Gone are the days when an entrepreneur could walk into a bank and get the funding needed to start up, float or expand a business. As traditional institutions have scaled back on loans to small businesses, online lenders are stepping in to provide the short- and long-term financing that keeps Main Street alive. Even to those who can’t qualify for a bank loan.
We show you how to compare nontraditional financing options to get your business ideas off the ground, fund equipment or vehicles, cover temporary shortfalls and more. We tell you how these loans work, what you might pay and common options you’ll choose from. While you may not qualify for them all, you’ll be better equipped to get the financing or capital to keep you thinking big for your small business.
SmartBiz SBA Loans
Get funding for your small business with low monthly payments, extended repayment terms and competitive rates.
- Min. Loan Amount: $30,000
- Max. Loan Amount: $5,000,000
- Low starting APR: 5.75%
- Min. Loan Term: 10 years
- Max Loan Term: 25 years
- Must have been in business 2+ yrs w/ annual revenue of $50,000+ and personal credit score of 600+
Compare business loans from top lenders
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What’s a business loan?
A business loan is money you borrow from a lender to cover business expenses. It’s paid back over a period of time that could range anywhere from a few months to 25 years — with interest and fees, of course.
Business loans differ from personal loans mainly because they’re limited to business costs. They’re also taken out in your business’s name, rather than yours. This means that the loan amount, fees and interest are mainly determined by your business’s finances.
How do business loans work?
How a business loan works depends on the kind of loan you get. The more traditional fixed-term business loan typically comes in a lump sum. After you receive your funding, you have a set amount of time to pay it off with monthly repayments.
A line of credit, on the other hand, works by giving you access to ongoing funds up to a predetermined limit. You only pay interest on the amount you draw and you have to make monthly, weekly or sometimes daily repayments.
You can also get an advance on your business’s future profits with invoice financing or invoice factoring. Invoice financing works like a fixed-term loan with regular repayments. Invoice financing is a one-time deal where you sell your invoices for a percentage of their collective value. Learn about even more business financing options below.
What types of business loans can I get?
Choosing the right type of financing is the one of the first steps to getting funding for your business. There are many types of financing options catering to the different needs of businesses. Here are some of the most common:
|Loan type||How it works||Loan amount||Typical APR||Min. speed|
|Term loan||This type of finance is ideal when you know exactly how much you need to borrow and when your business can pay it back. Fixed term loans are available with repayment periods usually between 5 and 20 years.||$5,000–$5 million||7%–30%||48 hours|
|Line of credit||Similar to a business overdraft, a line of credit gives businesses additional funds as and when they need it. The difference is this finance is usually secured by a personal guarantee.||$5,000–$5 million||7% to 25%||24 hours|
|Credit card||Business owners use both personal and business credit cards when financing small and short-term costs. Some benefits of credit cards are interest-free grace periods and frequent flyer points, but can be expensive if not paid back in full each month.||$2,000+||13%–25%||Week|
|Merchant cash advance||Businesses with seasonal revenue streams can get an advance on future sales to get ready for a burst of demand by taking out a merchant cash advance. You repay it — plus a fee — with a percentage of daily sales.||$2,500–$250,000||Fee of 1.14%–1.18% of loan amount||24 hours|
|Invoice financing||If you’re business relies heavily on accounts receivables, invoice financing provides ongoing funding on your outstanding invoices. Loans are typically paid back within three months or as soon as you receive payment on the invoice.||80% invoice value||Advance fee of 2%–5% of invoices||24 hours|
|Invoice factoring||Many businesses have capital tied up in outstanding invoices, so this type of finance allows them to sell invoices to a third-party company. The third-party company will buy the invoice from your business at a percentage of the amount due, usually up to 85%, and then collect full payment from the client.||85%–95% invoice value||N/A||24 hours|
|Vehicle finance||Businesses that need to purchase vehicles have access to a range of vehicle financing options. These loans are typically secured, meaning that your business can look forward to more competitive rates, and depending on the use of the vehicle, tax benefits.||$10,000–$10 million||8%–30%||Week|
|Equipment finance||If you need equipment for your business, whether it be for a construction site, a medical lab or an office, you may need financing to lease or purchase it.||90%–100% equipment value||8%–30%||48 hours|
Other types of business financing include:
- Cash flow lending. This type of financing is opted for by businesses that generate cash flow but aren’t able to provide security. The loan is secured by the working capital assets of the business.
- Business equity loans. Get discounted rates on a business loans by securing it with the equity you own on your personal or business property.
- Trade finance. Businesses looking to purchase goods from a domestic or international supplier can consider trade finance. Through a letter of credit, bank guarantee or documentary collection you simply pay interest on the amount provided for each trade transaction.
- Commercial loans. If you want to purchase real estate including any type of commercial property such as a warehouse, office building or retail store, a commercial loan could provide the long-term financing you need.
