The Best Small Business Loans for 2018
If you're starting or expanding your business, getting a small business loan is oftentimes essential to the success of the endeavor. To help you with this decision, we've researched more than 30 different lenders and compiled a list of some of the best small business loans available.
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Best Business Loan for Bad Credit: OnDeck
While OnDeck requires a minimum credit score of 500 to apply for a loan, it's still a strong choice if you have been turned down by other lenders. Unlike other lenders that cater to borrowers with poor credit, OnDeck offers large loan amounts of up to $500,000 and terms longer than one year. For repeat borrowers, the lender will even reduce service fees, which can result in a lower annual percentage rate (APR) on your next loan. On the first loan, the service fee will range between 2.5% and 4% of the loan amount. On the second loan, the fee will range between 1.25% and 3%, and on a third loan, the fee will range between 0% and 3%. Like most alternative lenders, one of the main advantages of using OnDeck is how quickly you can get money—in as fast as 24 hours in some cases.
Drawbacks: Unfortunately, you'll likely get a high APR if you apply at OnDeck with a low credit score (the average APR on a term loan was 45% for quarter three of 2017). However, this will be true with most lenders if you have subpar credit. Another thing you may not like about OnDeck is that the lender requires daily or weekly repayment, which can put a strain on your business's cash flow.
- Minimum personal credit score: 500
- Minimum annual revenue: $100,000
- Minimum time in business: 1 year
Other Business Loans You Should Consider for Bad Credit
In the table below, we have included other options that borrowers with lower credit scores should consider. While you won't get ideal terms with these lenders, these companies offer a range of different products, loan amounts and terms that should suit most needs.
Best Startup Loan: SBA Community Advantage
SBA Community Advantage loans are one of the best options available to startups. This is a special type of SBA 7(a) loan designed specifically for new and underserved small businesses. This means that they offer the same competitive interest rates and terms as standard 7(a) loans. Interest rates are currently capped at 10.5%, which is lower than a new entrepreneur may find anywhere else, with loan amounts up to $250,000. These loans are made by community-action organizations, which means that, in certain cases, credit score and other eligibility requirements are less stringent. For instance, LiftFund, a Community Advantage lender, states on its website that the average credit score of its borrowers is 575.
Another great thing about these loans is they can be used for a variety of business purposes, making them great for the startup that needs a little bit of help with everything. You can use these loans for working capital, inventory, real estate, debt refinancing, equipment purchases and more. The application process is also simpler than those of other SBA programs, with a two-page application and a decision from the SBA within five to 10 days. While you may not have heard of this program, it's an excellent option for any entrepreneur starting a business.
- Must be for-profit business located in the U.S.
- Must meet SBA small business size requirements.
- Established and new businesses are eligible.
- Other criteria may apply.
Other Startup Loans You Should Consider
In the table below, we have included other startup loans for borrowers. Banks and even many online lenders won't lend to startups, so the options presented below include some unconventional funding sources, such as 401(k) financing and personal loans.
Best Unsecured Loan: QuarterSpot
QuarterSpot offers some of the largest unsecured business loans we've seen. You can borrow up to $200,000 with no personal guarantee, specific collateral or blanket lien requirements. The company is even open to borrowers with subprime credit, as you need a minimum FICO credit score of only 550 to be considered for a term loan. While APRs are on the higher side due to the lower credit score requirements, the company can offer APRs lower than 20% if the borrower has strong enough credit. The lender will also accept borrowers who already have outstanding loans. The company can buy out up to two existing loans, and only requires merchants to net 20% of the loan proceeds. Many other lenders may require merchants to net as high as 50% of the proceeds. Like many other alternative lenders, funding is fast with QuarterSpot, with the company stating that it can provide funding in as quickly as one business day.
Drawbacks: You will be required to make daily or weekly repayment on these loans, and every loan carries an origination fee of up to 6% or more. If you have a lower credit score, you can expect to receive a higher APR on your loan.
- Minimum personal credit score: 550
- Minimum revenue: $16,000 monthly or $200,000 annually
- Minimum time in business: 1 year
- At least 10 sales per month
- Average daily bank account balance of at least $2,000
- No bankruptcies in last 2 years
- No outstanding tax liens over $100,000
- No more than one non-sufficent fund fee (NSF) in the past 30 days, two in past 45 days or five in the past three months
Other Unsecured Business Loans You Should Consider
In general, you'll need to have an established business to qualify for an unsecured loan. However, some online lenders offer specialty financing products that don't require you to put up collateral (though interest rates will likely be high). We have included a few other unsecured loan options below.
|Option||Consider If...||Collateral||Apply Now|
|LendingClub||You need less than $100,000||UCC-1 filing (loans over $100,000)||Apply Now|
|Credibly Working Capital Loan||You have a lower credit score||UCC-1 filing (loans over $100,000)||Apply Now|
|American Express Business Loan||You have an American Express Business® Card||No||Apply Now|
Best Equipment Financing: Currency
What we like about Currency is the range of loan terms and options for equipment financing. Because Currency is an equipment financing marketplace, you'll see a wide range of loan offers with varying loan amounts (up to several million dollars), terms and interest rates. While requirements will vary by lender, we recommend business owners have at least fair personal credit and an established business with demonstrated revenue in order to improve their chances of qualifying. Currency also partners with several major marketplaces and equipment websites, such as eBay, Caterpillar and Proxibid, to provide financing directly on these platforms. So if you're purchasing equipment through one of these websites, you can apply directly for financing without leaving the page. Turnaround time is also fast, with most applicants receiving a credit decision within minutes and if approved, loan funds within a few days.
