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The Best Business Loan and Financing Options of 2021

By Donna Fuscaldo,
business.com Staff
| Updated
Jun 17, 2021

Many small businesses need funding to get started. Learn about the different financing options to decide which would work best for your small business.
Best for Flexible Terms
SBG Funding
Variety of loan types
Financing up to $6 million
Discount pricing
Best for Short-Term Loans
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Flexible payment schedules
Early-payoff discounts
No collateral required
Best for Term Loan
Biz2Credit
Variety of business loans
Simple interest
Discount pricing
Best for Fast Funding
Rapid Finance
Same-day funding
Loans of up to $10 million
Variety of loan types and terms
Best for Customer Service
Noble Funding
Variety of financing options
Ongoing customer support
No upfront fees
Many small businesses need funding to get started. Learn about the different financing options to decide which would work best for your small business.
Updated 06/17/21

We've updated our What to Expect in 2021 section with information about the end of the Paycheck Protection Program.

 

Accessing capital is a necessary part of running a small business, whether you need it to fund operations, fills gaps in cash flow, or take advantage of an opportunity to grow and expand. The good news: There are lots of options available for small business owners. The bad news: It can be hard to determine what's right for you. When examining different lenders to determine our best picks, we considered the cost to borrow, whether the lender requires collateral, the terms of the loans and customer service.

 

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How We Decided
Our team spends weeks evaluating dozens of business solutions to identify the best options. To stay current, our research is regularly updated.
38
Considered
19
Researched
10
Selected

Compare Our Best Picks

Company SBG Funding Fora Financial Biz2Credit Rapid Finance Noble Funding Balboa Capital Crest Capital Fundbox Accion Truist
Best for Flexible terms Short-term loans Marketplace lender Fast funding Customer service Easy approvals Equipment financing Lines of credit Microloans SBA loans
Loan size Up to $5 million $5,000 to $500,000 $25,000 to $250,000 $5,000to $10 million $75,000 to $3.5 million $5,000 to $250,000 $5,000 to $500,000 Up to $150,000 $500 to $150,000 No limit
Collateral No No No No No No Secured by equipment No No Yes
Loan term 6 months to 5 years Up to 15 months 12-36 months Varies Varies Up to 18 months 24-84 months 12 weeks or 24 weeks Varies Varies
Personal guarantee required Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Time to fund Same day 72 hours 72 hours Same day 2-3 days Same day Same day Next business day Quick funding (exact time depends on individual lender) N/A
Online application Yes Yes Yes Yes Yes Yes Yes Yes Yes No
Minimum sales requirement

$10,000 per month

$12,000 per month $250,000 per year N/A 2 years positive net income $300,000 per year N/A $100,00 per year $50,000 per year N/A
Required minimum credit score 500 Decent, no open bankruptcies 660 500 500 Decent (usually means at least 580) 650 600 525 (or no credit score) N/A
Required minimum time in business 6 months 6 months 18 months 3 months 18 months 6 months 24 months 6 months 12 months N/A
BBB score A+ A+ Not rated A+ A+ A+ A+ A+ Not rated A+

Our Reviews

SBG Funding: Best Loan Option for Flexible Terms

SBG provides several financing types and loan sizes. Funding is quick, terms are favorable, and there are no additional fees.
This lender has some of the most flexible repayment terms in the industry.
You need to have $10,000 in monthly revenue to qualify for a loan, which is hard criteria for some small businesses to meet.

SBG Funding is our choice as the best alternative lender for flexible terms because it offers different funding types, can issue loans of up to $5 million, and will give you a decision in under 24 hours. Rates for some of its business loan products start as low as 1.75%.

Editor's score: 8.7/10

SBG Funding is an alternative lender that provides small businesses with funding to support their growth. Borrowers can access term loans, lines of credit and equipment financing. We like that SBG offers you a choice in loan type. Some business owners may prefer a line of credit, drawing down on it when they need it, while others want a lump sum to cover operating expenses, or funding for a pricey piece of equipment. You can do all this through SBG.

This lender is also flexible in repayment terms. Its small business loan terms range from six months to five years, with funding up to $5 million. You can pay these loans back on a biweekly or monthly schedule. The business line of credit's terms range from six to 24 months, with available credit of up to $150,000. Same-day funding is available with both loan products, which is another thing we like about SBG. Its equipment financing terms are also flexible, lasting one to 10 years. You can finance up to 100% of the equipment value, and there are no penalties for paying it off early.

Small businesses want flexibility in the amount they can borrow and the terms to pay it back. SBG delivers in both regards, making it our best pick for flexible terms.