- Point of sale (POS) financing. If you offer high-ticket items or services to your customers, POS financing is a way to offer your customers loans at the time of purchase. Some lenders will give you full upfront payments when a customer signs up for a loan.
- Personal loans. That’s right. If you’re struggling to find funding for your business, you can always take out a personal loan to cover business expenses — though your personal finances are on the line if your business goes under.
Where can I get a business loan?
It used to be that banks were the gold standard for business loans. That’s not necessarily the case any more — it’s never been harder to qualify. Some of common types of business loan providers include:
- Credit unions. The nonprofit cousin of banks, credit unions often have less stringent qualification requirements to join and can offer lower rates because they don’t have to pay off shareholders first.
- Online direct lenders. Faster, sometimes cheaper and definitely easier to qualify for than a bank. Online lenders have taken the lending landscape by a storm by making what can be a long and complicated process relatively painless.
- Peer-to-peer marketplaces. Go to one of these (usually online) spaces to get matched with individual or groups of investors willing to finance a personal loan.
- Online brokers. These sites play matchmaker between you and their network of lenders, helping you cut down on some of the search time. They often guide borrowers through the process and can be a great resource for novices.
- Banks. Banks: Where people get business loans in the movies. The application process is usually more drawn out than less-traditional lenders — sometimes involving interviews, site visits and more. The main draw: you usually know what you’re getting. If you qualify (which can be difficult) you’re likely getting the best deal.
Bank loans for small businesses
Going to your bank for business financing might seem like an obvious choice, but it also might not be your best option. Banks reject around 80% of small business loan applications.
So you know the odds, but you’re dead-set on getting a bank from a bank. You’re not alone: Nearly half of American business owners would rather borrow from a bank.
The good news is not all bank loans are created equal. Local or regional banks are typically more interested in helping out their communities than other lenders so you might want to look there if you’re a local business. Just be aware: Only those with spotless applications and excellent credit histories get approved.
Different guides for different financing needs
Fixed Term Business Loan
Get funds for your business with a clear interest rate and predictable repayments throughout the term of the loan.
Line of Credit
Get access to a business line of credit to fund ongoing expenses with the flexibility of only borrowing what you need.
Whether you need construction machinery, medical monitors, IT devices or some other specialized equipment for your business, there are financing options available.
Unsecured Business Loans
You don’t have to put your property or other assets on the line to get a business loan. See if an unsecured business loan could work for you.
How much do business loans cost?
When considering the cost of a business loan, there are two parts to evaluate: rates and fees. Rates will depend on several factors including your creditworthiness and the loan term. Fees are usually predetermined based on the lender.
Interest rate is what you’ll most commonly see when considering business loan costs. This is the amount charged as a percent of your loan principal. It can be compounded daily, monthly or annually.
Fixed interest rates remain the same throughout the entire term of the loan. Variable interest rates can fluctuate throughout the term of the loan, and your repayment amounts may go up or down depending on the market.
Another type of rate you may see charged on a business loan is a factor rate. Factor rates are decimal figures that act as payment multipliers. They’re applied once on the principal loan amount to demonstrate how much your business loan will cost over the loan term. (Example: A 1.25 factor rate on a $10,000 business loan for a 12-month term would result in you ultimately paying $12,500.)
Many lenders charge one-time fees to get your loan started, such as establishment fees, document fees or origination fees.
Some lenders may charge ongoing fees like monthly fees for invoice financing or line fees for lines of credit.
Some lenders may also charge penalty fees for things like early repayment or late payments.
The annual percentage rate, or APR, of a business loan takes into account any fees charged in addition to the interest rate to give you a more accurate idea of how much your loan will cost over time.
Just some of the top business loan providers we compare
How can I find the best loan for my business?
It’s tempting to go with your bank or another familiar financial institution when you need financing. But you could end up paying a lot more if you don’t shop around. Weigh the following factors when comparing business loans.
- Loan amount. Use the amount you wish to borrow to narrow down your choices. Minimum and maximum loan amounts vary by lender, with some minimums as low as $2,000 and maximums over $1,000,000.
- Loan term.Traditional fixed-term business loans typically have loan terms ranging from one to seven years. On the other hand, short-term financing options like invoice financing are meant to be repaid within just a few months. It’s important to know what you can afford so that you can choose the loan term that best suits your business’s cash flow.
- Interest rate. Interest can vary widely depending on the type of business loan you choose. Loans backed by the Small Business Administration — or SBA loans — tend to offer competitive interest rates. Ongoing financing options like merchant cash advances tend to come with higher interest rates. This feature requires your attention because even a small difference in interest rate percentage can have a big effect on the total cost of the business loan.