Drawbacks: You'll need to have an established business in order to qualify at Currency, so it's not an option for startups. And because fees are at the discretion of the lender, you may be charged origination fees or prepayment penalties, depending on which loan offer you select.
- Requirements vary
Other Equipment Financing You Should Consider
You can get an equipment loan from almost any source, whether that's a bank, online lender or a specialty financing company. We recommend borrowers start with more traditional options, as the rates are generally better, before pursuing specialty or alternative financing.
|Option||Consider If...||Loan Amounts||Apply Now|
|Balboa Capital Equipment Financing||You want to borrow $500,000 or less||$2,000 - $500,000||Apply Now|
|SBA 504 Loan||You need to purchase expensive, long-term equipment||Up to $10 million||Apply Now|
|Online Bank Loan||You need less than $100,000 but want affordable rates||Up to $100,000||Learn More|
Best Commercial Real Estate Loan: SBA 504 Loan
The SBA 504 loan program is one of the best kept secrets in commercial real estate financing. Here's what we like about this program: below-market interest rates, long repayment terms, low down payments and high loan amounts. What's more, this program is even open to startups. You will actually get two loans when you apply for a 504 loan: a bank loan for 50% of the loan amount and a loan from a Certified Development Company (CDC), which partners with the SBA, for 40% of the loan amount (the remaining 10% is your down payment). Interest rates on the bank loan are normally variable and based on market rates. The interest rates for the CDC loan are fixed—which is a nice hedge against rates changes on the bank loan. The prevailing rates on the CDC loan are set each month, so if you think interest rates will be rising, it's in your best interest to apply for a 504 loan as soon as possible. In addition to real estate, these loans can be used for long-term machinery or equipment purchases and for refinancing another commercial real estate loan.
To apply for a 504 loan, you'll need to start with a bank or lender that offers this program. With your lender, you will submit an application to a CDC in your state. It will review your application and submit it to the SBA for approval. Loan approval typically takes two to three weeks, meaning the entire application and closing process can take one to three months.
- Must be for-profit business located in the U.S.
- Must have a net worth of less than $15 million.
- Must have an average net income of less than $5 million after taxes for past two years.
- Property must be at least 51% owner-occupied (60% for new construction).
- Good personal credit and strong business plan.
- Cash flow to support loan repayment.
- Other criteria may apply.
Other Commercial Real Estate Loans You Should Consider
Most online business loans cannot be used to purchase or build commercial real estate. This means that borrowers will need to look to banks and credit unions, and if they cannot qualify at these institutions, they'll need to check out specialty commercial mortgage providers or hard money lenders.
Best Business Loan for Good Credit: Fundation
Fundation combines some of the best aspects of a traditional loan with the convenience of an online lending experience. Through this lender, you can borrow up to $500,000 on a term loan and up to $100,000 on a line of credit. While interest rates won't be as low as what you can get on a conventional loan, they are still superior to what many other alternative lenders provide. If you take out a loan through Fundation, you will only have to make payments twice a month on the term loan, which is good news for businesses that cannot afford the cash flow disruptions caused by daily or weekly repayment (daily and weekly payments are more common among online lenders). The lender can also provide funds in as fast as one business day, making it a good choice for borrowers who need funding quickly and conveniently. We also like how transparent this lender is—you can find all rate, fee and eligibility criteria information easily on its website.
Drawbacks: Because of the low interest rates and high loan amounts, these loans are not open to new businesses, borrowers with poor credit, low revenue businesses or businesses without many employees. We recommend these borrowers consider loans covered in the other sections of this article.
- Minimum personal credit score: 620
- Minimum annual revenue: $100,000
- Minimum time in business: 1 year
- At least 3 employees
Other Business Loans You Should Consider for Good Credit
While online lenders have higher interest rates than banks, there's a growing number that cater to more creditworthy borrowers. In addition to Fundation, we recommend borrowers consider the following online options.