Read SBG Funding Review

Fora Financial: Best Loan Option for Short-Term Loans

Fora Financial offers short-term loans and merchant cash advances with terms of 15 months, which is ideal for borrowers looking for a bridge loan or quick cash.
Besides the principal and interest, Fora Financial doesn't charge any additional fees.
To qualify for a loan from Fora Financial, you need to have gross monthly sales of $12,000. Startups are also precluded from using this lender.
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Fora Financial is our choice as the best alternative lender for short-term loans because it offers loans of up to $500,000, with terms no longer than 15 months. With Fora Financial's loans, you get flexible payment schedules, discounts for early payoff, and no collateral requirements. This lender serves many industries, including the construction, medical, automotive, wholesale and manufacturing sectors. We also like that there are no restrictions on how you can use the cash. Whether you need money to pay taxes, purchase inventory, or upgrade your equipment, you can access capital for a short period with this lender.

Editor's score: 8.4/10

Fora Financial offers small business loans and merchant cash advances with terms of up to 15 months. You can borrow up to $500,000 with both loan types. This alternative lender makes it quick and easy to apply for its loans. It offers an online application and only requires three months of bank statements. You can find out if you qualify within 24 hours and can have the funding in your account within 72 hours after approval. Fora also makes it easy to qualify. You only need to have six months in business, at least $12,000 in gross sales and no open bankruptcies. We also like the online portal where you can monitor your loan progress in real time.

Sometimes you just need access to capital for a short time and don't want to be stuck in a loan long after what you borrowed money for has lost its value. That's where short-term loans and Fora come in. It has an easy approval process and will lend up to $500,000, making it our best pick for short-term loans.

Read Fora Financial Review

Biz2Credit: Best Loan Option for Term Loan

Biz2Credit provides a platform for a variety of flexible business loans with transparent pricing and competitive rates.
You can borrow up to $250,000 as a term loan and pay it back over 12 to 36 months.
To qualify for a term loan from Biz2Credit, you need to have more than $250,000 in annual sales and a credit score of at least 650. You also have to be in business for 18 months before you can get a loan.

Biz2Credit is our choice for the best marketplace lender because its platform connects small business owners with various funding types, and it offers fast approval and transparent pricing. Since its inception in 2007, Biz2Credit has arranged more than $2 billion in small business funding for thousands of companies. We like that Biz2Credit's platform matches small businesses with sources of capital that meet their unique needs. You also get a hands-on approach from Biz2Credit, with access to funding specialists who can help you determine the loan terms that work best for your business.

Editor's score: 8/10

Through its lending platform, Biz2Credit offers term loans, working capital loans and commercial real estate loans. We like its transparency about the rates you'll pay for loans. It charges simple interest, which is the cost you pay to borrow without it compounding. That saves you money on interest because the overall rate stays relatively low. Biz2Credit's term loan rates start at 8.99%, varying by credit score and other factors. It also offers fast funding turnarounds of 72 hours for term loans and 24 hours for working capital loans.

Biz2Credit boasts a quick application process, which is attractive to time-crunched business owners, and offers discounts if you connect your business checking account with the alternative lender. That provides an additional way to save on the loan, something not all of Biz2Credit's rivals offer. It also has an impressive partner network, including credit rating agencies Dun & Bradstreet and Equifax, making it our best pick for marketplace lender.

Read Biz2Credit Review

Rapid Finance: Best Loan Option for Fast Funding

Rapid Finance offers a variety of small business loans with flexible repayment terms.
With an easy online application and relaxed documentation requirements, Rapid Finance is quick to process loans and can fund them on the day of approval.
To get a loan from Rapid Finance, you need to have been in business for at least three months, so many startups aren't eligible for a loan from this lender.

Rapid Finance is our best pick for fast funding because it has an easy online or mobile application, quick approval turnaround, and same-day funding. This lender, which has facilitated more than $2 billion in loans to small businesses since its inception, operates an online portal to track the progress of your loan. We like that Rapid Finance offers a variety of loan products, including small business loans, merchant cash advances, short-term bridge loans and lines of credit. It services a broad array of industries and is dedicated to helping small businesses get funding fast.

Editor's score: 9/10

Another reason we selected Rapid Finance as best for fast funding is its application process. You only need to have a business bank account, at least three months of operations, and three months of bank statements. That is a small amount of documentation compared to applying for a conventional or SBA loan. You can borrow as little as $5,000 up to $10 million with this alternative lender. Rapid Finance is willing to work with borrowers regardless of their credit scores, as it looks at the overall performance of the business when evaluating borrowers.

For small business owners looking for fast funding, Rapid Finance stands out. Regardless of the loan product, this lender can get money in your account the same day as approval. Add an easy application that you can complete from a smartphone, and it's clear why Rapid Finance is our best pick for fast funding.

Read Rapid Finance Review

Noble Funding: Best Loan Option for Customer Service

Noble Funding is a decades-old lender with a strong reputation in the industry. It has been accredited by the BBB for years.
This lender works with a variety of industries, offers flexible terms, and provides ongoing support once it issues funding.
Noble Funding requires a FICO score of 650 or more to be eligible for one of its loans. For short-term loans, you need a 51% ownership stake.

Noble Funding is our choice as the best alternative lender for customer service because it offers quick and easy small business financing, something time-crunched business owners will welcome. The lender has funded more than $500 million to businesses since its inception in 2005 and has an A+ rating with the BBB. Noble also has more than 100 positive reviews on Trustpilot and no BBB complaints.

