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.
LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.
Small business lending options can be grouped into three general baskets:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.