A small-business loan can do more than provide a lump-sum payment; it can help business owners stabilize their cash flow, take advantage of an opportunity in the marketplace, purchase additional inventory, or make payroll less of a strain. Financing for small businesses can come in a variety of options, such as revolving lines of credit, short-term loans, or equipment financing with 10-year terms. For business owners considering their options, finding the best small-business loans means identifying lenders that can provide a suite of financing opportunities and flexible repayment terms while offering competitive interest rates and a user-friendly experience. By weighing their options, small-business owners can secure the funding they need to support their venture in a variety of ways.
- BEST OVERALL: Funding Circle
- RUNNER-UP: OnDeck
- BEST LOAN REQUIREMENTS: Fundbox
- BEST LOAN OPTIONS: Biz2Credit
- ALSO CONSIDER: National Funding
What to Consider When Choosing One of the Best Small-Business Loans
Business owners have several factors to consider when shopping for the best small-business loans, including the maximum loan amount available, the type of financing the lender offers, the credit score needed for approval, and other minimum eligibility requirements, to name a few. Carefully weighing each of these considerations can help business owners receive the right financing for their unique needs.
Maximum Loan Amount
When getting a small-business loan, borrowers may want to first consider how much they might qualify for with each lender. Small-business lenders typically have maximum loan amounts that limit how much financing a borrower can receive. Depending on the purpose of the loan, some business owners may require a larger loan amount than others. For instance, those looking to purchase commercial space in a high-cost-of-living area and furnish it with high-end equipment may need more financing than business owners who need to cover the cost of hiring a few temporary employees during the busy season. As such, it’s often important for small-business owners to check the maximum loan amount available when vetting lenders.
It’s also a good idea for business owners to determine how much funding they will need to achieve a specific goal before reviewing their financing options. Doing so can help business owners avoid taking on more debt than necessary and overextending themselves financially.
Types of Financing
The types of financing available to business owners can vary from one lender to another. Deciding on the approach that makes the most sense for a borrower can depend on several factors, including what the loan funds will be used for, how much funding a business needs, and the repayment schedule that works best. Some popular financing options include:
- Term loans: With term loans, small-business owners borrow money directly from a bank, credit union, or online lender, and receive their funds as a lump-sum payment. Repayment typically occurs in regular installments across a set period.
- Line of credit: When using a line of credit, businesses can draw funds as needed up to the predetermined credit limit. As funds are repaid, the amount of credit available to draw funds from increases.
- SBA loans: These are partially backed by the Small Business Administration (SBA) and are often referred to as 7(a) loans. Because they are guaranteed by the federal government, small-business loans from SBA-approved lenders often have much lower interest rates compared with those of traditional loans and may have longer repayment terms as well. However, borrowers may face stricter eligibility requirements with SBA loans.
- Invoice factoring: Invoice factoring companies will buy outstanding invoices from businesses at a discount and then take on the work of collecting payment from customers. Small businesses can receive a cash advance when selling invoices in this way and then another payment once the balance has been collected. The invoice factoring company receives a fee in exchange for its services, but that cost may be worth the expense for businesses struggling with cash-flow problems due to having several outstanding invoices from their customers.
Lenders may offer other types of financing for more specialized purposes, such as purchasing commercial real estate or investment properties. In those cases, prospective borrowers may want to consider one of the best investment property loans. Another specialized loan option is an employee retention tax credit (ERTC) loan, which provides businesses with funds while they wait for the Internal Revenue Serivce (IRS) to process their tax refund.
Minimum Credit Score
Lenders often set credit score requirements that borrowers must meet to be eligible for financing. In the case of small-business loans, lenders will often review the borrower’s business credit score rather than their personal credit score. Not all borrowers will have a business credit score, though, such as business owners who are looking to get their first venture off the ground or have only been in business for a few months. In those scenarios, lenders may look at the borrower’s personal credit score instead. For instance, some lenders will only work with borrowers who have a minimum credit score of 620 or higher.
That doesn’t necessarily mean business owners with lower credit scores are out of lending options, though. If someone’s credit score is lower than the lender’s minimum eligibility standards, then they may have to consider other lenders that have more flexible criteria for qualifying for a loan. Business owners may want to keep in mind that even if they qualify for a loan with poor or no credit, they may pay higher interest rates and fees to offset the heightened financial risk for the lender.