Editor's score: 8.5/10

Noble Funding offers a variety of financing options, including short-term bridge loans, long-term business loans and asset-based loans. It doesn't charge any upfront fees and only receives compensation if the borrower is funded. Noble Funding prides itself on listening to clients, analyzing their needs, and coming up with financial packages unique to each business. With so many funding options, it can be difficult to determine which is best for you, so we like this extra attention and collaboration you get from Noble.

We also like that you have the option to fill out an online application to receive an instant quote or contact customer service directly. This alternative lender also offers quick approval and funding turnarounds. If you choose its BankLite long-term loan, you can be approved within two or three business days. Those loans start at 8.99% interest and don't require any collateral. You do need a credit score of at least 650 to qualify, though. The short-term bridge loans have less stringent requirements, same-day approval, and funding in two or three days.

There is more to borrowing money than just getting a low interest rate; you want to work with a lender that offers top-notch support. Nobel Funding delivers in that area and has $500 million in business loans to prove it, making it our best lender for customer service.

Read Noble Funding Review

Balboa Capital: Best Loan Option for Easy Approval

Balboa Capital offers fast approval, same-day funding, and a variety of loans that have no hidden fees and do not require collateral.
This lender will consider all applicants, weighing more than just credit score.
Balboa Capital's small business loans have a maximum term of 18 months, which will not appeal to borrowers who want financing they can pay off over a long term.

Balboa Capital's is our choice as the best alternative lender for easy approval because it accepts applicants with lower credit scores and offers quick funding. This lender doesn't require reams of paperwork or documentation, and there's no collateral or hidden fees, making this an attractive lender for business owners looking for an easy approval process.

Editor's score: 8.6/10

We like that Balboa Capital is willing to look at more than your credit score when approving loan applications. This lender understands a business is more than that, looking at the business's fundamentals and growth prospects when underwriting the loan. Minimum approval requirements for its small business loans are one year of operations and $300,000 in annual revenue.

Another reason we chose Balboa Capital as the best lender for easy approval is the application process. The online form is simple to fill out, and you can find out if you qualify within an hour. In certain circumstances, funding can go through on the same day.

Balboa Capital has a good reputation in the marketplace, which is also important. An easy approval process isn't worth it if your lender is unscrupulous or charges hefty fees. Its interest rates, while higher than a bank or SBA loan's rates, are competitive with other alternative lenders. Balboa Capital has an A+ rating with the Better Business Bureau and has been accredited by the agency since 1999. (That's not to say it hasn't had customer complaints over the years.)

Getting business funding can be tough for small business owners who have faced some challenges. Balboa Capital doesn't hold your credit score against you, making it a good choice for business owners looking for an easy loan approval process.

Read Balboa Capital Review

Crest Capital: Best Loan Option for Equipment Financing

Crest Capital offers multiple equipment financing options with flexible terms.
This lender offers an easy online application and same-day funding for loans less than $250,000.
You need a credit score of at least 650 to qualify for a loan from Crest Capital, which is bound to preclude some borrowers.

Crest Capital is our choice as the best alternative lender for equipment financing because it provides flexible business equipment funding options that are among the best in the industry. Crest Capital offers loans between $5,000 and $500,000, fast funding, and competitive rates.

Editor's score: 8.4/10

Crest Capital provides small business owners with equipment financing of as much as 100%, up to $250,000. It will approve financing above that, but it's a tougher approval process with much more paperwork. If you want to finance equipment for less than $250,000, Crest Capital only requires you to fill out a quick and easy online application. We like that you can check your eligibility on its website before proceeding; you don't want to waste time applying for a loan that you have no chance of getting.

One of the reasons we chose Crest Capital is its flexible terms. You can finance your equipment for 24 to 84 months. Some lenders will only let you finance equipment for a short period.

We also like that Crest Capital will let you finance used equipment, even those from private sales. Crest moves quickly to approve your application. It will give you a decision within hours, and the deal can be completed in a few days. Crest Capital also offers Section 179 qualified financing, which allows tax deductions on the cost of equipment, and is willing to work with you to create a loan or lease that meets your needs. Equipment financing options abound when you work with Crest Capital, which is why it's our best pick for equipment financing.

Read Crest Capital Review

Fundbox: Best Loan Option for Line of Credit

Fundbox offers business lines of credit with transparent pricing and fixed payments.
This lender will automatically increase your credit line after a certain period of you regularly paying on time.
Fundbox's lines of credit have terms of 12 to 24 weeks, which are shorter than rivals' terms. If you want to pay back your line of credit over a longer period, this isn't the lender for you.

Fundbox is our pick for the best alternative lender for lines of credit because it offers transparent pricing, quick and easy approvals, and fast funding. This alternative lender can extend small businesses lines of credit of up to $150,000, with terms of 12 to 24 weeks.

Editor's score: 8.2/10

When you borrow money, it's important to understand how much it will cost you. With Fundbox's line of credit, you have a fixed payment due each week, with the fees broken down clearly for you. We like that Fundbox lets you know how much the fees are before you draw down any money, allowing you to decide if it's worth it beforehand.