Best Banks for SBA Loans
We recommend borrowers think about getting a loan backed by the Small Business Administration (SBA) before turning to an online business loan. This is because SBA-backed loans offer low interest rates, long terms and fixed monthly payments. And due to the guarantee of the SBA, these loans are also easier to qualify for than a standard bank loan. Every quarter, the SBA publishes a list of the most active SBA 7(a) lenders. Some of the top banks on this list are major national and regional banks like Wells Fargo, Chase Bank and U.S. Bank. However, many smaller regional banks also make this list, including Byline Bank and Celtic Bank. If you're in the market for an SBA or term loan, it may be worth checking out one of the banks on this list (we have the top 10 lenders listed below).
|Lender||No. of Loans||Total Loan Volume||Average Loan Amount||Learn More|
|Wells Fargo||5,446||$1,760,683,700||$323,298||Visit Website|
|Live Oak Banking Company||1,055||$1,405,090,000||$1,331,838||Visit Website|
|The Huntington National Bank||4,065||$793,654,300||$195,240||Visit Website|
|JPMorgan Chase Bank||3,298||$739,566,100||$224,246||Visit Website|
|U.S. Bank||2,090||$509,883,400||$243,963||Visit Website|
|Celtic Bank||1,417||$487,483,800||$344,025||Visit Website|
|Newtek Small Business Finance||525||$405,370,300||$772,133||Visit Website|
|Byline Bank||360||$397,925,100||$1,105,347||Visit Website|
|BBVA Compass||1,602||$311,080,100||$194,182||Visit Website|
It's also worth considering even smaller regional banks or credit unions in your area. These types of lenders have a stronger connection to your community and are invested in lending and working with local businesses. They may also be willing to overlook certain deficiencies in your application that would cause a major bank to deny your loan request. It's in your best interest to consider a variety of lenders and shop around to get the best deal on a loan.
In our review of government, bank and online small business loans, we considered the following criteria:
- Competitive interest rates: When it comes to business financing, getting a good interest rate on a loan is crucial, and it pays to shop around. We looked for lenders that offered reasonable interest rates based on the credit profile of borrowers. In general, borrowers with poor credit won't qualify for the same APRs as borrowers with healthy credit, but they still shouldn't be paying exorbitant interest on a loan.
- Wide range of amounts and terms: Did the lenders offer a wide range of loan amounts and terms? Businesses need to borrow varying amounts depending on the planned use of funds, and some businesses may prefer shorter maturities to longer ones when it comes to paying back the loan.
- Few restrictions on loan use: With the exception of commercial real estate loans, we looked for loans that businesses could use for a variety of purposes: equipment or machinery purchases, working capital, inventory, etc. Being able to use funds flexibly makes a loan a more attractive option for many business owners.
- Clear eligibility requirements: Did a lender include clear eligibility criteria for its loans? Before you even apply for a loan, you should know whether you meet a lender's basic eligibility criteria. Otherwise, it's a waste of your time. We looked for lenders that offered specifics on the types of businesses and owners they look for.
- Lender credibility: With the advent of online lending, it's now easier than ever for a business owner to get a loan from a less-than-reputable source—and that's a problem. We looked for lenders that had positive customer reviews or Better Business Bureau (BBB) ratings and had been in business at least several years.
- Funding time: We looked for lenders that either offered quick funding time or were transparent about the time to receive money. Many lenders now understand the importance of getting funds to businesses quickly, so we favored lenders that offered fast approval and funding, where possible.
- Application process: We consider the convenience and ease of a lender's application process in tandem with the borrower's needs. For instance, we prioritized speed and ease when evaluating loans for borrowers who need funds quickly. In contrast, speed and ease were less important for borrowers looking for a conventional commercial real estate loan.
How to Get the Best Small Business Loan
When applying for a small business loan or financing, you should consider a variety of factors before committing to a loan. Initially, you’ll need to assess what you need the loan for (equipment, real estate, working capital, business expansion, etc.) as this will also inform what type of loan or line of credit you need to apply for.
1. Figure Out How Much You Need and How You Want to Repay
You’ll need to determine how much money you need. You don’t want to over- or underestimate the amount you need, as you want to make sure you can get approved for a loan and have enough money to cover what you need. A good place to start is at roughly 10% to 20% of your annual revenue and adjust up or down based on what you think you’ll need. You should also think about what kind repayment schedule works for you, whether that’s monthly, daily or weekly. Some borrowers find making a large payment every month is a greater burden on their business than weekly or daily payments.
2. Get Your Personal and Business Finances in Shape
Before you apply, you’ll want to make sure your personal and business finances are in shape. Most lenders will care about your personal and business credit score, so it’s helpful to check both before approaching a lender (and take the necessary steps to improve them if they aren’t great). Lenders will also want to see a strong business plan, which will normally include financial statements, such as balance sheets and cash flow, and tax returns. A great business plan should act as a pitch for your business and convince a lender to give you money.
3. Shop Around
When you’re ready to apply, it’s in your best interest to shop around. Based on how much money you want and when you need it, different lenders will be better than others. If you own an established business and need a large loan, a bank or SBA loan might be the best fit. You should check with national banks and community banks and credit unions in your area. Don’t forget that your relationship with the bank will matter and can help you get approved even if your application has holes. Newer businesses or businesses that need funds quickly may be better off applying through an online lender. Online lenders can sometimes be a better choice if you need under $100,000.
4. Compare Loan Offers Carefully
Once you have loan offers, you should, at minimum, compare the loans based on the APR, which shows the total amount of interest and fees you will pay on the loan; the repayment schedule, which includes how long the loan term is for and how frequently you will need to make payments; and any loan restrictions, which may include what the loan can be used for. If you don’t need funds quickly, it’s also best to shop around at different banks, credit unions and alternative lenders before committing. Make sure to carefully read the loan contract before signing or have your lawyer or legal advisor review it.