Small Business Lender Reviews

This is a one-stop-shop for understanding the terms, rates, and fees associated with today’s most-used small business lenders in the U.S. The list of available financing for small businesses runs the gamut from buttoned-down traditional loans from big banks to same-day, high-interest, cash advances from online lenders. In between these poles is a whole world of funding options, all of which have their own advantages, disadvantages and unique considerations.

Know your options

Small business lending options can be grouped into three general baskets:

  • Business Loan – A general small business loan can come from many different sources, such as a personal loan from a family or friend to a government-backed loan from the SBA.
  • Business Line of Credit – A business line of credit is typically a short-term financial instrument.
  • Merchant Cash Advance (MCA) – Merchant cash advances typically come at a high cost, but it’s also the most accessible lending option available. With merchant cash advances and invoice factoring, businesses sell a portion of future sales or payments to a lender in exchange for a chunk of working capital.

Business loan types to consider

1

Government loans

These loans are secured by the Small Business Administration (SBA), and often referred to as SBA loans. SBA loans come with low interest rates and are available to borrowers whose credit history may disqualify them from traditional bank loans. However, SBA loans come with high eligibility requirements and restrictions on how the funds are used.

2

Invoice factoring

This type of funding solution is great for those that need to fulfill a short-term need, fast. Invoice factoring allows businesses to sell a portion of their outstanding invoices to a lender. This method of funding usually comes at a fairly steep price, but it can be an effective solution for companies operating in seasonal or cyclical industries.

3

Inventory/equipment financing

Inventory or equipment financing is an option that allows you to get a loan to purchase inventory or equipment. The inventory or equipment purchased will typically serve as the collateral for the loan.

4

Lines of credit

Like credit cards, a business line of credit allows you to access funds whenever you need it in perpetuity (subject to regular review). Once your credit line is established, you’ll have fast access to cash, reasonable rates and the flexibility to use the funds whenever you want. However, securing a line of credit -especially from a traditional lender- can require a lot of time and documentation.

5

Merchant cash advance

An MCA could be a good option if you need a small amount of funding immediately and plan to pay it back quickly. Bad credit typically isn’t an issue with MCA’s and approval usually takes just a few hours. Rates and fees are extremely -sometimes shockingly- high.

6

Microloans

The average loan amount for microloans is about $13,000. They are available via nonprofit community-based organizations and are backed by the SBA. They’re a good option for companies that need a small loan void of usurious rates, with little-to-no borrowing history.

7

Personal business loans

Personal loans are generally easier to secure than business loans and don’t typically require collateral. However, the rates may be higher and the loan limits may be lower than a business loan. A personal loan won’t help you build your business credit.

8

Private loans

Otherwise known as traditional business loans or bank loans, these tend to have low interest rates, but are relatively difficult to procure. You must have excellent personal and business credit history to get approved, and the application process is usually extensive and slow.

9

Startup loans

Also known as ‘startup capital’ or ‘seed money’, startup loans are for newly launched businesses or businesses looking to open operations in the near future. Startup loans are used to fund new businesses, and can be used for office space, inventory, manufacturing, or other business needs.

Shop and compare

Small business financing is a shifting field, with established players offering more and more specialized products and new, alternative lenders are constantly transforming the landscape.

Traditional lenders include large national banks, small, regional banks, and credit unions. Alternative lenders typically operate online -with no brick-and-mortar location- and usually offers higher-cost, easier-accessed products, like merchant cash advances and invoice factoring. Some online lenders are pushing new models such as peer-to-peer lending, where the lender serves as a broker between individual lenders and business borrowers.

With the lending universe so diverse and dynamic, it is essential to shop around before deciding which loan product is right for you and your business. Rates, fees, terms and other elements vary wildly from product to product and from lender to lender.

The best way to compare your financing options is to ask yourself the following questions:

  • How much will I get?
  • How long do I have to pay it back?
  • Are prepayment penalties involved?
  • What is the cost of borrowing the money?
  • What fees are involved?
  • How long does it take to access the funds after the application is submitted?

What to expect when you apply

It’s imperative to assess eligibility requirements before you dive headfirst into a contractually binding financial agreement. Many lenders have a set minimum that must be met for annual revenue, business and/or personal credit scores, and time in business. Other things that may affect your eligibility include citizenship, past bankruptcies, and income-to-debt ratio, among others.

When reading through our small business lender reviews, you will quickly see that each lender has its own unique requirements and stipulations. Most applications will require your contact information, basic business information, and business data. You may also be required to provide business-related documents, like your articles of incorporation, business plan, profit and loss statements, future projections, and tax returns.