Fundbox withdraws the weekly payments automatically from your bank account, which we also like. Sometimes it's easier to pay in small chunks than in one large monthly payment. The funds replenish as you pay, and Fundbox may increase your line of credit after you've made regular on-time payments for a while (Fundbox will determine how long and reach out to you automatically when you're eligible for an increase). The interest rate on your line of credit depends on your credit score and the length of the loan.

We also like that Fundbox employs technology to get funding in your business checking account quickly. As part of the credit line application, you must first share information about your company and connect your accounting software and/or bank account to Fundbox. Fundbox then underwrites the loan. This lender offers lines of credit that are easy to apply for and quick funding, making it our best pick for lines of credit.

Read Fundbox Review

Accion: Best Loan Option for Microloans

Through the Accion Opportunity Fund, business owners can get access to microloans from $500 to $150,000.
Accion is willing to work with all types of borrowers and focuses on helping business owners in underserved markets.
Accion requires a lot of documentation to approve a loan.

Accion Opportunity Fund is our best pick for microloans because this nonprofit is dedicated to helping small businesses access small loans through its microlending program. With loans ranging from $500 to $150,000, a willingness to work with business owners with imperfect credit, and its commitment to helping small businesses grow, Accion stands out from other microlenders.

Editor's score: 7.8/10

We appreciate Accion's focus on underserved markets, including women-owned, disability-owned and minority-owned businesses. It's also willing to work with startups, food and beverage businesses, and other small businesses that others may not be so quick to extend financing to.

Accion's term loan rates start at 7% but vary by credit score. They can go as high as 34%, which may not be worthwhile for every small business owner. The better your credit score, the lower the interest you'll pay.

Accion offers options for small loans, which is a plus for many businesses. Sometimes, all it takes is $500 to get a business up and running. Accion allows you to borrow a lower amount at a better interest rate than a credit card. Another plus for us is its flexibility: It has varying terms and will work with you to create a repayment schedule that fits your situation.

For small business owners who need a small amount of capital, Accion is worth serious consideration. It offers loans of as little as $500 up to $150,000, is willing to lend to businesses that others are not, and provides ongoing support, making it our best pick for microloans.

Read Accion Review

Truist: Best Loan Option for SBA Loans

Truist, the merger of SunTrust Banks and BB&T, is an SBA Preferred Lender, which means it understands the ins and outs of SBA loans.
With Truist, you get help applying for SBA loans and access to a wealth advisor who can provide business tips.
There is no online application for an SBA loan through Truist; you have to visit a branch or call the lender directly.

Truist is our best pick for SBA loans because it has years of experience working with the Small Business Administration and offers a variety of funding options. Truist is the result of a merger between SunTrust Banks and BB&T and is the only bank lender on our list.

Editor's score: 7.6/10

SBA loans don't fall into the alternative loan bucket, but they are a popular and attractive borrowing option. Since the government backs most of the loan, lenders like Truist can accept lower down payments, offer longer repayment terms, and charge competitive interest rates. As an SBA Preferred Lender, Truist has demonstrated its commitment to providing efficient funding and top-notch customer service.

When you work with Truist, you get access to an advisor who can determine which SBA loan is right for you. The advisor can also help you with other aspects of running your business. It's nice to have a sounding board and expert advice in tumultuous times.

Truist doesn't have an online application, which means approval isn't minutes away. You can call or visit a branch to apply for a loan. That doesn't appeal to every business owner, but SBA loans can get complicated, requiring a lot of paperwork. Having someone to walk you through it may be a worthy trade-off. Truist does recommend that you get some documents ready ahead of time, though, including three years of your business and personal tax returns, your current financial statement, and a breakdown of your business expenses. Also, be prepared to explain how you'll use the loan proceeds.

SBA loans are a popular choice for their low interest rates and long terms, but that doesn't mean they are easy to navigate. You need a lender who can walk you through the process, and that's where Truist comes in. With Truist, you get an experienced lender who knows what it takes to process your loan quickly, which is why it's our best pick for SBA loans.

Read Truist Review

Rates and Terms

Rates

Accessing capital is an important part of running a small business, but of course it isn't free. Banks and alternative lenders charge you for the privilege of borrowing. These are some of the fees lenders charge:

  • Interest rate: This is the cost to access a lender's capital, charged as a percentage of the loan. The interest rate you pay depends on several factors, including your personal and business credit score, time in business, sales, and loan size. Pay close attention to the annual percentage rate, or APR. This tells you the loan costs, including all of the fees.
  • Loan application fee: Some, not all, lenders charge a fee to apply for a loan. This fee doesn't guarantee you'll be approved, and you should avoid applying to lenders that charge it.
  • Origination fee: Charged as a percentage of the loan or as a flat fee, this covers the costs of processing the loan.
  • Monthly and annual maintenance: These are fees some lenders charge to administer your loan. They aren't considered a best practice in the industry; you should avoid lenders that charge them.
  • Late payment fee: Spelled out in a reputable lender's contract, this is the fee you pay if you are late on your loan payments.
  • Prepayment penalties: Some lenders charge a fee if you finish paying back your loan before the term ends.