Minimum Business Requirements
In addition to minimum credit scores, lenders offering small-business loans often set baseline requirements that businesses must meet to qualify for financing. Lenders may look at annual revenue, years in operation, and other factors when weighing a business’s loan eligibility. For a borrower looking to launch a new business, loans can be difficult to qualify for in some cases given some of these requirements.
Joe Camberato, CEO and founder of National Business Capital, a lending marketplace speicalizing in loans for entrepreneurs and business owners, explains that qualifying for a loan isn’t the same with all lenders, and eligibility criteria can vary from one to another. “Traditional banks and credit unions usually prefer well-established businesses [and are] looking for an annual revenue over $250,000 and a solid FICO score of 700 or more,” he says. “But even businesses with solid histories are facing challenges in the current lending landscape. On the flip side, non-bank lenders provide a more flexible approach, often overlooking traditional benchmarks like credit scores.”
Small-business owners may want to anticipate these business loan requirements and prepare the necessary documentation ahead of time so the approval process goes smoothly. “At a basic level, expect to prove your identity and business ownership,” Camberato adds. “After that, you’ll need to supply financial documents, like tax returns and income statements. Depending on the lender, a credit check might be in the mix.”
Interest Rate and Annual Percentage Rate
The interest rate on a loan determines how much interest the borrower will pay in exchange for financing. The annual percentage rate (APR), on the other hand, reflects the total cost of the loan, which includes the interest rate as well as all fees. Small-business loan rates will vary from one lender to another and may depend on several factors. For instance, the loan terms selected—the length of the repayment period, in particular—can affect the interest rate and APR on a small-business loan. Those who select a longer repayment term will have smaller installments, which will be easier to budget for, but they may face higher interest rates in return. In addition, lenders may set higher rates for small-business owners who have lower credit scores, as those borrowers may present a higher risk of nonpayment.
Funding Time Frame
The funding time frame, which determines how quickly the business owner can expect funds to be deposited into their account, can vary significantly from one lender to another. A quicker funding time frame can be a huge boon to borrowers who need the money from their loan as soon as possible. Longer funding times, meanwhile, can be a major concern for cash-strapped businesses if they need to wait a significant length of time for their funds.
Camberato notes that the type of lender can determine how quickly a business receives its funds. “Simply put, non-bank lenders are fast—you can get up to $250,000 within a few hours with just a little paperwork,” he says. “But if you’re bringing in collateral or personal guarantees, it might take a bit longer. SBA loans, on the other hand, are known for taking ages—some people wait 8 months or longer, sometimes an entire year. Traditional banks are in between, and usually, non-bank lenders are quicker.”
The repayment term refers to the length of time the borrower has to pay back the loan and can vary significantly from one lender to the next. Repayment terms can be a critical point of consideration because of their impact on the business’s budget. Short-term business loans may require borrowers to start paying back their loan within a few days, even requiring daily, weekly, or bi-weekly payments. Other loans may require a monthly installment payment, which can go on for a number of years. Longer repayment periods will likely result in smaller monthly installments, which are easier to budget for, but some business owners may not want to carry that debt for multiple years. In those cases, they could prefer a shorter repayment window, even if it means paying more each month during that time.
Another aspect of the repayment term borrowers may want to consider is whether or not prepayment penalties apply. Many lenders charge a fee if the loan gets paid off earlier, which can add significant cost to the loan. Small-business owners considering a longer loan term but who want to leave their options open to pay back the loan ahead of schedule may want to look closely at their financing terms to check for these kinds of penalties.
Discounts can make small-business loans even more affordable, so it’s often worth inquiring whether or not there are any cost-saving opportunities available. Discounts on small-business loans can take the form of reduced interest rates, financial incentives for paying off a loan early, or lower lender fees (origination fees, for instance). In some cases, lenders may agree to waive their origination fees altogether, lowering the out-of-pocket costs associated with taking out a small-business loan. While these opportunities can vary from lender to lender, any discount can be substantial enough to offer significant savings to the borrower and may set the lender apart from other competitors.
For those requesting financing for the first time, business loan applications may seem daunting. The process involves a few steps, but the more a potential borrower is prepared, the easier it will be. The first step in the application process is gathering all the necessary business and personal documentation for the lender. Each lender has an exact process to navigate, and a business owner may want to ask about those application requirements ahead of time so they have the all the information they need readily available.
