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Written by Melissa Wylie | Edited by J.R. Duren | Updated on Dec. 20, 2021
There’s a business loan to suit nearly every need. Small business loans may be short-term or long-term, unsecured or secured by collateral like equipment or invoices. They also include financing products like lines of credit or merchant cash advances. The best type for you will depend on how much funding you need, what you need it for, how quickly you need it and your credit history and time in business.
Methodology:
We chose small business loans from online lenders that could cover small, medium or large expenses. Small business lenders that appear on this list meet the following criteria:
TIME TO FUNDING: Seven days to three months
These popular government-backed loans are available up to 25 years for most business uses at moderate interest rates. SBA loans are widely available through banks, but the application process can take anywhere from five days to two months or more.
OUR PICK FOR SBA LOANS:
Online marketplace matches borrowers with SBA lenders
Shortens the SBA funding process to as quickly as one week
Fair or better credit required
Businesses must show at least two years of operating history
TIME TO FUNDING: A few days to weeks
Short-term loans have repayment terms of a few months to a year or more, good for when you expect a quick return on what you use the loan funds to invest in. Loan approval can be as fast as a few days, even for business owners with poor credit, but higher rates are a trade-off for speed and accessibility.
OUR PICK FOR SHORT-TERM LOANS:
Repayment terms between 3 to 24 months
Loan amounts between $5,000 to $250,000
$100,000 annual revenue required
Lowest APRs reserved for strongest applicants and prior customers
TIME TO FUNDING: Two days to two months
Traditional long-term business loans offer relatively low-rate financing for lasting investments such as machinery or business acquisition. Repayment terms can last up to 20 years. Approval times tend to take multiple weeks and lenders usually require you to have strong credit.
OUR PICK FOR LONG-TERM LOANS:
Repayment terms from 6 to 60 months
Loans available from $25,000 to $500,000
Requires collateral
Average Funding Circle borrower makes about $1.4 million in annual sales
TIME TO FUNDING: One day to multiple weeks
Though not technically a loan, a line of credit is capital that you can draw upon as needed, and you only have to pay interest on what you borrow. You can use business lines of credit for short-term or long-term needs, and they can be secured or unsecured. Lenders can fund lines of credit as quickly as the next day or within weeks.
OUR PICK FOR BUSINESS LINES OF CREDIT:
Credit lines available from $5,000 to $150,000
Revolving access to funds
$250,000 in yearly revenue required
Maximum funding amount is relatively low
TIME TO FUNDING: 24 hours to a few days
Working capital loans are short-term loans disbursed within 24 hours to a week of approval and designed to fund your company’s day-to-day operations during a time of reduced activity. When the lull ends and business booms again, you should have enough revenue to repay the working capital loan.
OUR PICK FOR WORKING CAPITAL LOANS:
Loan amounts up to $400,000
Minimum credit requirement of 500
Six months in business required to qualify
Average of $15,000 in monthly bank deposits required
TIME TO FUNDING: One day to one week
Equipment financing allows businesses to pay for equipment such as commercial trucks, a restaurant oven or an office copier a little at a time for relatively low rates because the equipment is used as collateral. Equipment financing is ideal for borrowers who need hard assets quickly, but can’t afford to purchase them outright.
OUR PICK FOR EQUIPMENT FINANCING:
Taycor Financial Equipment Financing
Interest rates from 3.99% to 28.00%
Financing available between $5,000 and $2,000,000
No minimum time in business or revenue required
Time to funding may be based on loan amount
Request for more than $400,000 may require additional documentation
TIME TO FUNDING: Within 10 days
Exchange unpaid invoices for immediate cash, minus a fee. AR financing, or “invoice factoring”, may be right for risk-averse or poor-credit borrowers, or those without a lengthy business history.
OUR PICK FOR ACCOUNTS RECEIVABLE FINANCING:
$5,000 to $10,000,000 available
Minimum credit requirement of 550
$150,000 in annual revenue required
10 days to receive funds
TIME TO FUNDING: One to two days
Although it’s not a loan, a merchant cash advance may be an attractive financing option for businesses with high sales volume. A merchant cash advance is a lump sum of funding that businesses repay through their daily transactions. Be prepared for your lender to take daily payments out of your sales, which could cause cash flow issues if you don’t have a good grasp of your daily revenue and operating costs.
OUR PICK FOR MERCHANT CASH ADVANCES:
$5,000 to $400,000 available
Your credit history is not a primary deciding factor
Faster-than-normal repayment terms could lead to higher daily payments
Not available for startups — six months in business required
Small business loans help entrepreneurs build, maintain or expand their companies. Getting a business loan for your company doesn’t always require walking into a bank and securing funds — there are a variety of online small business lenders to consider, which may have easier qualifications and faster applications.
Small businesses account for a significant chunk of American economic activity. The U.S. Small Business Administration (SBA) estimates there are nearly 32 million small businesses across the country. While the nature of each one varies, many hold one major thing in common: the need for business financing.
Lenders may analyze your personal and business credit history when reviewing your company’s loan application. If your business is new, your personal credit profile would carry more weight.
Borrowers should expect to have good credit to qualify for traditional business loans.