TipTip: The fees you'll pay to borrow money vary from one lender to the next. That's why it's so important to shop around, so you can make an accurate comparison of small business loans.

Terms

Depending on the type of loan or financing you choose, you may have to make payments daily, weekly, biweekly or monthly. Different lenders offer different terms (the time you have to pay off the entire loan, such as five years for a long-term loan), and some lenders require you to put up collateral as part of the agreement. That means you have to offer something of value the lender can possess if you default on your loan, such as your house or business building.  

Buying Guide

Types of Business Loans to Consider

Options abound for small business funding. From SBA loans to lines of credit, there are several ways small business owners can access cash.

SBA Loans

The U.S. Small Business Administration provides startups and small business owners access to capital through its lending program. The SBA backs up to 85% of these loans, which enables banks to extend funding to borrowers they may not have lent money otherwise. Some of the lending programs even provide ongoing support for the entrepreneur. Expect to pay comparable interest rates to a bank's on SBA loans.

  • Standard 7(a) loan: With the SBA 7(a) loan, small business owners are eligible to borrow up to $5 million. The interest rate on this loan can't exceed the SBA maximum of 8%. The turnaround time from application to funding tends to be five to 10 business days. There's no collateral required for loans up to $25,000.

  • SBA Express loan: The SBA Express loan is similar to the 7(a) loan, but funding may come in as little as 36 hours. You can borrow up to $350,000 and use it as a revolving line of credit or a term loan.

  • 504 loan: This is a long-term, fixed-rate loan in which the SBA provides 40% of the funding, a bank covers 50%, and the borrower is responsible for 10%. Business owners can use 504 loans to purchase or fix equipment or property to help the business grow.

Traditional Bank Loans

Banks and credit unions offer small business loans. It may be easy to apply if you have an existing relationship with the bank, though that doesn't guarantee you'll get a loan. Banks and credit unions have gotten more stringent in approving borrowers. A bank loan tends to have a lower interest rate than you'd pay with an alternative lender, but only those with strong credit profiles need apply.

Business Lines of Credit

Similar to a credit card, a line of credit is a revolving loan that you can tap into as you need it. You only pay interest on the money you use. You can use it to fill cash flow gaps, to chase business growth, or simply for peace of mind. Business lines of credit can be secured (which means it requires collateral) or unsecured (meaning it doesn't require collateral). It's typically easier to get a line of credit with collateral, such as a piece of equipment or real estate, because that gives the lender something to take if you don't repay your credit.

Microloans

Ideal for small business owners starting out or in need of a small amount of cash, microloans range from $500 to $500,000. They typically have short terms and are offered by nonprofits. Microlenders aim to help small businesses in underserved markets and owned by members of traditionally underfunded demographics in particular. The SBA is a big player in the microloans market, providing the funding to nonprofits it designates as intermediary lenders.

Business Credit Cards

As with personal credit cards, you can use a business credit card to make purchases while paying annual interest and fees, which can get expensive if you carry a balance. Lenders look at both your personal and business credit scores when determining your creditworthiness. The higher your credit score, the lower interest you'll pay.

Alternative Loans

Not every small business owner is suitable for a bank, and that's where alternative lenders come in. These are non-bank lenders that provide an array of loans. Alternative lenders are typically more flexible than banks, with quicker application processes and funding turnarounds. They may cost you more, but if it means you get the funding you're unlikely to get from a bank, it may be worth it. Here's a look at three popular alternative loan types for small business owners:

  • Merchant cash advance: A lender can offer you a merchant cash advance in exchange for a portion of your future credit card sales. You get access to cash quickly, sometimes within one day, and then pay it back as a percentage of your daily credit card sales.

  • Equipment financing: This is a loan you take out to pay for business equipment. The collateral in this case is the equipment being financed. Most business owners can get approved for this, given the collateral component.

  • Invoice financing: Similar to a merchant cash advance, invoice financing gives you an advance on your clients' unpaid invoices. It's often referred to as accounts receivable financing. With this type of funding, the invoicing company advances you up to 85% of the value of your unpaid invoices. You receive the final 15%, minus the financing company's fees, when your customers pay their invoices.

TipTip: Before you start shopping for a small business loan, think about what you need the funds for. That will help you determine the length (term) of the loan you need. You don't want to be stuck paying off the loan long after the thing you borrowed it for has lost its value.

What to Look for in a Business Loan or Financing Option

When you're researching your financing options, you have several factors to consider that will help you narrow down your selection. 

Loan Process

When small business owners need cash, they usually need it as quickly as possible. The last thing you want to do is get stuck with a lender that requires reams of paperwork or takes too much time getting the funding into your bank account. With many alternative lenders, it takes just minutes to apply for a loan, and some offer same-day funding once you're approved.

