Best Business Loans: Securing the right funding can be a game-changer for small businesses. A small-business loan is a source of capital that can help you stock your shelves, buy new equipment, or expand your footprint. Business owners can access funding through traditional banks, online lenders, and community lending institutions.
Types of Small-Business Loans – Best Business Loans
Below, compare the best small-business loans, including bank and SBA loans, business lines of credit, term loans, and equipment financing. Plus, learn how to qualify and find the right financing for your needs.
Unlocking Capital with SBA Loans
SBA loans stand out due to their low interest rates and long repayment terms. These loans, partially guaranteed by the U.S. Small Business Administration, are available in amounts up to $5 million with terms up to 25 years. The SBA 7(a) loan, in particular, is a popular choice for many small business owners.
To qualify for an SBA loan, you’ll need a good personal credit score (typically 690 or higher), strong financials, and a few years of business experience. Keep in mind that the application process can be slow, so it’s best for those who can wait for funding.
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Traditional Bank Loans for Small Businesses
Banks offer a variety of small-business financing options, including term loans and lines of credit. To qualify, you’ll need a strong personal credit score (starting in the 700s), several years in business, and a solid track record of business finances. Banks may also require collateral in some cases.
Loan amounts for bank loans can range from $10,000 to $1 million, with APRs typically ranging from 5.75% to 11.91%. They are ideal for working capital needs and business expansion.
Online Business Term Loans
Online lenders often provide business term loans of up to $500,000. These loans can be short-term, with repayment periods ranging from three to 18 months, or long-term, extending up to 10 years or more.
Term loans are suitable for large one-time investments and can be used for specific items such as commercial real estate, equipment, or inventory. Be mindful of the APR range, which can vary significantly from 6% to 99%.
Flexible Financing with Business Lines of Credit
A business line of credit offers flexible access to funds, similar to a credit card. Lenders provide a specific credit limit (ranging from $1,000 to $250,000), and you only pay interest on the funds you use.
This type of financing is best for managing cash flow, covering unexpected expenses, and financing short-term business needs. The APR range typically falls between 10% and 80%.
Equipment Financing for Asset Purchases
Equipment financing is a form of asset-based financing where the equipment serves as collateral for the loan. You can obtain a loan equal to up to 100% of the equipment’s value, which you repay over time with interest.
Some lenders may also cover soft costs, such as installation and warranties. Equipment financing is ideal for purchasing machinery and equipment, with APRs generally ranging from 4% to 30%.
Invoice Factoring and Financing for Cash Flow Management
Invoice factoring involves selling your unpaid invoices to a factoring company in exchange for immediate cash. Alternatively, invoice financing allows you to maintain control over your invoices while still getting access to funds quickly.
Both options are suitable for managing cash flow and short-term financing, with financing amounts up to $5 million and APRs ranging from 10% to 79%.
Personal Loans and Business Credit Cards
For young businesses that don’t qualify for traditional financing, a personal loan for business can be a good option. Personal loan providers consider your personal credit score and income instead of your business history.
Business credit cards offer revolving credit and are often easier to qualify for than small-business loans. While credit limits are usually smaller than a line of credit, business credit cards may offer rewards such as cash back or travel points.
Comparing the Best Small-Business Loans
Here’s a quick comparison of some of the best small-business loans, including bank and SBA loans, business lines of credit, term loans, and equipment financing:
| Lender | Best for | Max Loan Amount | Min. Credit Score | APR Range | Max Term Length |
|---|---|---|---|---|---|
| U.S. Small Business Administration | SBA loans | $5,000,000 | 650 | 11.50-15.00% | 25 years |
| Bank of America | Bank small-business loans | $100,000 | 670 | See review | 5 years |
| Wells Fargo | Bank lines of credit | $50,000 | 680 | 13.00-15.00% | See review |
| Funding Circle | Long-term loans | $500,000 | 660 | 15.22-45.00% | 7 years |
| OnDeck | Short-term loans | $250,000 | 625 | 35.40-99.90% | 2 years |
| Bluevine | Fast financing | $250,000 | 625 | 20.00-50.00% | 1 year |
| Fundbox | Startup businesses | $150,000 | 600 | 10.10-79.80% | 6 months |
| Fora Financial | Borrowers with bad credit | $1,500,000 | 500 | See review | 1 year and 3 months |
| American Express Business Blueprint™ | Online lines of credit | $250,000 | 660 | See review | See review |
| National Funding | Unsecured loans | $500,000 | 600 | See review | 2 years |
| Triton Capital | Equipment financing | $250,000 | 600 | 5.99-35.00% | 5 years |
| Accion | Women and minority groups | $250,000 | 570 | 5.99-18.99% | 5 years |
| U.S. Small Business Administration | Microloans | $50,000 | 620 | 8.00-13.00% | 7 years |
Qualifying for a Business Loan
Lenders generally consider factors such as your personal credit score, time in business, and annual revenue when evaluating loan applications. They also assess your cash flow and ability to repay the debt. A strong personal credit score can help you secure lower rates and more loan options.
If you don’t need financing immediately, consider building your credit score. However, if you require quick access to capital, you may still qualify for a business loan with a lower credit score.
Applying for a Small-Business Loan
To increase your chances of approval, start by determining which loan option is right for your needs. Check your qualifications, estimate your monthly repayment capacity, and decide whether you want to collateralize the loan.
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Secured loans require collateral, which can increase your borrowing limit and lower your interest rate. However, this comes with the risk of losing the collateral if you fail to repay the loan.
What is a small-business loan and why would I need one?
A small-business loan is a source of capital that helps business owners stock their shelves, buy new equipment, or expand their footprint. It provides the necessary funding to manage cash flow, invest in new projects, or cover unexpected expenses.
What are the most popular types of small-business loans?
The most popular types of small-business loans include SBA loans, bank loans, term loans, business lines of credit, and equipment financing.
How can I qualify for an SBA loan?
To qualify for an SBA loan, you generally need a good personal credit score (typically 690 or higher), strong financials, and a few years of business experience. Be prepared for a slow application process, as SBA loans can take time to be approved and funded.
What is the difference between a bank loan and a business line of credit?
A bank loan provides a lump sum of capital upfront that you repay over time with interest. A business line of credit, on the other hand, offers flexible access to funds up to a specific credit limit. You only pay interest on the funds you use, similar to a credit card.
Can I get a small-business loan if I have bad credit?
Yes, you can still qualify for a small-business loan with bad credit, but your options may be limited, and you may face higher interest rates. Some lenders, like Fora Financial, specialize in lending to borrowers with lower credit scores.