Best Small Business Loans

Small business loans are loans meant to help cover the costs associated with running a business, particularly when it comes to development. You can get one of these loans from a bank, credit union, or private online lender. Or you can go through the U.S. Small Business Administration (SBA), which backs small business loans.

Like personal loans, business loans typically come in a lump sum payment that you can then use for specific business-related reasons. This includes:

• Research and development
• Product launch
• Business growth or expansion
• Startup costs
• Everyday operations
• Debt repayment
• Equipment or real estate purchases
• Other working capital costs
• Cash flow management
• Emergency expenses

Once you have a small business loan, you’ll need to start making payments on it — just like you would any other loan. These payments typically include interest charges and may come with additional lender fees.

Business loans also have their own repayment term, which can range from months to years. Generally, a longer term means a smaller monthly payment. However, it also means you’ll end up paying more in interest over the life of the loan.

How to Qualify for a Small Business Loan

The top small business loans depend on several factors, such as:

• The borrower’s creditworthiness (credit score, debt-to-income ratio, etc.)
• Amount needed
• Reason for funding
• Lender requirements, restrictions, and fees

Some types of business loans — such as working capital loans — can be harder to get than others. To improve your chances, make sure you know exactly why you need the loan and how you plan to repay it. This will show your lender that they’re making a good decision in issuing the funds.

Do your due diligence when choosing a lender. This involves carefully reviewing the interest rates, terms, fees, and eligibility requirements of any loan. This can take some time, but it can also help you find the best business loans possible.

Many types of small business loans exist, so it’s important to familiarize yourself with them. Here are the top small business loans:

• SBA loans: Issued through lenders but backed by the SBA, these loans are meant for small, growing businesses. They often come with longer terms, lower interest rates, and faster funding times than other loans. The SBA guarantees up to 85% of these loans, making it easier to get funding.

• Working capital loans: This is a catch-all term for different types of business loans. They’re a short-term funding option meant for things like everyday operations or emergency expenses.
• Term loans: This is any business loan with a repayment term. They require monthly payments — usually fixed — that include interest.
• Merchant cash advances: This is best for businesses that need immediate funds to cover short-term expenses. This could be things like a cash-flow shortage or emergency. It’s an expensive option.
• Invoice factoring: Some lenders will buy your unpaid business invoices and pay you a percentage once it’s fulfilled (minus lender fees). This is a fast funding option.
• Business Lines of credit: A form of borrowing that lets you access funds as you need them, up to a predetermined limit. Think of it like a credit card, but with more favorable terms and potentially higher limits. Instead of getting a lump sum upfront like you would with a traditional loan, you can draw from your line of credit whenever your business needs it. You’ll only pay interest on the amount you borrow.This is a revolving form of financing that business owners can repeatedly draw from to cover operating expenses. It doesn’t come with a specific term, but may need to be renewed every so often.
• Equipment financing: You can use equipment financing to buy the equipment, machinery, or appliances you need to run your business. Whatever you buy is also collateral, meaning you could lose it if you fail to make payments. You may be able to get a loan from the SBA or a traditional lender.
• Line of Credit: A line of credit is a flexible form of borrowing that lets you access funds as you need them, up to a predetermined limit. Think of it like a credit card, but with more favorable terms and potentially higher limits. Instead of getting a lump sum upfront like you would with a traditional loan, you can draw from your line of credit whenever you need to. You’ll only pay interest on the amount you borrow. It’s a convenient option for managing short-term cash flow needs or unexpected expenses.

Every lender has its own application and underwriting process, but here’s what you can generally expect when applying:

• Consider what you need. Lenders have different financing options, so determine the best business loans or loan for you. Calculate how much you need to borrow and why.
• Review your credit. You’ll generally need good credit or better to qualify for financing as well as a good debt-to-income ratio. The better your credit score, the better your rates and terms. Some lenders will also require a business credit score.
• Check the eligibility criteria. Requirements differ depending on the lender and loan type (see below).
• Research several lenders. Choosing the best business loan also involves comparing lenders. See what rates, terms, and types of loans they offer. Also, check their online reputation to see what other people are saying about them.
• Get your documents together. You’ll need certain personal, financial, credit, and business-related documents to apply. You might also need to provide a business plan and any legal documents for your company. Some lenders require 12+ months of business bank statements and business federal tax returns. They may also require a business plan, licensing information, business checking account information verifying cash flow, and other legal documents.
• Apply for a loan. After narrowing down the top small business loans, choose a lender and apply. You can do this online or in person, depending on the lender. If possible, get prequalified first to see what you might qualify for without affecting your credit.
• Wait for approval. It can take several days or weeks to hear back. But if you’re approved, you’ll receive the funds and can start using them.

When looking for the best business loans, here are some final things to consider:

• Time to approval and funding
• Lender’s online reputation
• Eligibility requirements
• Lender fees
• Typical annual percentage rate (APR) and terms
• Loan purpose and restrictions

Eligibility criteria can vary from lender to lender, and it’s essential to understand what they’re looking for to increase your chances of approval. 

Below are some of the most important eligibility requirements to keep in mind when seeking a business loan:

• Credit score: Lenders will typically look at your personal and/or business credit score to assess your creditworthiness. A higher credit score generally means you are more likely to be approved for a loan and may qualify for lower interest rates.
• Annual revenue: Lenders may require that your business generates a certain amount of revenue to qualify for a loan. The amount may typically be at least $100,000/year to get a loan.
• Time in business: Many lenders require that your business has been in operation for a certain period of time, typically at least 6 months to a year or two.
• Collateral: Depending on the lender and loan type, you may need to provide collateral to secure the loan. This could be in the form of real estate, inventory, equipment, or other valuable assets.
• Debt-to-income ratio: Lenders may also look at your debt-to-income ratio, which compares your monthly debt payments to your monthly income. A lower ratio indicates that you have more disposable income to put towards loan payments.
• Purpose of the loan: Lenders may have specific requirements for the intended use of the loan, such as financing for equipment, inventory, or working capital.

Even the best business loans come with their share of pros and cons. Here are the main ones to consider.

Small Business Loans Pros

• Can help you launch, scale, or protect your business during times of financial difficulties
• Many options are unsecured, meaning you won’t have to worry about collateral or losing equity in the business
• Flexible repayment options
• Large loans may be available

Small Business Loans Cons

• Good credit required
• Time to funding can take a few weeks
• Some financing options require collateral or an asset (like equity in the business)
• Interest rates and other fees can be high

You may want to get a small business loan if you:

• Want to grow your business but need funds
• Have good credit and cash flow
• Can reliably repay what you borrow
• Have been in business for at least six months (but ideally longer)
• Make enough annual revenue to qualify
• Know exactly how much you need and why

Being prepared can put you on the road to success and help your business thrive.

Rates and terms vary by lender. However, here are some of the best business loans from reputable lenders:

*Rates are subject to change