Term

This is the time you have to pay back your loan and the schedule for when you need to make payments. You may have six months to pay off a short-term loan, for example, or five years for a long-term loan.

Qualifications

Qualifications vary by lender, but in general, they look at your credit score, the financial health of the business, and how long you've been in operations. Some lenders only work with borrowers who have very good credit scores, while others are open to higher-risk borrowers. You should understand a specific lender's qualifications and know that you're eligible before you apply for financing from that lender.

Collateral

Depending on the loan, you may need to offer up personal or business collateral, such as paper assets (e.g., stocks or corporate bonds) or property (e.g., buildings, equipment or vehicles). If you default on the loan, the lender can come after that collateral. It's important to understand the lender's collateral requirements and the inherent risk before agreeing to the terms.

Fees/Repayment

The interest isn't the only fee you'll pay. Lenders can charge various fees that impact the cost of the loan, such as application fees, origination fees, late payment fees, prepayment penalties, and monthly and annual maintenance fees.

Time to Deposit

This is the time it takes to get money in your bank account once you are approved for the loan. Before you choose a lender, you should know how long its entire process takes. 

Special Documentation

Some lenders require you to provide a ton of documentation, including tax returns and bank and credit card processing statements, while others just need your credit score. Knowing ahead of time what paperwork your chosen lender requires (ideally gathering and preparing it before you start the application) will ensure a smooth and quick process.

Did you know?Did you know? Most small business loans require you to provide a personal guarantee. This means that, if your business defaults on the loan, the lender can come after your personal assets.

How to Qualify for the Right Loan for Your Business

Whether you work with a bank or an alternative lender, their main goal is to get paid back. It's why they put you and your business through the paces before approving your loan. They consider how long your company has been in business, your business credit score, and your annual sales. Lenders also look at your personal credit score when issuing capital. If you have a strong credit profile and your business is growing, it should be easy to get a bank or SBA loan. If your credit has taken a hit, you don't have strong revenue growth, or your business is in the early startup phase, an alternative lender may be a better option for you than a bank. That's why it's important to understand the type of financing you need before you begin applying for a loan.

WHAT DOCUMENTATION AND FINANCIAL STATEMENTS DO YOU NEED TO PREPARE FOR A LOAN APPLICATION?

The paperwork required for small business financing varies from one lender to the next. But there is some documentation that most lenders require:

  • Bank statements: Lenders want to see the last six months of your bank statements.

  • Tax returns: Some lenders require copies of your tax returns.

  • Business plan: To ensure your business model is solid and they won't lose money on you, many lenders will want to see your business plan.

The number of documents required varies so widely that it's a good idea to ask your loan specialist about it upfront – especially if you're looking for quick funding. They'll be able to tell you exactly what the lender requires in your situation. The more prepared you are with documentation, the quicker the process will go and the sooner the money will land in your bank account.

Bottom LineBottom Line: Small business loans are often necessary to keep cash flowing and operations growing. Depending on your credit profile, it can be reasonably cheap to borrow money or extremely expensive. You need to weigh the benefits of borrowing against the cost to determine what will work for you.

Frequently Asked Questions

WHAT IS THE EASIEST BUSINESS LOAN TO GET?

The easiest business loan to secure is one that has minimal requirements for your annual revenue, time in business and credit score. This makes it possible for startups to meet a lender's qualifications. Straightforward and simple application processes also make a loan easier to get.

DO STARTUP BUSINESS LOANS REQUIRE PERSONAL GUARANTEES?

Some lenders require collateral, while others protect their investment by requiring personal guarantees. It is rare to find a small business loan that doesn't require some level of insurance for the lender. So, yes, startup loans usually require personal guarantees, especially if the loan is unsecured. This is a lender's way of making sure they get your debt back, even if it's not directly through your business.

DO BUSINESS LOAN PROVIDERS LOOK AT PERSONAL CREDIT?

It is common for lenders to check your personal credit, especially if you are a new business owner and don't also have a business credit score for them to check. When you're starting a company, the business doesn't have a financial history yet, so a lender checks your personal credit score to determine if you qualify.

WHAT CREDIT SCORE IS NEEDED FOR A SMALL BUSINESS LOAN?

It really depends on the lender. For some, a credit score of 550 is sufficient, while others require a score of at least 600. Remember – the lower your credit score, the higher the interest rate you can expect to pay.

CAN YOU GET A STARTUP BUSINESS LOAN WITH BAD CREDIT?

It can be hard to get a loan or financing with bad credit, so if this is your situation, look into lenders that consider more than your credit score. Credit score will always hold some weight, but if there are other attributes of your financial history and behavior that make you look trustworthy, you could be approved for a startup loan from an alternative lender (not likely from a bank).

WHAT ASSETS CAN BE USED TO SECURE A BUSINESS LOAN?

You can use a wide range of assets to secure a business loan. Real estate, land, equipment, inventory and accounts receivable are all types of assets you can use as collateral.

WHAT ARE THE REPAYMENT TERMS FOR SBA LOANS?

