Small Business Loan Comparison

Business loans are a valuable resource for small businesses. Whether you need funds to grow your business or navigate through tough times, chances are there’s a business financing option out there that will fit your needs. Looking for a business loan, but not sure which is the best choice for your business? You’ve come to the right place! We have spent countless hours researching, vetting, and comparing the most (and least) popular lenders around to help you choose the best loan for your business.

The above table represents what we believe are the best lenders for the majority of small businesses. That said, small business loans are not one-size-fits-all. If you don’t think any of our picks are right for you, head over to our full list of small business loan reviews to learn about other lenders we have rated highly.

Need help choosing? Learn how to find lenders and compare options below.

What To Look For When Choosing A Business Loan

Choosing the right business loan can be overwhelming. Between banks, credit unions, the government, nonprofits, and other independent lenders — and all the types of financial products offered by each — there are a lot of decisions to be made. How do you make the right choice?

You can narrow down your options by carefully considering why you need a loan, deciding what type of loan to get, and then comparing your options. Read on to learn about each step.

Why Do I Need A Business Loan?

Business loans come in many shapes and sizes. The type of loan you should look for is largely dependent on how you are going to use the funds. These are common reasons businesses take out a loan:

• To upgrade facilities with the purchase of new equipment
• To buy land
• To purchase office space or buildings
• To refinance high-interest debt
• To hire new employees
• To cover payroll
• To purchase inventory or supplies that may be needed due to seasonal increases
• For working capital
• To start a new business
• To fund a start-up project
• To acquire another business
• To buy a franchise

For example, if you need want to purchase office space, you’ll want to look for a traditional installment loan. If you find that you occasionally have trouble covering payroll, a line of credit might be the best type of loan. If you need to purchase an expensive piece of equipment, you might want to look into equipment loans. In the next section, we’ll take a look at the types of business loans available, as well as how they’re commonly used.

Types Of Business Loans

When you have considered what you need a loan for, the next step is to consider the types of business loans that might work for your business. Below are the most common types of business loans offered.

Traditional Installment Loans

Also called term loans, installment loans are the most widely used and widely useful type of loan. Installment loans are issued in one lump-sum and repaid in fixed, periodic installments. The cost of borrowing is determined by an interest rate.

Typical installment loan terms:

• Borrowing amount: $20,000 – $5 million
• Term length: 2 – 25 years
• APR: 4% – 36%

Installment loans can be used for most one-time loan purposes, such as business acquisition or expansion, inventory purchasing, real estate purchasing, working capital, startup costs, or other reasons. These loans are offered by many financial institutions including banks, credit unions, the Small Business Administration, non-profits, and online lenders.

Business Lines Of Credit

A business line of credit is a type of loan in which the borrower can draw from a set amount of money at any time, without going through an application process. Draws from a line of credit are treated like installment loans — the borrowing costs are determined by an interest rate and borrowers repay in fixed installments.

These are some common business line of credit terms:

• Borrowing Amount: $5,000 – $5 million
• Term Length: 2 months – 7 years per draw
• APR: 6% – 80%

Lines of credit are useful for businesses that occasionally need funds to overcome cash flow problems, would find it useful to have access to capital for business growth projects, would like a safety net in case of emergencies, or a combination of the above. They are offered by many business lenders, including banks, credit unions, the Small Business Administration, and online lenders.

Short-Term Loans

Short-term loans are similar to traditional installment loans, but the fee for borrowing — called a fixed fee — is determined by a factor rate instead of an interest rate. The fixed fee is added to the cost of the borrowing amount to determine how much the borrower will have to repay. Short-term loans are normally repaid on a daily or weekly basis.

Common short-term loan terms include:

• Borrowing Amount: $5,000 – $500,000
• Term Length: 3 – 36 months
• APR: 8% – 99%

Short-term loans are used for one-time short-term purposes, such as covering payroll, inventory purchasing, working capital, or seasonal needs. These loans are generally offered by online business lenders, point of sale vendors, and some banks.

Merchant Cash Advances

Merchant cash advances are a type of non-loan business financing. Merchant cash advance recipients are technically selling their future revenue at a discount in exchange for immediate cash. Generally, the cash advance company collects their purchased revenue by deducting a percentage of the business’s daily sales.

Common merchant cash advance terms:

• Borrowing Amount: $500 – $300,000
• Term Length: 3 – 36 months
• APR: 30% – 100%+

Merchant cash advances are used for one-time short-term financing purposes, such as payroll, inventory purchasing, working capital, or seasonal needs. These financial products are offered by merchant cash advance providers and some point of sale vendors.

