Small Business Loans: Compare Your Financing Options

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Best small business loans in 2021

Written by Melissa Wylie | Edited by J.R. Duren | Updated on May 28, 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:

  • Maximum amounts no less than $150,000
  • Funding available within two weeks of approval
  • No more than two years in business required
  • Personal credit score requirements below 680
  • Transparent rates and repayment terms
LenderLoan TermsLoan AmountRatesCredit Score
SmartBiz120 to 300 months$30,000 to $5,000,000Interest rates from 4.75% to 7.00%650 to 675
OnDeck3to 24 months$5,000 to $250,000As low as 35.00% APR600
Funding Circle3 to 120 months$25,000 to $500,0004.99% to 19.49% APR630
SBG Funding6 to 24 months$5,000 to $150,000Simple interest rates of 4.50% to 18.90%, monthly rates from 1.75% to 2.90%600
Credibly6 to 18 monthsUp to $400,000Factor rates starting at 1.15500
Taycor Financial12 to 84 months$5,000 to $2,000,000Interest rates of 3.99% to 28.00%550
Elevation Capital120-day average terms$5,000 to $10,000,000Factor rates from 1.12 to 1.24550
Reliant Funding3 to 15 months$5,000 to $400,000Factor rates from 1.10 to 1.40No minimum
Seeking COVID-19 relief for your small business? Find resources here.
  • SBA Loan

    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:

    SmartBiz SBA 7(a) loan

    Interest rates from 4.75% to 7.00%

    Read SmartBiz Reviews

     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

  • Short-Term Loans

    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:

    OnDeck Short-Term Loan

    APRs as low as 35.00%

    Learn More

    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

  • Long-term loans

    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:

    Funding Circle Long-Term Loan

    APRs from 4.99% to 19.49%

    Read Funding Circle Reviews

    Repayment terms from 3 to 120 months

    Loans available from $25,000 to $500,000


    Requires collateral

    Average Funding Circle borrower makes about $1.4 million in annual sales

  • Business Lines of Credit

    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:

    SBG Funding Line of Credit

    Simple interest rates from 4.50% to 18.90%

    Learn More

    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

  • Working Capital Loans

    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:

    Credibly Working Capital Loan

    Factor rates starting at 1.15

    Read Credibly Reviews

    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

  • Equipment Financing

    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%

    Read Taycor Financial Reviews

    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

  • Accounts Receivable Financing

    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:

    Elevation Capital Invoice Factoring

    Factor rates from 1.12 to 1.24

    Read Elevation Capital Reviews

    $5,000 to $10,000,000 available

    Minimum credit requirement of 550


    $150,000 in annual revenue required

    10 days to receive funds

  • Merchant cash advances

    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:

    Reliant Funding Merchant Cash Advance

    Factor rates from 1.10 to 1.40

    Read Reliant Funding Reviews

    $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

What is a small business loan?

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.

Estimate how much you can borrow

Check your creditworthiness

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.

  • 680 or higher: Minimum required by most traditional bank and credit union business loans.
  • 670 or lower: Accepted by online lenders — they may even consider scores as low as 500. The trade-off might be higher fees, however.
it's free, and won't affect your credit score

Small business loan application:
What you need to apply

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.

  • Tracks how much cash your business has on hand at a certain point in time. A P&L takes into account non-cash costs like depreciation, but a cash flow statement allows you to understand how much cash is available for monthly bills.

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.

  • Describes the nature and scope of your operation, including projected income and expenses. A business plan is a guide for making business decisions and to help potential lenders, partners and investors evaluate your potential.

  • The most recent two years of business and personal tax returns, which help lenders verify income, documenting your ability to repay the loan. Your business accountant can prepare the business and tax documents needed to support your small business loan application and guide you in accounting and tax matters related to your business.

Small business loan application checklist

Once you determine that your business can handle taking on a loan, you should begin the process of rounding up the necessary documentation needed for your loan application. The exact paperwork differs across business funding partners, but will most likely include the following documents:

  • 2-3 years of personal and business tax returns
  • Recent profit and loss statement
  • Past bank statements
  • Recent balance sheet
  • Legal filings related to ownership
  • Information on existing debts
  • Business license
  • Business plan

AVOID THESE COMMON SMALL BUSINESS LOAN MISTAKES

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.

What do small business lenders look for?

Small business lenders want to know that your credit history and your business is relatively stable. As such, they look at several different debt, asset, credit and operations factors to judge your risk as a borrower.
  • 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.

View Your Small Business Loan Options

Final step: Close your loan

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.

Funding for underserved small businesses

There are several financing options aimed at historically disadvantaged businesses, including those owned by women and veterans as well as Black, Asian, Latino and Native American entrepreneurs.

Business funding for women

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

Business funding for minorities

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

Business funding for veterans

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

Business applications spike again — and by 148% in Mississippi

 

Key findings

  • Prospective business owners remain confident about economic growth. Nationwide, the number of business applications is up 69% in April 2021, compared to April 2020.
  • Mississippi saw the most business application growth. The number of business applications rose 148% in the April-to-April period, from 3,443 to 8,540.
  • Six other Southern states — Alabama, Delaware, Louisiana, Arkansas, South Carolina and Tennessee — are also in the top 10. Each has seen year-over-year business application growth of 88% or greater.
  • Business application growth is occurring in every state but one. In Alaska, the number of business applications remained flat between April 2020 and April 2021.
  • The new businesses are likely to lead to long-term job growth. Researchers earlier in the coronavirus pandemic saw an uptick in business applications but smaller growth among what the U.S. Census Bureau calls high-propensity business applications, or HBAs. These are business applications with a high likelihood of the business transitioning into one with payroll. The number of HBA applications is up 65%, year over year.

Methodology

LendingTree researchers looked at the number of new business applications and business applications by high-propensity businesses filed in each state in April 2021, compared to April 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.

Small business loan FAQs

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.