There are different types of SBA loans, and once you qualify, your repayment plan options are based on the terms of the loan. If you have a loan with a fixed interest rate, you'll pay the same amount on each payment date. If you have a loan with a variable interest rate, the amount you pay may change – for example, if you have a cash advance or your loan is based on a prime rate. If that rate goes up, so does the amount you pay.

You may make repayments on a monthly, biweekly, weekly, or daily basis; you will agree on these terms with your lender beforehand. The preferable payment method is an automatic payment that pulls money directly from your account, which ensures you make your payments regularly and on time.

HOW DO YOU CHOOSE THE RIGHT LOAN FOR YOUR BUSINESS?

Small business loans come in many varieties, and shopping for one requires you to focus on more than just the interest rate.

Before you decide on the type of loan to pursue, you'll need to know which ones you'll qualify for. A quick look at your credit score and debt-to-equity ratio will clue you in. Some lenders require a high credit score, while others are willing to lend to subprime borrowers. Having a good idea of your credit profile will help you narrow down the list.

You must also weigh the cost to borrow, including the interest rate, fees and possible prepayment penalties. The term – the length of time you have to pay it back – and any application fees should also factor into your decision. By doing some homework, you can make sure you apply for a loan that makes sense for your business.

WHAT DOCUMENTATION DO YOU NEED TO QUALIFY FOR A BUSINESS LOAN?

When considering you for a business loan, lenders may require some documentation that is unique to them, but there are some key documents that every financial institution requires for the underwriting process. These include your business financial statements, such as a balance sheet, income or profit-and-loss statement, and your statement of shareholder equity.

Lenders may require three months' worth of your checking account statements. You'll also need to provide your income taxes for the last three years, paperwork pertaining to any businesses you have a financial stake in, and your business license or certification. If you're renting office space or equipment as part of your operations, you'll want to have those leases easily accessible as well.

WHAT TYPE OF LOAN IS A SMALL BUSINESS LOAN?

Small business loans have varying interest rates and terms. Here are three of the most common options.

  • Business line of credit: This is a popular choice among business owners who need flexibility. Instead of receiving a lump sum, you draw money as you need it and only pay back what you use.
  • Business term loan: Typically provided by banks and credit unions, this type of loan is usually funded in a lump sum, and you have a predetermined amount of time to pay it back. The interest rate is typically fixed.
  • Small Business Administration loan: These are largely geared toward small business owners who are just starting out. Because the SBA backs most of the loan, banks, credit unions and lenders are more willing to extend money to small business owners who may not be eligible for term loans.

CAN YOU GET A BUSINESS LOAN IF YOU HAVE BAD CREDIT?

Banks and credit unions extend loans to business owners with excellent credit scores. Unwilling to take on the risk of not being paid back, they typically won't look at you if your score is under 680. That doesn't mean you can't get a business loan if you have bad credit, though. There's a whole industry of alternative lenders waiting to serve you.

Small business owners with bad credit can get loans with terms of three years or less from alternative lenders, but the interest on these loans will be higher for borrowers with poor credit scores. Hard money loans are another option if you're willing to put up collateral. Instead of judging you on your credit score, these lenders require an asset – usually real estate – to back the loan.

HOW IMPORTANT IS YOUR CREDIT PROFILE IN APPLYING FOR A SMALL BUSINESS LOAN?

Your credit score has a big impact on your small business loan. It dictates the interest you pay and whether you're even eligible. In many cases, you need a good credit score to be approved for a small business loan. According to credit rating agency Experian, a credit score of 700 or above is considered good; a score of 800 or higher is excellent. You can still get a business loan with a score in the mid-600s, but it won't be easy, and you'll pay more in interest. Experian says the average credit score is between 600 and 750.

WHAT PAYBACK TERMS CAN YOU GET FOR YOUR SMALL BUSINESS STARTUP LOAN?

The payback term is the amount of time you have to pay back a loan. Depending on the type of loan, the payback terms could be as short as six months or as long as 25 years. For example, SBA loans have terms from five to 25 years. Your funding needs will dictate the terms. Short-term loans last no more than two years, while a long-term loan has an average span of five years.

WHERE CAN YOU FIND AN SBA LOAN APPLICATION?

If you're looking for an SBA loan, a good place to start is the SBA's Lender Match tool. It's a free online resource that hooks up business owners with SBA-approved lenders. To use it, you answer a few questions about your business, and within two days, you'll receive an email with contact information for the lenders willing to work with you. After you compare rates, you can apply with whichever lender you choose. This tool is not for SBA disaster relief loans.

If you don't want to wait the two days for the SBA to match you with compatible lenders, you can do your own internet search for SBA-approved lenders and apply directly through their websites.

WHAT IS A BUSINESS INSTALLMENT LOAN, AND WHY WOULD I NEED ONE?

A business installment loan is a common method of financing an asset such as property or expensive business equipment. Rather than paying for the whole purchase upfront, you pay for your purchased asset in installments over a certain period of time. The amount of the loan and the number of payments you must make are fixed; you don't have access to an ongoing line of credit or credit card.

