Small Business Loans for Good, Average and Bad Credit
The best small business loans can give you the money you need to move forward with your goals whether that requires new equipment, furnishings, the costs of licensing or any other expense that a company might need.
A small business loan can be an essential element in a brand new start-up, businesses or an established business that is looking to expand. In this review, I've ranked the best business loans.
Best Small Business Loans: What to Consider
There is a lot that goes into a big financial decision like taking out a loan. First, you need to make sure you have a plan to repay the loan before you take it out. A well thought out loan can boost your company's finances and give you the right nudge towards success but a hasty decision can wind up hurting your finances in the future.
In 2012, 43% of businesses were unable to get funding when they needed it. Today, online lenders are making it easier.
Before you begin looking for the small business loan that's right for you, there are some important things that you should consider first.
Find the Best Small Business Loan Rates
|Company||Interest Rates||Loan Amounts||Min Credit Score|
Best Place to Get a Small Business Loan
Loans are necessary for almost any business to get started and, from there, to prosper. When you are looking for the best place to get a small business loan, there are a few different avenues to consider.
Here are some options I've found you have for acquiring the best business loans.
In 2012, 43% of business were unable to get funding when they needed it. It's even more difficult if you have a brand new start up that you are trying to fund. Today, online lenders are making it easier.
1. Acquire SBA Small Business Grants for Start Up Business Loans
Loans from the Small business Administration (SBA) are the ones people tend turn to when they're unsuccessful at getting a loan with a bank. The administration specifically exists to support small and local businesses, funded by the government to nurture potential entrepreneurs.
They offer two types of loans. The 7(a) guarantee small business loan is the most common. You apply for this type of loan at a bank that's involved in the process, even though you're not lending directly from that bank. However, these loans usually require a strong history of delivering on promises, so it might not work for those seeking start up business loans.
People like that might want to seek the 504 fixed-asset small business finance program. Taking 60 to 90 days to get approved, they're typically distributed in increments of at least $150,000. If you're looking for less than that and weren't able to secure a loan from a bank, you will most likely need to move on to the next option for start up small business loans.
The SBA also offers small business loans for women specifically
2. Go to Banks for Small Business Start Up Loans
Usually, the best-case scenario is for banks to handle your start up business loans. The best banks for small business usually offer stability and most importantly, banks also offer lower interest rates.
This sounds nice (and it is!), but those low-interest rates mean that they are very selective about who they give start up business loans to. Most new businesses fail, so they have to be very conservative with which startups they lend money to.
The best chance you have to get loans from there as a new business is if you have a pre-established history of some sort and to not stop trying when the first (or fifth) bank turns you down. Keep pushing and you have a shot. However, once you've exhausted your options, you will have to look to other ways to acquire those start up business loans.
3. Online Lenders are Growing in Popularity
Online lenders are growing as a resource for small businesses and many business owners are turning to them for their capital needs. They are even lowering their rates to levels that are below the market average. Plus, they often offer technology driven services that streamline the application, making payments and customer service.
Take advantage of the many resources available on our site, and hopefully, you'll find a trustworthy lender that will turn your startup into something spectacular.
How to Get a Small Business Loan
Small business lenders each have their own forms and formulas for loan applications, but much of the information they require is the same, whether it's a bank, credit union or online lender. I researched that Before you apply for a start up loan for your small business, prepare the basic documentation.
Today's online lenders, some of whom are peer-to-peer lenders, are known for their inventive and streamlined qualification process. This opens the door for those with lower credit scores. Lending Club offers a streamlined application process, while Kabbage has an innovative qualification process. Here are my findings of what you Here's what you might need:
- Be ready to provide personal background information, including education, previous addresses, and any criminal record. You'll need a resume of pertinent professional experience too.
- Lenders will look at your personal credit history. Prior to applying, obtain a copy of your credit report from the three major credit reporting bureaus, to see if there are any inaccuracies that need to be addressed. Once you correct any problems, you improve your chances for loan approval.
- If you have a history in small business, expect to submit a business credit report as well as a personal report. Again, be sure to review your business credit report prior to applying for a loan.
- Likewise, lenders will ask to see several years of personal and business tax returns as part of your loan application.