The next step is filling out a business loan application, which can often be done online for a quick and streamlined process. Application processes will vary by lender, though, and while many banks and credit unions support online applications, others will ask borrowers to speak directly to a loan officer. Some lenders may require an in-depth interview for a business loan, which may take place over the phone or in person. Borrowers may even need to present a detailed business plan before their loan application can be approved. Small-business owners who are looking to get loan funds as quickly as possible may want to factor in each lender’s approach to approving applications, as a more thorough vetting process can lead to longer funding times.
Our Top Picks
For business owners looking to obtain the best small-business loans, there are lenders that offer a wide range of financing options, flexible repayment terms, and a great customer experience. In some cases, lenders may have low revenue requirements or work with business owners with less-than-perfect credit. Finding the right option will depend on the business’s specific needs, but each of these lenders has a lot to offer small businesses.
Why It Made the Cut: Funding Circle offers a full lineup of financing options and loans for small businesses, and borrowers may be able to take advantage of a generous maximum loan amount and long repayment terms.
Funding Circle stands out among the top lenders in this space due to the wide range of financing options it offers to small businesses, including term loans, lines of credit, SBA loans, merchant cash advances, and more. Having all of these options to consider can help business owners find the right type of financing to suit their needs without compromising on loan terms.
It’s worth noting that Funding Circle does require a business to be established for at least 2 years to qualify for financing, but eligible businesses may find that the lender’s financing options are tough to beat. For instance, the lender may approve loan amounts up to $500,000 for qualifying borrowers, which is a lot of money for this type of financing. Another standout feature is the option to select long repayment terms on some of its loans. In some cases, borrowers may have up to 10 years to pay back their loan, resulting in more manageable monthly installments that are easier to budget for. Funding Circle’s website also features a helpful business loan calculator that allows borrowers to see what their monthly payments would be depending on the loan amount and repayment term. With this insight, business owners can make a more informed decision about taking out a loan that suits their financial situation.
- Maximum loan amount: $500,000
- Types of financing: Term loan, line of credit, SBA loan, merchant cash advance, working capital loan, invoice factoring
- Minimum business requirements: 2 years in business, no personal bankruptcies for personal owners in the last 7 years
- Repayment terms: 6 months to 10 years
- Funding timeline: Varies by type of financing
- Wide range of financing options
- Relatively high $500,000 maximum loan amount
- Flexible repayment terms of up to 10 years
- Helpful business loan calculator
- Financing unavailable to borrowers in business for less than 2 years
Why It Made the Cut: OnDeck offers a low business revenue requirement, transparent loan cost breakdowns, and may even provide same-day funding in some instances.
OnDeck is an online lender offering either term loans or lines of credit for small businesses. It also allows businesses established for at least a year and with $100,000 in revenue to apply, which is fairly lenient for lenders in this space. As such, business owners may find that it’s easier to qualify for financing with OnDeck.
Those looking for a high line of credit may want to note that the lender will only approve this type of financing for up to $100,000, which is somewhat low. However, loan approval can happen within minutes and in some cases, borrowers may receive funds the same day they submit an application. This quick turnaround time could be very appealing to business owners who need their loan funds as soon as possible.
Borrowers who receive a loan offer from OnDeck will also get a SMART Box disclosure form that details the total cost of their loan or line of credit up front. This includes the loan amount to repay, interest that will accumulate during the repayment period, and any additional fees that will be assessed. Because this information is presented in a straightforward and transparent manner that clearly lays out the total cost of a loan, prospective borrowers can see exactly how much a loan or line of credit will cost them in the long run so they can accurately compare financing options and make the best decision for their financial situation.
- Maximum loan amount: $250,000 for term loans; $100,000 for lines of credit
- Types of financing: Term loan, line of credit
- Minimum business requirements: 1 year in business, $100,000 in business revenue
- Repayment terms: 24 months
- Funding timeline: Same day possible
- Same-day funding possible
- Low $100,000 business revenue requirement
- Transparent lending cost breakdown
- Relatively low $100,000 maximum line of credit amount
Why It Made the Cut: Fundbox offers lines of credit to borrowers who have only been in business for 6 months and generate $100,000 in annual revenue, which are relatively flexible requirements for this space.