Installment loans can have many purposes, such as purchasing equipment, funding a startup or paying for property. If you are looking for an installment loan to fund a startup, you'll need good credit, collateral, a business plan, and potentially additional guarantees, depending on your credit standing and business prospects. Installment loans tend to have lower interest rates than credit cards, but you risk losing your collateral if you default on the loan. That's not true of a credit card.

WHAT IS A BUSINESS LINE OF CREDIT, AND HOW DOES IT WORK?

With a business line of credit, you draw money from the loan as you need it. You pay interest only on the amount you use. Small business lines of credit range from $1,000 to $250,000, going even larger in some instances. They tend to have variable interest rates, which means your interest payment amounts will fluctuate with the market.

With an unsecured line of credit, you don't have to provide collateral, but the lender may require a personal guarantee. With a secured line of credit, you must offer something of value that the lender can seize if you can't repay the loan. Common types of collateral include property and business equipment. [Read related article: Unsecured vs. Secured Business Loans]

WHAT IS THE PAYCHECK PROTECTION PROGRAM?

The Paycheck Protection Program, or PPP, is a loan program designed to help small businesses during the coronavirus pandemic. It was passed as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, giving small business owners access to forgivable loans if they used the money to keep employees on the payroll. The program was very popular, providing a lifeline to countless businesses, but funds quickly ran out.

In late December of 2020, Congress approved another round of PPP funding of $284 billion in forgivable loans for small business owners. If a small business previously received a PPP loan but sales still fell 25% or more, they can apply for a new PPP loan. More aid came in March when President Joe Biden signed a $1.9 trillion COVID-19 relief bill. Of that money, $41 billion was earmarked for small businesses.

WHEN IS IT A GOOD TIME TO TAKE OUT A BUSINESS LOAN?

Many business owners don't look for a loan until they need the money. They may have identified an opportunity to expand or noticed a shortage in cash flow. Then they scramble to get a loan, focusing more on the time it will take to get cash in the bank than the terms.

The better strategy is to line up funding before you need it. That will give you the time to shop for a loan that has a low interest rate, little in the way of fees, and favorable terms. Having cash at the ready will better position your business for the unexpected.

What to Expect in 2021

The small business economy is turning a corner. COVID-19 vaccinations are widespread, and local governments across the country are easing shutdown restrictions. That's a far cry from the early days of the pandemic in 2020. Small business owners were forced to halt operations or spend extra cash on social distancing measures. Many businesses didn't survive, and the ones that did needed government aid and loans to make it.

The government responded with the CARES Act, providing business owners with forgivable loans through the PPP. Those funds quickly ran out, and months later in late December, Congress approved another round. With Biden in office and the pandemic raging, a new round of stimulus was signed into law in March.

In 2021, small business owners who took advantage of PPP will need guidance on how to receive forgiveness on their loans and whether they will face a tax hit as a result.

With the economy recovering and businesses thinking about growth again, small business owners will continue to turn to banks, credit unions, the SBA and alternative lenders for cash in 2021. Banks and credit card issuers have been less willing to lend to small businesses during the pandemic and will likely maintain stringent requirements. Online and alternative lenders have stepped in to fill that void. In 2020, the Federal Reserve slashed interest rates nearly to zero, and they aren't expected to rise dramatically in 2021, despite the gradual pandemic recovery.

Not only will business owners who use online and alternative lenders in 2021 receive low interest rates, but advances in technology may improve the process, with artificial intelligence and machine learning reducing loan approval wait times. Credit scores still matter, but lenders are increasingly scrutinizing other aspects of business owners' finances to ascertain their creditworthiness. Altogether, these changes should make it easier and quicker to get a small business loan in 2021.

As in 2020, the number of companies that offer online and mobile lending is expected to grow in 2021. Since digital options provide extensive financing opportunities and faster approval, they are expected to be increasingly popular choices compared to traditional banks and credit unions.

June 2021: The Paycheck Protection Program expired in late May, putting an end to the very popular loan program enacted during the coronavirus pandemic. The program, while it provided a lifeline for many small business owners, was also riddled with fraudulent claims and faced criticism that it didn't help businesses that could benefit the most from those loans. The SBA issued a total of 11.8 million PPP loans, with a value of $799.8 billion. Now that the program has ended, we anticipate small businesses needing funding will turn to traditional loan options, e.g., banks and online lenders.

Donna Fuscaldo
Donna Fuscaldo
business.com Staff
See Donna Fuscaldo's Profile
Donna Fuscaldo is a senior finance writer at business.com and has more than two decades of experience writing about business borrowing, funding, and investing for publications including the Wall Street Journal, Dow Jones Newswires, Bankrate, Investopedia, Motley Fool, and Foxbusiness.com. Most recently she was a senior contributor at Forbes covering the intersection of money and technology before joining business.com. Donna has carved out a name for herself in the finance and small business markets, writing hundreds of business articles offering advice, insightful analysis, and groundbreaking coverage. Her areas of focus at business.com include business loans, accounting, and retirement benefits.
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