- Some loan programs require that you submit both personal and business financial statements, listing your cash flow, assets and liabilities. Personal and business bank statements may also be requested along with financial statements.
Collateral is required by some, but not all lenders. The higher the risk from the lender's point of view, the more likely collateral will be required.
A sound business plan coupled with financial statements helps avoid large collateral requirements. Prepare a list of personal and business assets and property along with their values for prospective lenders.
Shopping for the Best Unsecured Business Loans
As I've found, it's important that you shop around for the best options business loans. By comparing lenders, you can make sure that you are getting the best deal that's available. However, you should be selective (at least at first) with which lenders you apply to. Here are some things to look out for when shopping for the best business loans.
1. What Kind of Lender is it?
It is important to know exactly where your money is coming from. Small business loans can come from a variety of sources including the government, banks, a private institution or a peer lender. When using an online platform, it may not always be clear which you are dealing with.
However, different types of lenders have different advantages and disadvantages. Knowing the type of lender you're dealing with can help you get the best deal possible.
A well thought out loan can boost your company's finances and give you the right nudge towards success but a hasty decision can wind up hurting your finances in the future.
Banks typically offer the best rates but they are very selective when it comes to choosing businesses to lend to. This makes them a good place to start your loan search but there are many viable alternatives if a bank.
Online lenders like peer to peer lenders and lending networks are growing as an option for businesses looking for fair business loans.
2. What Type of Loan is it?
Even more important is the type of lender is the type of loan you're looking for. Traditional unsecured loans offer the decent rates and terms if you have a good personal and business credit history. If you don't, you may have trouble qualifying for a loan and if you do, your rates may be a bit higher.
You can also get lower rates by choosing a secured loan, but that will require you to put up your own property as collateral.
But if you are denied a traditional loan, look into the Small Business Administration's approved loans.
3. Keep Your Credit in Mind
Applying for multiple loans all at once can affect your credit, especially if the potential lenders are performing hard credit checks. Hard credit checks can lower your score, at least temporarily. However, it's possible that multiple credit checks do some serious damage.
4. Watch Out for Fees and Read Terms Carefully
Companies may tell you that the fees associated with their loans are standard in the industry and they may be. However, there are companies that streamline their loans by cutting out expenses like origination fees, early repayment fees, and even late fees.
On the other hand, many loans come with certain fees attached to them, but the rates they offer may be worth it. Make sure you know what they are and how much they will cost you in the long run. Read the terms of the loan carefully and make sure you weigh the negatives and positives so they are beneficial to you.
5. Look at Small Business Loan Rates Carefully
Interest rates for unsecured loans can end up costing you a lot over the life of your loan. Rates will vary from lender to lender and based on your credit and business history and it's important to compare business loan rates carefully. However, don't take it for granted that you will have to accept larger interest rates if your credit is less than perfect.
Look at what industry standards are for people with your credit history and financial background. By comparing these standards against your loan offers, you'll be able to tell if you are getting the best rates. Don't let anyone charge you more than what your research says is fair.
Meet the Best Small Business Loan Lenders
|Min Credit Score||620|
- Easy and quick application process
- Typically perform soft credit checks
- Client advisors available without automated phone menus
- Competitive fixed rates for good credit
- 1-5 year repayment terms
- Rates are not as competitive for lower credit borrowers
Lending Club is among the largest online lending marketplaces available, connecting a community of borrowers and investors. They have a fast application process, claiming to give you a quote within minutes without affecting your credit score. Once you select an offer, you can watch as you receive funding commitments from investors. With peer to peer and community investing loans like Lending Club, higher credit borrowers are favored. The most competitive rates are generally available to those with a good credit and a solid business history. Lending Club also doesn't charge early repayment fees, which means you can pay back your loan early and limit money paid in interest without having to pay a fee.
|Min Credit Score||500|
- Easy application process
- Innovative qualification methods
- Fixed payments
- Funding within as fast as 24 hours
- May be overall more expensive than bank loans
OnDeck is another excellent online lender with an intuitive application process and cutting edge technology. They focus solely on business loans and were started expressly for the purpose of giving businesses better financing options. They also favor short term loans between 3 and 12 months but they also have options for up to 36 months. They claim to use smart application tools to weigh companies by their business history and performance in their market rather than just a credit score. This allegedly translates into OnDeck having the ability to approve more loans. This application technology also makes for smooth processing and allows you to get funding in as little as 24 hours.