Newly established small businesses may have difficulty qualifying for financing due to eligibility requirements related to their time in business. However, Fundbox considers applications from borrowers who have only been in business for at least 6 months. In addition, annual revenue requirements are set at $100,000, which is fairly low for this type of loan. With that in mind, more business owners may be able to qualify for a loan, particularly those who have recently launched their new venture and are struggling to find their footing in the early days of their business.
While Fundbox only offers one financing option—a line of credit—borrowing amounts can go up to $150,000, which may be more than enough to cover the working capital expenses many business owners face. Funds can be used for a variety of needs, such as payroll, purchasing inventory, and maintenance costs. Fundbox also has lenient credit score requirements, making it even easier for business owners to qualify for funding.
- Maximum loan amount: $150,000
- Types of financing: Line of credit
- Minimum business requirements: 6 months in business, $100,000 in revenue
- Repayment terms: 12 or 24 weeks
- Funding timeline: 1 business day
- Low minimum credit score requirement
- Low $100,000 business revenue requirement
- Line of credit available to borrowers in business for as little as 6 months
Why It Made the Cut: Biz2Credit offers several lending options for business owners, and some of those lending options provide a substantial borrowing range to help fund business ventures.
Biz2Credit is an online lender that stands out from the competition with the number of loan opportunities it provides. A business can apply for a term loan, working capital loan, or commercial real estate loan, among other options. Commercial real estate loans, in particular, are not always available from lenders in this space and may be appealing to those looking to purchase a place for their new venture or expand an existing business to new locations.
The company even offers Employee Retention Tax Credit (ERTC) loans, which can be very helpful for businesses that qualify for an ERTC from the IRS and are waiting for the government to process their request. Small-business owners may want to note that they will need to generate at least $250,000 in annual revenue to qualify and that it may take 72 hours or more to receive their funds. That being said, eligible borrowers may not mind the wait given the lender’s high maximum loan amounts. Small-business owners may receive up to $500,000 if their loan is approved.
- Maximum loan amount: $500,000
- Types of financing: Term loan, working capital loan, ERTC loan, commercial real estate loan
- Minimum business requirements: 18 months in business, $250,000 in revenue
- Repayment terms: 12 to 36 months
- Funding timeline: 72 hours or more
- Relatively high $500,000 maximum loan amount
- ERTC loans available
- Commercial real estate loans available
- Relatively high $250,000 business revenue requirement
- Relatively long 72-hour funding time
Why It Made the Cut: National Funding offers multiple lending options, including equipment financing and leasing, and may approve loans for borrowers who have only been in business for 6 months.
National Funding offers several potential advantages for business owners looking for additional funding options. In addition to traditional term loans and working capital loans, National Funding offers specialized equipment financing and leasing options to help business owners acquire the equipment they need to run their day-to-day operations. These financing and leasing options can be used to purchase or lease equipment for offices, construction sites, restaurants, or farms, among others. Borrowers can also use these funds to buy or lease vans, trucks, or other vehicles to support their business operations.
Although National Funding does not list minimum credit scores and requires businesses to generate at least $250,000 in annual revenue, borrowers who have been in business for as little as 6 months may qualify for financing. In addition, those who pay off their loan ahead of schedule can receive an early payoff discount to lower the total cost of a small-business loan.
- Maximum loan amount: $400,000
- Types of financing: Term loan, working capital loan, equipment financing and leasing
- Minimum business requirements: 6 months in business, $250,000 in revenue
- Repayment terms: 12 to 18 months
- Funding timeline: 1 business day
- Financing available to borrowers in business for as little as 6 months
- Early payoff discount available
- Equipment financing and leasing options available
- Credit score requirements not listed
- Relatively high $250,000 business revenue requirement
We chose Funding Circle as our top pick because of its multiple financing options and large borrowing range, which makes it an excellent choice for a business established for at least 2 years. OnDeck is the runner up pick because business owners may be able to receive same-day funding for either a term loan or line of credit and qualify for a loan with annual business revenue as low as $100,000.
How We Chose the Best Small-Business Loans
When selecting the best small-business loans, we began by looking at the types of financing options offered by each lender, including term loans, lines of credit, commercial real estate loans, ERTC loans, and other types of financing. Eligibility criteria was another key consideration, which can cover many aspects of a small business, including the borrower’s credit score, length of time in business, and annual revenue. We weighed each of these factors to determine which lenders may be more flexible when reviewing loan applications.