Equipment Loans

Equipment loans are installment loans that are used to purchase equipment. Typically, equipment loans are a little easier to get than unsecured installment loans because the equipment is used as collateral to secure the loan. Most equipment lenders will require a down payment of 10% to 20% of the cost of the equipment.

Common equipment loan terms include:

• Borrowing Amount: $5,000 – $5 million
• Term Length: 2 – 10 years
• APR: 4% – 36%

Equipment loans are offered by many banks, credit unions, online lenders, and equipment financing institutions.

Invoice Financing

Invoice financing refers to short-term loans backed by unpaid invoices, as well as invoice factoring (a type of non-loan financing). Many invoice financers structure their loan service as a line of credit, so you can borrowers can request as little or as much as they want, as long as they have the invoices to back it.

Common invoice financing loan terms might look like this:

• Borrowing Amount: $5,000 – $5 million
• Term Length: 3 – 12 months
• APR: 9% – 60%

Invoice financing can be used for short-term needs such as working capital, inventory purchasing, or payroll. Loans are offered by online lenders.

Microloans

Microloans are small installment loans, usually of $50,000 or less. Microloans are commonly used by startups, incubator businesses, microbusinesses, or other businesses that simply need small amounts of cash. Microloans are ideal for startups because they are considered low-risk due to the low borrowing amounts.

• Borrowing Amount: $500 – $50,000
• Term Length: 6 months – 7 years
• APR: 4% – 99%

These loans can be used for most business uses, such as working capital, marketing, inventory purchasing, or startup costs. Microloans are often offered by non-profits and online lenders.

Other Considerations

By considering how you’ll use the loan and what type of loan to look for, you’ll be able to narrow down your options. Here are some more comparisons to make when deciding to get a small business loan.

Time To Funding

How quickly do you need a loan? Some lenders can get you money in as little as 48 hours, whereas others have months-long application processes. In general, the longer the application process, the better the rates you’ll qualify for. However, higher rates might be worth it if you need the money quickly or you don’t qualify for the best financing options.

Borrower Requirements

Lenders are choosy about the businesses they’ll work with. If you don’t meet their requirements, you will not qualify for a loan. Before getting invested in a lender, check to see if you have a good chance of qualifying for a loan. Many lenders list this information somewhere on their website. We also include minimum requirements in the “Borrower Qualifications” section of all our small business loan reviews.

It may surprise you to know that most lenders look at your personal credit score to help make lending eligibility decisions. If you don’t know what your credit score is, check it out with one of our favorite free credit score sites.

Borrowing Amount

If you need a lot of money, look for a lender that is willing to go as high as you need. Be aware, however, that business lenders will not let you borrow large sums of money (or any money at all) unless you can prove that you can pay it back. Take a look at our guide to calculating how much debt you can afford to get a good idea of how much you might be able to borrow.

Term Length

Do you need a loan with a short or long term length?

Short-term loans tend to be better for short-term needs that will quickly provide returns on their investment, such as working capital needs, marketing, inventory purchasing, or bridge loans. As you might expect, long-term loans are better for long-term investments, like real estate or equipment purchasing.

Interest Rate, Fees, & APR

Interest rates and fees determine how much your loan will cost overall.

Interest rates can be fixed or variable. If your rate is fixed, it will stay the same over the life of the loan. If it’s variable, it might change along with market rates (and your periodic payments will adjust accordingly). Because you don’t know how much the market will change, variable interest rates are a little more of a gamble.

In addition to interest, lenders might require extra fees such as:

• Origination fees
• Closing fees
• Application fees
• Packaging fees
• Referral fees
• Guarantee fees
• Assessment fees
• Prepayment penalties
• Etc.

When considering interest rate and fees, APR — which stands for annual percentage rate — is important to pay attention to. The APR is the interest rate adjusted to include the cost of any fees charged by the lender. The APR is a good way to compare loans on an even playing field, especially if you’re looking at lenders that charge different kinds of fees. Read more about APRs in our guide to the subject.

As you might expect, the lower the interest rate, fees, and APR, the better. However, cost is just one piece of the puzzle — you might consider a higher APR if you need a loan quickly, if the loan with higher rates has more favorable terms, or some other reason.

Next Steps: What To Do When You’ve Decided

When you’ve decided on a lender (or lenders), it’s time to start applying. Most lenders have online forms where you can check your eligibility or get in touch with a loan officer. However, some lenders might require that you visit a physical branch or complete a detailed loan package.

Although every application will be different, all lenders will require some business and financial documents, such as bank statements, profit and loss statements, accounts receivable, business plans, or other documents. To speed up the process, get your finances in order before you begin applying. This way, you’ll be able to quickly provide the requested information.

Ready to start looking for lenders? Take a look at our favorites above, or head over to our full list of small business loan reviews to learn about other quality lenders.