|Min Credit Score||620|
Funding Circle Review
- Competitive interest rates
- Quick approval process
- High loan amounts available
- No hidden fees
- Shorter terms only (1-5 years)
- Interest rates higher for borrowers with lower credit
Funding Circle is another lending company founded out of dissatisfaction with the system of typical bank lending for small businesses. Their goal to revolutionize a process they considered outdated pushed them to create a better process for small business owners to receive funding. Like other online lending platforms, Funding Circle is not a direct lender. Instead they connect a community of small business owners to interested investors. Their application process is said to take only ten minutes and an account representative helps you through the process. After approval, you can receive funding within two weeks. The company focuses on short term business loans of 1-5 years and the most valuable interest rates are reserved for higher credit borrowers.
|Min Credit Score||600|
- Personalized loan packages
- Helpful app
- Wide range of loan types
- Fairly competitive APRs
- Origination fee
- Not ideal for start ups
Dealstruck was founded in 2013 with the goal to become a trusted source of small business loans and give owners "affordable capital with honest transparency." The company focuses on providing companies with loan packages that are personalized to their individual needs. This allows them to develop plans with flexible and intelligent pricing. Dealstruck focuses on shorter term loans to boost established businesses. The company is paid by automatically getting a portion of your revenue stream, which means it's not ideal for brand new startup businesses.
|Min Credit Score||680|
CAN Capital Review
- No upfront fees
- No service fees
- Sophisticated approval process
- Low credit requirement
- Business collateral requirement
- Personal guarantee requirement
CAN Capital is a relatively old company in the industry, starting in 1998. They are another online business lender that touts cutting edge technology and fast application and approval processes. Their approval process is based on a business's real world success based on day to day operations. Their intuitive system looks at a business's potential rather than a simple credit score. Their approval process is quick and once approved, you can receive funding in as little as two business days. Can Capital does require business collateral, which means risking your property if you can't pay your loan, and a personal guarantee.
Business Loan Calculator
Proper planning is imperative to any aspect of your business especially your finances. If you plan to do any expansions, hire new staff or even upgrade equipment, obtaining a business loan can be a great way to accomplish these objectives. To help you prepare for the loan, it's important to use financial resources at your disposal to assist you in preparation.
One tool in particular that will aid you is a business loan payment calculator. With this calculator, you can determine how much your monthly payments will be that way it helps you ensure you have the budget in place to repay the loan without over taxing your finances.
Advice for Finding the Best Small Business Loans
If you've done your homework, like I have, If you've looked at some of the top providers and you're interested in some more information about small business loans, take a look at our comprehensive advice section. We've looked at every aspect of the industry to provide a wealth of small business loan information. Here are some important topics to explore:
- Should you fund your company out of your own pocket or take out a small business loan. It can be difficult to secure funding for a startup business, but is it a good idea to fund a venture with your personal finances?
- What's right for you: secured or unsecured business loans? Both have their risks and advantages but your specific needs may make the choice clear.
- How should you open your startup business? It is very difficult to start a business from scratch, but knowing the steps required can make it a little easier.
- What does a lender's ideal borrower look like? When applying for a loan, it's a good idea to know what a small business lender is looking for in loan candidates.
Best Business Loan Review Recap
There are a variety of small business loan options out there for owners who can't or won't deal with banks. Take a close look at the alternative loan choices that seem to work for you.
If you have a very small business, it's possible that you can find more options in our review of the best personal loans. A personal loan may be all you need to fund smaller side projects or small startups.
A business credit card can be another useful tool for certain businesses. If you have a tiny side business, your own finances and credit card might be enough. However, finding the best business credit cards can be helpful for separating your personal and business finances, especially for tax purposes.
Best Small Business Loans FAQs
What is the SBA loan?
The Small Business Administration (SBA) loan program is backed by the US Small Business Association. SBA loans include the 504 Loan, which provides financing so that small businesses can purchase real estate, machinery, and other fixed assets for below market rates. The most common SBA loan is the 7(a) loan, which is used to establish a new business.