Another important point to consider was the maximum loan limit set by the lender across its different financing options. Funding times and repayment terms factored into our ranking as well due to their financial impact on a business. Other factors considered include the overall user experience with the application process, online resources, and customer support options.
Before You Choose One of the Best Small-Business Loans
The research provided here is a starting point for a small-business owner interested in taking on a small-business loan. However, the lenders presented here may not be the best fit for every type of small business; business owners may want to do their own research to ensure their unique needs can be met. For instance, those looking to start a plumbing business may need funds to pay for tools, a vehicle to transport equipment to jobsites, and chemicals and inventory materials, as well as hire a crew of qualified technicians. There are several options available for small-business loans, including banks, credit unions, and online lenders, and each one may offer distinct advantages and disadvantages. A well-informed borrower can ensure they get the right loan and the most affordable option for their needs.
Business owners may also want to consider the financial responsibility of taking on debt through a small-business loan. If they don’t feel comfortable making monthly payments and repaying their loan, the time may not be right to apply for a business loan. That being said, Camberato notes that a small-business loan can be extremely helpful and says that those who have taken the time to create a strong business plan shouldn’t hesitate to take advantage of these opportunities.
“Think ahead. See how a smart move, funded by a loan, can help your business,” he says. “If you’re sure the plan works, and the numbers make sense, don’t wait. Taking bold steps now can make your business stronger when the economy improves.”
Cost of Taking Out One of the Best Small-Business Loans
The cost of taking out a small-business loan depends on a great number of factors. For starters, the amount borrowed makes a significant impact, as well as the annual percentage rate. However, additional fees, such as application fees, administrative fees, origination fees, or prepayment penalties, can substantially increase the overall cost of the loan. Because these fees vary so much from one lender to the next, business owners will likely want to ask about any applicable fees up front and compare options across multiple lenders. Eligibility criteria will also likely impact loan costs, and lenders that offer business loans to those with poor credit tend to charge higher interest rates and fees.
Camberato explains that high interest rates don’t always need to be a deterrent for those considering a business loan. “Everyone wants the best deal on interest rates, [but] it’s just as important to consider the bigger picture, especially in the current economic climate,” he explains. “Even if interest rates seem steep, weigh the cost against potential opportunities. Some businesses are hesitating because of an extra $1,000 on a loan, but if there’s a chance to make more money, go for it. The potential profit is worth more than the extra cost.”
Interest, fees, and other expenses may pale in comparison to the costs of funding a business out of pocket. For instance, cleaning business start-up costs can be as high as $10,000, which could be very difficult to manage without the assistance of a small-business loan.
The Advantages of Choosing One of the Best Small-Business Loans
Choosing one of the best small-business loans can have an enormous positive impact, helping borrowers navigate the financial hurdles of launching a new venture, expanding into new markets, and covering day-to-day expenses. Whether borrowers are looking to start a cleaning business, grow a plumbing business, or launch their own start-up, business loans from the top lenders can offer several benefits, such as:
- A wide variety of financing options, including SBA loans, invoice factoring, ERTC loans, commercial real estate loans, and equipment financing and leasing;
- Flexible eligibility requirements, which may allow more small-business owners to qualify for financial assistance; and
- Generous loan amounts across different types of financing to help pay for business expenses.
Those looking to get a new business off the ground have many important considerations to address—for instance, what type of business license they may need and how to get a business license. Financial issues may tower over all other concerns, and receiving a small-business loan can be a major boon for borrowers. Taking on debt in this fashion is also a huge financial responsibility. As such, business owners will likely want to research each lender and loan option before making a decision. The answers to some of the most common questions business owners have when applying for a small-business loan can help them prepare accordingly so they find the right option for their needs.
Q. Can you get a small-business loan with bad credit?
Yes, itâs possible to get bad-credit business loans. Some lenders are willing to work with borrowers with poor credit, but they may charge higher interest rates.
Q. What documents are needed to apply for a small-business loan?
Documentation requirements can vary from one lender to another, but business owners often must present a business plan, copies of their business license or operating documents, financial documents, personal information (such as address, Social Security number, etc.), and personal and business tax returns.
Q. Is it hard to get a small-business loan?
Like any loan, many requirements must be met to obtain funding on a small-business loan. However, some lenders will have extremely lenient eligibility requirements, making it possible for a wide variety of business owners to qualify.