- Type of lender. Banks tend to have stricter qualification requirements than other lenders when it comes to approving business loans. That’s why many small business owners turn to non-bank loans for funding. Depending on how established your business is, either might work for you.
- Collateral required. Although unsecured loans come with the benefit of not putting up an asset as collateral, there are advantages to secured loans as well. Secured loans may come with lower interest rates and longer repayment periods depending on the asset you provide as security. Learn more about business equity loans if you own a home or other high-value property and need a business loan.
- Loan purpose. If need funding to start a very specific type of business, like a taxi company for example, there may be tailored loan options available to you. Some lenders also offer additional services for business owners taking out tax debt loans or loans for other highly specific purposes.
Top online lenders by loan type
|Loan type||Top lenders||Starting APR||Minimum credit score|
|Online term loan||LendingClub||7.77%||Around 580||Learn more|
|Line of credit||Fundbox||4.66%||None||Learn more|
|Equipment financing||Lendio||6%||560||Learn more|
|Invoice factoring||BlueVine||85%–90% of invoice advanced||600||Learn more|
|SBA loan||SmartBiz||5.75%||650||Learn more|
Am I eligible for a business loan?
Eligibility requirements will vary depending on your lender and loan type. However, there are two main factors to consider:
- Business age. Your business will typically have to meet a minimum age requirement, which is usually between six months and two years.
- Revenue. Many business lenders require a minimum annual revenue of $50,000 to $75,000. If your business is under a year old, the requirements are usually higher at around $10,000 per month or more.
Other eligibility requirements may involve your business’s location, its industry and your personal or business credit score. Many lenders also ask to see a business plan or financial projections when you apply.
Many business lenders require that your business has been established for at least six months and that it’s meeting certain revenue minimums. There are some lenders who may consider your business plan and personal credit profile in lieu of business experience to evaluate your loan application and asses risks.
Learn more about startup loans to see how you can get a business loan in the early stages. You could also get a personal loan to start a new business.
Government-backed business loans
Some lenders — typically banks — offer loans backed by the US Small Business Administration, known as SBA loans. This means that the government takes the loss if you aren’t able to pay it off. SBA loans are designed opens lenders up to riskier borrowers and could be a great opportunity for businesses that don’t qualify for ordinary bank loans.
Does your business depend on invoices?
You might want to consider invoice financing if your business sometimes has gaps in revenue due to outstanding accounts receivables. Invoice financing lets you borrow against your outstanding invoices and repay the lender once the client pays you. It an ongoing service with loans that you can pay back in up to three months.
Or, look into Invoice factoring. Here, you sell your invoices to third-party for a percentage. You won’t get the full value of your invoices but you won’t have to worry about repayments.
Is a business loan right for me?
- Consider a loan if…
- Your business is doing well. A loan can help you buy new equipment, hire more staff and ultimately increase profits as long as you’re doing well enough to qualify for competitive terms and rates.
- You want to expand. Loans can be a great help to businesses that want to grow but need a financial boost.
- You need help through an off season. A loan can help make sure your business doesn’t fold during a seasonal dip in sales.
- Look at other options if…
- Your business is struggling. It’s tempting to take out a loan to get back on your feet, but you can end up in even more financial trouble if you miss payments or default.
- You want to make another investment soon. Taking out a loan can improve your credit in the long run, but getting a credit check temporarily lowers your credit score. Plan to leave some time between loans.
Common reasons business loans are rejected
- You didn’t understand your credit score. Maybe you thought you met the credit requirements but it turns out your score wasn’t good enough. It’s a common mistake — most business owners don’t know their credit score before they apply.
- Your business doesn’t have enough cash flow. Patchy revenue can make a business look like more of a risk — especially if it isn’t in a seasonal industry.
- Your business is too young. Startups tend to have a hard time getting a business loan. You can either wait, or look at other financing options like investors and crowdfudning.
- Weak collateral. If your business doesn’t have real estate holdings or equipment, it can be tough to secure a loan unless you put your personal assets on the line.
- Your business already has a lot of debt. Multiple debts could mean you have limited capital for repayments. Try paying these off first before applying for another loan.
Financing your business without a loan
So what happens if your business is too young or small to qualify for a loan with good terms? Or maybe it’s just a bad time to take on debt? You still have financing options.
- Get funding from investors. Very small or young businesses could benefit the most out of selling a share of their enterprise in exchange for financing.
- Start a crowdfunding campaign. Set a fundraising goal, invest a little in marketing and collect small donations from family, friends, fans and other interested individuals.
- Apply for a business grant. It’s not easy to qualify for a grant and the resources it takes to apply could have you questioning how much this free money is going to cost you. But it could be worth taking on the paperwork if you’re strapped for cash and can’t get a loan.
- Borrow from friends or family. You probably won’t have to pay interest but that doesn’t mean it’s totally free — failing to pay it back in time could seriously damage your relationships.
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