What is an SBA loan guarantee?
SBA loans are guaranteed by the Small Business Administration. That means that the SBA will repay a portion of the loan to the lender if the borrower defaults. The SBA doesn't make loans itself. Instead, its guarantee helps small business owners obtain loans they might otherwise have difficulty getting. The guarantee also allows lenders to offer better rates and loan terms to businesses.
How do you apply for a small business grant?
The SBA offers a loan and grants search tool on its website to help you find a grant for your business. Once you find a grant that is a good fit, you can download the application information, fill it out and submit. You can also look at grants.gov to find funding for your business.
What is the SBA?
The Small Business Administration is an agency of the US government. Its mission is to provide support to small businesses and entrepreneurs. One of the ways it does that is by guaranteeing small business loans, made by banks and other lenders. It also provides counseling services and other assistance to business owners.
What is a small business loan?
Small business loans provide the capital to expand an existing business. Business owners can take out long term loans to cover big expenses like new equipment, facilities and locations. There are also short-term loans that can help businesses cover cash flow gaps while continuing to grow. Traditional bank loans are the most popular and usually offer fairly competitive rates. However, bank loans can be difficult to secure. Small business lenders can also be found online. The top online lenders tend to use an intuitive application process with higher approval rates than banks.
How can I get a Small Business Loan?
The process of applying for a business loan can vary depending on the type of lender you choose. Banks may have online application but it can be better to apply with a banker in person. Banks are very selective and often require a large amount of paperwork and funding can often take a long time.
Online lenders tend to have a quicker and easier online application process. Some may give you approval immediately. But you shouldn't be too hasty. Make sure you've read the fine print and you know for sure that you are interested in the lender. Applying for too many loans at once may hurt your credit score. So there is no need to waste an application on a company that you might not want or is unlikely to approve your loan.
Where can I get a small business loan?
Small business loans can come from three major sources: banks, the Small Business Administration or online lenders.
Banks are usually the best place to get a small business loan. Unfortunately, they are picky and it's more difficult to acquire a bank loan. But their typically lower interest rates make them an attractive choice if you are an excellent loan candidate.
The Small Business Association can help you connect to a guaranteed business loan but the application process can take months before you receive your loan. If you have poor credit and you don't think you would qualify for a loan otherwise, the SBA is a good option.
Online lenders offer a variety of options and tend to look at more than your credit score. All lenders will have a selection process that looks at your businesses industry, annual revenue, years in business and profitability as well as your personal credit history.
How fast can I receive money?
With online lenders, the approval process is typically fast than banks or the SBA. However, it can range anywhere between the same day and several business day. Companies that work alongside banks or the SBA may take longer. After approval, funds are typically transferred to your account within a few business days.
Are online lenders safe?
It's always wise to be very careful when considering the trustworthiness of online lenders. Check BBB rating and ask plenty of questions. We've reviewed the top online lenders and these are all in good standing with the Better Business Bureau. Still, it is good to check and double check the fine print.
How much can I apply for?
When deciding how much you should apply for, consider your needs and consider the final cost. Make sure you know you can afford the loan and try not to take out too much. Lenders offer maximum loans of various amounts, anywhere between $10,000 and $250,000. Some lenders even allow you to take out multiple loans at once.
How is my loan amount determined?
Though lenders can offer up to $250,000 and more, you may not qualify for a loan that large. Lenders will look at that your application information (credit score, business history, years in business, etc.) and give you a loan that they think you will be able to pay.
What is an APR?
APR (or Annual Percentage Rate) is the interest you pay annually over the term of a loan. Sometimes APRs include additional fees like origination fees. APRs are typically the most accurate pictures of what you will actually pay for your loan.
How can I apply?
Online lenders almost exclusively require you to apply online. Applications are usually streamlined to be simple and easy, though some take longer than others. Banks will sometimes have alternative application but the industry in general is moving towards electronic processes.
What information is required for the application?
Business loan applications often require both your personal financial history and your business financial history. You'll most likely need your business tax ID, your past several credit card and bank statements, social security number, and a driver's license.
