As a small business owner, securing capital is one of the most important ways to build your business. While it’s possible to do this with business credit cards, you may need a small business loan to achieve your goal. This article discusses the best small business loans available.
Picking the right business loan isn’t easy. With countless lenders offering loans with various terms and features, it can be hard to know which one is best for your needs.
To help, SuperMoney has put together a list of the top seven best small business loans, what it takes to get approved, and how to pick the right one for you.
How to get approved for a small business loan
Small business lenders are different than consumer lenders in many ways. According to data from the Bureau of Labor Statistics, 20% of businesses fail in their first year. And only 50% are still around after five years.
With that kind of potential for default, business lenders are a lot stricter regarding who they’ll lend money to.
Lenders require basic business information, such as how long you’ve been in business and your annual revenue. But you can also expect business lenders to want as much information about your business as possible before approving you.
“Each small business needs to have their financials in place, including business and personal tax returns,” says Dave Hanold, the chief lending officer at Excelsior Growth Fund. “They’re going to try to understand where you’ve been, what your current need is, and where you’re going.”
Small business lenders might check your personal credit score, especially if you have no business credit history. They may also request collateral and even a personal guarantee in case your business can’t pay back the debt.
This means, if your business is new, you may have a hard time finding a good loan. Your options aren’t entirely gone, though.
Among SuperMoney’s top picks, you’ll find lenders that are friendlier to new business owners. We’ve also included some that have lower credit score requirements. Let’s take a look.
The 7 best small business loans
If you want to get the best deal on the best small business loans, it’s imperative that you shop around. To help you get started, here are SuperMoney’s top choices.
Funding Circle loans are designed for business owners with fair credit, and the lender offers competitive interest rates. But if you need a small loan you might not meet the lender’s minimum loan amount.
If you’ve been in business for at least a year and have generated substantial revenue, National Funding is a solid option.
The lender provides borrowers with competitive interest rates, reasonable repayment periods, and no collateral requirements. As such, you may not qualify if you’re a new startup or your business is struggling.
LendingClub is unique in that it doesn’t directly lend money to small business owners. Rather, it functions as a marketplace lender that connects borrowers with individual investors who provide best small business loans.
You’ll have to pay an origination fee for the loan. Your business also needs to show a decent track record of success. But the interest rates are favorable compared with many other online business lenders.
Fora Financial offers unsecured business loans and merchant cash advances to small business owners. Its interest rates can be on the high side. However, they’re lower than some of the other bad-credit business lenders on our list.
Your business needs to be at least a few months old, and you won’t have a ton of time to repay the debt. But Fora Financial could be a solid option for small business owners who are newer but don’t yet have a great track record.
Rapid Advance provides a wide variety of business loans and lines of credit for all kinds of business owners. While you need to be in business for at least six months, the lender’s credit score requirements are low, and you can borrow as much as $1 million.
OnDeck is an online business lender that has more relaxed requirements than some of the other lenders we’ve reviewed. What’s more, you can typically get your funds in as little as 24 hours. But that ease of access comes at a price. OnDeck tends to charge higher interest rates than many other small business lenders.
Kabbage is another solid choice if your personal credit score isn’t great and you need capital fast. The lender doesn’t require as much as some other small business lenders and offers loans as small as $500.
How to pick the right small business loan
There’s no single best option out there for capital, So, it’s important to compare several small business lenders to find the right one for your needs. Compare lenders by their features and terms, especially their interest rates and fees.
“We recommend that business owners work to understand the true annual percentage rate of a loan,” says Hanold, “which is the actual yearly cost of funds over the term of the loan, including all fees. Some alternative lenders include significant costs in their fees to keep the interest rate seemingly low.”
If you can’t manage to get approved with any of these lenders, however, you still have some options.
“Startups may have difficulty qualifying for a bank loan if they don’t meet the institution’s credit or collateral requirements,” says Hanold. “More likely options for new businesses are funding from friends, family, and personal savings, or through crowdfunding or investors.”
As you consider all of your options, you’ll have a much better chance of getting the funding you need when you need it. And as you pay off your small business loan, you’ll build up your business credit history to make it easier to get your next loan.