The application process for small business loans differs depending on the type of business loan you’re seeking. Short-term loans typically have less paperwork than long-term loans, while equipment financing usually doesn’t require as much documentation as a business line of credit. However, it’s still a good idea to have certain documents ready in case they’re requested to improve your chances of approval:
Summarizes revenue and costs and resulting profit or loss over a specified time, such as a quarter or fiscal year. Also known as a P&L or income statement.
Shows what the company owns and owes at a specific point in time. There is no set format for balance sheets, as the information reported varies by industry.
Failed applicants commonly make the mistake of submitting inadequate or poorly planned financial documents and business plans. It’s important to gather as much well-prepared information as you can when applying for a business loan.
Time in business
In general, a business that’s been around for a couple of years is more stable than a startup. This is key for lenders, as a business that has a proven track record of revenue over the past two years is a more attractive borrower than a company with spotty revenue over the past six months.
Credit score
Your credit score is a data point lenders use to determine your reliability as a borrower. In most cases, you’ll need a credit score in the 600s to qualify for financing, although certain lenders and loan types may allow scores as low as 500.
Cash flow
A cash-flow projection shows when money is collected, when cash goes out and what’s left. Lenders typically like to see that the borrower has a thorough understanding of the financial operating cycle of the business.
Collateral
Collateral is an asset that lenders can legally seize if you can’t make payments, including company buildings, equipment and accounts receivable. Some business owners choose to use their personal assets — including their homes — as collateral on a business loan.
Debt-to-equity ratio
Your company’s debt-to-equity (D/E) ratio measures the proportion of your company’s debt divided by shareholders’ equity. This metric helps a lender understand how likely you are to cover new debt based on the debt you’re already paying. While high D/E’s are common in some industries, your goal should be to keep your business’s D/E ratio as low as possible.
Working capital
Your working capital refers to the available money you have to fund your company’s day-to-day operations. You can calculate your working capital by subtracting the business’s debt liabilities due within a year from current assets that you can convert to cash.
After approval, the closing process involves reviewing documentation that will determine the terms of your selected loan. A business loan contract is a legally binding agreement that will dictate your interest rate and repayment schedule. Make sure you have a thorough understanding of what the lender is asking of you and the implications these terms have on your business’s financial future.
If you have questions or you don’t agree with a fee or penalty, the closing process is the time to ask questions or look for another lender. After you sign, you have agreed to everything in the contract — including what happens when you make late payments or default. Do your research before the closing process and pay attention to the following to avoid getting a bad deal.
Calculating your desired monthly payment before applying would be helpful. If the payment doesn’t match your calculations, make sure that there aren’t any hidden fees within the payment. In addition, determine whether the payment will remain the same throughout the loan’s term or if it may change. If it’s likely to change, make sure you understand why.
Understand how long you’ll have to repay the loan. Long-term business loans usually have lower monthly payments and higher overall interest costs over the life of the loan, while the opposite is usually true of short-term loans.
Make sure you know the interest rate. Find out whether it’s a promotional rate, a fixed rate or a variable rate. If the rate is variable, ask how much it will change, how quickly it can change and if there’s an interest rate cap, as well as what an increased rate could do to your monthly payments.
The lender may give you the amount of money you requested, but the amount you’ll owe will likely exceed the amount you receive. Origination fees, which can be a percentage of the cash you receive, might be tacked on to your loan amount. Ask the lender to review how they arrived at the total loan amount.
Late payments could result in consequences such as late fees, penalty interest rates or even repossession of collateral. The specific penalties would be detailed in your closing paperwork, so make sure you closely read this section before signing. The contract will also detail what would happen if you default on your business loan.
Women entrepreneurs can apply for business grants or debt financing reserved for women-owned businesses. Women are more likely than men to use personal funds to grow their businesses. When women are approved for business loans, they often receive lower average loan amounts than men.
• See business loans for women
• See business grants for women
Capital is available for business owners of color in the form of business grants or loans. Compared to their counterparts, those in historically marginalized communities face more entrepreneurial hurdles related to funding. Organizations and lenders across the U.S. allocate funds to support minority-owned businesses.
• See minority business loans
• See minority business grants
There are several resources and funding options for veteran business owners. After leaving the military, many veterans often have trouble transitioning their military training to civilian careers and instead choose to start their own ventures. Business loans for military veterans are among the keys to success.
• See business loans for veterans
LendingTree researchers looked at the number of new business applications and high-propensity business applications filed in each state in November 2021, compared to November 2020.
To rank the states, researchers found the percentage change in business applications between the two periods. Business applications — per 2020-21 data from the U.S. Census Bureau — are defined as all applications for an Employer Identification Number (EIN), except for applications for tax liens, estates and trusts.
Business owners can take out small business loans between $5,000 and $500,000 or more to finance expenses like payroll, inventory, equipment and other costs. Repayment terms could be as short as three months or as long as 25 years. Traditional financial institutions and alternative online lenders offer small business loans.
Several types of business loans are available for small business owners, including term loans and business lines of credit for general business expenses. Financing is also available for specific purchases like equipment and commercial real estate. Additionally, invoice factoring and accounts receivable financing are available for businesses that collect a high volume of invoices.
Yes, bad credit business loans are available for business owners with personal credit scores as low as 500. However, lenders may assign high-interest rates to low-credit borrowers.
Average business loan interest rates vary by lender. Traditional banks could charge between 3% and 7%, while online lenders may charge rates from 11% to 44% or more. Your lender, loan type and personal financial profile would affect your interest rate.
