if you pay off your balance each month.

Startups might also want to look into personal loans rather than business financing. Most lenders don’t offer financing to firms with less than six months in business. And you’ll likely qualify for a lower rate — especially if you put up personal collateral.

If you or another owner have bad credit, you might want to apply for business grants, bring on investors or set up a crowdfunding campaign. That’s because lenders consider the credit score of each small business owner and it can be difficult to qualify with a credit score under 580.

What is Finder?

Finder is an independent comparison platform with a mission to help small business owners and consumers make smart financial decisions. Our team of lending experts have backgrounds in journalism, editing and commercial lending. And we’ve written hundreds of reviews and guides to business financing.

Finder may receive compensation from the lenders on our site. And in some cases, it may affect where providers appear on a page. But our strict editorial process ensures that money doesn’t influence the content of our business loan guides or reviews.

Guides to other business financing options

Commercial loans

Business equity loans

Microloans

Invoice financing