Are you a small-business owner in need of a loan to get your business to the next level? Maybe you need working capital or would like to invest in real estate or equipment.
The reality is, most businesses eventually start looking into loan options for one reason or another. Yet, traditional financial institutions are reluctant to lend to small businesses. A survey conducted by Ondeck reported that of the 10,000 small businesses that applied for loans, a whopping 82% were declined any form of credit by their banks. This can be even more discouraging if your credit is less than desirable.
A survey conducted by Ondeck reported that of the 10,000 small businesses that applied for loans, a whopping 82% were declined any form of credit by their banks.
So where can you turn for small-business loans and what are the best options for good, fair, and bad credit?
Small-business loan types
There are a variety of loan types available for small businesses, here are the ones you should know.
Best Small Business Loans
|Lender||Min. FICO||APR Range|
|700||4% – 8%||Apply|
|500||5.99% – 98%||Apply|
|No minimum||15% – 54%||Apply|
The U.S. Small Business Administration provides Guaranteed Loan Programs in an effort to help small businesses get financial assistance. They have created guidelines for loans, which are then offered by third-party lenders. The SBA does not directly provide loans but does guarantee they will be paid.
The advantages of these loans are low-interest rates and long repayment periods. The disadvantages are strict requirements and a long application process. They are recommended for funding expensive one-time investments, buying real estate for expansion, purchasing necessary equipment, buying out other existing businesses, or refinancing other debt.
Common loan term: Loan terms are for a five- to 25-year period with annual percentage rates (APRs) ranging from 7% to 8%.
Typical loan amounts: Loans start at $10,000 and could reach as high as $5 million. The average loan amount is $350,000.
Time for funding: The time to approve loans can take anywhere from 30 to 90 days.
Qualifications: As the business owner, you will need a personal credit score of 650 or more. As for your business, you will need to supply excellent financial records, business plans, projections, and some collateral.
Online invoice financing
Another popular type of loan is invoice financing. With this route, a lender will loan you the money for your invoices and then the amount is paid back when your customers pay. This can be helpful if you get paid long after you deliver goods or services.
There are two ways this works. With invoice factoring, you sell your accounts receivable based on the total value. You then get a cash advance that equals a percentage of the total invoice value (65% on average). When the invoice is paid, you get the remainder. The cost is a factoring fee that totals 3% to 5% of your invoice value.
The other way is with invoice financing. In this scenario, your invoices are used as collateral for an advance and you pay 2% to 4% in fees per month. This can help to manage cash flow and fund short-term business needs.
Common loan terms: For factoring, individual invoices often determine the repayment period for the loan, or a contract is set for one year. APR typically range from 11% to 64%.
Typical loan amounts: Loan amounts again depend on how much is owed on each invoice, but range from $100,000 to $2,000,000.
Time for funding: These loans have a fast approval rate, often no longer than five working days.
Qualifications: There are a few qualification requirements that need to be met, both personal and relating to your business. As the small-business owner, you will need a personal credit score of 500 or more. As for the business, it often needs to have been in operation for more than a year and it must have guaranteed cash flow. No other form of collateral is necessary, however.
Where to find it: Online lenders.
These online loans are sometimes called business term loans. There are two forms available, short-term and long-term. With short-term loans, repayment periods range from six months to a year while with long-term loans, repayments can be up to 10 years and in some cases, even longer. Both loan types are available from banks as well as online lenders.
Bank term loan
Common loan term: If you opt for this loan type, you can expect repayment terms that last three to 10 years. APRs will vary by lender.
Typical loan amounts: These generally start at $50,000, and the average loan amount is $500,000.
Time for funding: If you apply for a bank term loan, you can expect to wait from two weeks to two months for approval.
Qualifications: You will need a high personal credit score, usually over 680. Your small business will also need to have been in operation for over two years, and you must provide some form of collateral. This could take the form of equipment or real estate.
Where to find it: Banks. You can apply online or visit your local branch.
Short-term online business loan
Common loan term: Loan terms for this type of online loan range from three months to two years. APRs will vary by lender.
Typical loan amounts: Loans start at $5,000 and go up to $250,000+.
Time for funding: If you need access to cash in a hurry, these loans are perfect. Approval times can be as short as 24 to 48 hours.
Qualifications: You will usually need a personal credit score of 500 or higher. Your business will also typically need to be in operation for more than a year and have an annual income of at least $100,000. No collateral is necessary to secure the loan.
Where to find it: Online lenders.
Long-term online business loan
Common loan term: You can expect repayment terms of one to five years. APRs will vary by lender.
Typical loan amounts: These loans start at about $5,000 and go up to $500,000, depending on the online lender you choose.
Time for funding: Loans are often approved within 48 hours.
Qualifications: You will usually need a personal credit score of 600 or more. As for your business, it will typically need an annual revenue of more than $100,000 and to have been in operation for more than a year. No collateral is necessary to secure the loan.
Where to find it: Online lenders.
Line of credit
A line of credit works differently than a traditional loan. Here, as a business owner, you are given access to a cash amount that is flexible and can be accessed on an as-needed basis.