What do I need to qualify for a business loan?
To qualify for a business loan, you need to be a solid investment to the lender. This means your credit score, your business' history and your cash flow need to reflect that you are a business that, at best, is profitable or, at worst, is breaking even. Some lenders are much more concerned with the amount of time you've been in business and your current cash flow. Many lenders are wary of brand new startup businesses and prefer to lend to growing and expanding businesses.
What are my options if you have medium to low credit?
So you want to start a business but have low to medium credit? Maybe you've got poor credit? No worries! There are plenty of options to get a small business loan to start up your business. A good alternative for this would be to use community banks. Community banks usually will look at other factors in addition to personal credit history and risk. This is because your business credit score, since it is registered or should be registered through your business tax ID, will tend to hold more weight than your personal credit score. This is great because if you have personal financial problems you will not be penalized because of what you've done outside your business. In some occasions, local banks will want to invest in local business and will be willing to give a loan to help support it. As long as there is a solid business plan and a high chance of success.
Will applying for a business loan hurt my credit score?
Many business lenders will look at both your personal credit and your business credit. If the perform hard credit checks, it can negatively affect your credit score. Some lenders will perform soft checks which don't affect your score. They may not even concern themselves with your credit score, preferring instead to look at your business's history, cash flow and assets.
Does my personal credit matter?
Your personal credit score does matter to certain lenders. However, there are a few who only care about your business itself. Check the lender's specific policy to find out what criteria they look at.
Do I need excellent credit to qualify?
Some lenders require excellent credit to qualify for a loan, while others may allow lower than 720. They may look at both your personal and business credit. Some online lenders have more intuitive application processes where they primarily look at your business history and your cash flow. Your credit may be less important or not considered at all.
What can business loans be used for?
If you choose a lender that offers specific business loans, then you will most likely only be able to use the funds for business related expenses. If you chose a more open-ended lender, you may be able to use the loan for family and personal expenses. However, even open-ended lenders often prohibit you from using a loan for educational costs.
Why was my application denied?
Applications can be denied for several reasons. Your credit may be lower than you thought, you may not have a long enough business history or they may have found a discrepancy on your application.
What fees come with business loans?
Loans may come with variety of fees like origination fees (fees charged for opening a line of credit), prepayment fees (fees incurred when you repay your loan early), or late fees (fees for making a payment after it's due date). Many lenders limit fees and may not charge one or more of these. Check their specific policies for rates and fees.
How can I get the lowest rate?
The lowest rates are typically available to those who the lender deems to be a great investment. If you have an excellent credit score, a solid business history and good cash flow, you are more likely to get the best rate. Some lenders also award rate discounts if you sign up for automatic payments. Usually the best rates advertised assume a combination of ideal circumstances.
How do I make payments?
Most online lenders will insist that you make electronic payments. Some may also encourage you to set up auto-pay or automatic deductions from your bank account.
What if my payment is late?
Many lenders charge fees for late payments. However, some have a grace period after each due date where fees are not incurred if you are a bit late. Some don't charge late fees at all.
What if I can't make a payment?
If you are worried that you won't make a payment, contact your lender before the payment deadline. Lenders often have programs in place in case an emergency or a special circumstance hinders your ability to pay. However, they are more likely to be on your side if you let them know ahead of time.
What is the difference between secured and unsecured loans?
A secured loan means you have put something up for collateral against your loan, usually a major asset like equipment, a building or an automobile. If you fail to pay off your loan they can take the collateral as repayment. Unsecured loans have require no collateral.
Should I get a loan from a bank or from a peer to peer lender?
The two ways to acquire a loan are from a bank or from a peer to peer lender. Both have their advantages and the one you decide to pursue is entirely up to you. Peer to peer lending can get a little risky compared to getting a loan from a bank. With this type of loan, you first have to find someone who has the amount you need and is willing to give it to you, provided you show a strong business plan. They can however, be more flexible than banks when it comes to paying back the loan, as well as with the interest. On the other hand, banks do maturity transformations and p to p doesn't. Maturity transformation happens when banks borrow money on shorter time frames than they lend money out. Making the assumption that when they can return money because someone else will deposit money and this usually does happen, unlike in peer to peer.