For example, you may be eligible for a business line of credit of $100,000. You can choose to use that in one lump sum, or to withdraw the amount you need at a certain time. Only when you access the line of credit, will you start to make payments and be charged interest. This form of credit is perfect for short-term financing needs, emergencies, and help in managing cash flow.
Common loan term: Depending on the lender as well as the overall credit amount, terms can vary greatly. For the most part, you will have six months to pay back the amount drawn from your line of credit. APRs also vary based on the institution chosen, be it a bank or online lender.
Typical loan amounts: Loan amounts can range from $2,000 to $500,000, on average.
Time for funding: When applying through an online lender, turnaround time can be as little as a few days. More traditional financial institutions such as banks may take longer.
Qualifications: You will need to have a personal credit score of more than 680, own your business for more than two years, average $10,000 in revenue each month, have a profitable business, and have no tax liens, foreclosures, or bankruptcies.
Where to find it: Online lenders and traditional lenders such as banks.
Now that you know the types of business loans, let’s look at some of the best business loan providers for good credit, fair credit, and bad credit.
Best small-business loans for good credit
Qualifications: To qualify, your business must be two years or older. You should also have two full-time employees that do not include you as the owner.
Loan amounts: Loan amounts depend on a number of circumstances but are available up to $150,000 for working capital loans and $500,000 for business expansion loans.
APR: APRs are from 7.99% to 25% with repayment terms of 12 to 24 months (working capital loans) and 24 to 48 months (business expansion loans).
Qualifications: To qualify for a small-business loan from Balboa Capital, your business needs to be more than a year old. You should have no recent bankruptcies against your name as well as no big tax liens. Your business also will need to generate $100,000 in annual sales.
Loan amounts: Small-business loans can be taken out for up to $250,000 with terms of six to 12 months on average, although terms of up to 36 months can be negotiated. Higher amounts can be requested but will require a fair amount of documentation on your part.
APR: Rates are heavily dependent on factors that include the age of the business, revenue generated, and the credit profile of the owner.
Prosper does not offer separate small-business loans, but do have unsecured personal loans that can be taken out and used for the purpose of your small business. This is one way to borrow small amounts of money, especially if your business is starting out and cannot yet qualify for more traditional loans.
Qualifications: You will need a good credit rating as, ultimately, it is a personal loan taken out for business purposes.
Loan amounts: Up to $35,000.
APR: Rates will be from 5.99% to 32.99%.
Best small-business loans for fair credit
Qualifications: Your business will need to generate more than $150,000 per year and should also have been in operation for two or more years. When applying, you will need to provide your personal and business tax returns. Origination fees are charged at 1.49% to 4.99%.
Loan amounts: Small-business owners can apply for loans of $25,000 to $500,000.
APR: When applying for this loan, you can expect rates of 5.49% to 27.79%. Repayment terms range from 12 to 60 months.
Qualifications: To qualify, your business needs to make $75,000 annually and be more than 2 years old. Origination fees of 1% to 6% are charged for all loans.
Loan amounts: Loan amounts range from $15,000 to $300,000, with repayment terms ranging from 12 to 60 months.
APR: LendingClub’s APR is set from 5.99% to 35.89%.
Smart Biz is a small-business loan guaranteed by the federal Small Business Administration. These are online loan options available to finance a multitude of small-business requirements, including real estate financing.
Qualifications: To qualify for a Smart Biz loan, your personal credit score will need to be 675+, while your business should have been operational for more than three years and be generating $250,000 annually.
Loan amounts: Amounts can vary from $350,000 to $5 million.
APR: Expect rates of 8% to 8.7% for regular loans and 5.6% to 6.75% on loans to fund commercial real estate purchases.
Best small-business loans for bad credit
Qualifications: Your company needs to have been in business for more than a year and generate more than $50,000 in annual revenue.
Loan amounts: Kabbage allows you to borrow from $2,000 to $100,000.
APR: The rates are at 24% to 99%.
Qualifications: You will need to provide a range of documents when applying. The most important of these is the invoice proving outstanding customer credit. Additionally, you will need to show six months of activity in an online accounting package.
Loan amounts: Loans of $1,000 to $100,000 are available.
APR: Fundbox loans come with rates of 16.4% to 76.5%.
Qualifications: To qualify, you will need a personal credit score of at least 500 and you cannot have filed for bankruptcy in the last two years. Your business needs to have been up and running for at least a year and show an annual income of at least about $100,000.
Loan amounts: Expect loan amounts of $5,000 to $500,000.
APR: Rates are set from 9% to 99%.
Find the best loan for your small business
As a small-business owner, you don’t need to worry about the fact that traditional financial institutions such as banks are likely to turn you down for a loan.
Even if you have a poor credit rating, there are loans available to fund your business. The options continue to improve if your personal credit rating is fair or good.
The key is never to jump at the first possible loan you come across. Always take the time to review and compare lenders. If you’d like to evaluate more options specific to your credit level, check out our business loans page and tick the box next to your credit score on the left-hand side.