Small business loans for U.S. consumers preparing to open a new business are available now. The best small business loans help positively change both the present and future fortunes of a company, especially during early development and expansion phases. Loans of these types have additional short and long-term benefits as well.
Prior to applying for a small business loan, however, it is important to understand the type and amount of funding your company needs, and for what specific purposes. Comparison-shopping between top loan providers also helps you find the best rates and terms for your company’s bottom line going forward. Continue reading to learn more about the best small business loans available today.
What Is a Small Business Loan?
A small business loan is a specified amount of money borrowed by a business owner or owners from an applicable lending institution. Annual percentage rates (APRs) and loan terms are negotiated and established upfront. The most common and popular small business loans are offered through the U.S. Small Business Administration (SBA). While the SBA does not lend money directly, it does work with business owners to find the best loan programs available for their needs. The SBA is also a popular resource because it guarantees up to eighty-five percent of each loan’s value in the event of a default. Because of this, APRs on loans originated through the SBA tend to be friendlier for borrowers. When lenders know they are covered and at less risk of losing their funds, they tend to offer overall friendlier loan products.
Small business loans are funded by traditional banks and credit unions. Small business loans are also funded by online-only lenders. This wide array of lender options is a benefit to prospective borrowers. For example, competition between lenders has the potential to result in better program offers for qualified applicants. Having so many lender options available might also feel confusing, however. Obtaining the lowest APR and best loan terms is a vital part of your company’s budget and plans going forward. For this reason, it is necessary to research and comparison-shop all lenders you are considering before signing any loan papers. Before doing this, however, it is important to know what types of small business loans are available.
Small Business Loans - Available Types
The SBA is a long-time trusted and reliable resource for finding multiple types of small business loans. Seven primary loan types are procurable with SBA guidance and assistance. Term loans and lines of credit are perhaps the most common of these seven types. Equipment loans are also common, as are loans based on real estate. These latter two types of small business loans add unique elements to the collateral aspect of secured small business loans. Three other primary types of small business loans available through SBA resources include invoice financing, franchise loans and merchant cash advances.
Best Small Business Loans for New Companies
Short-term small business loans tend to have friendlier qualification requirements. This is beneficial to new business owners in need of a cash infusion to help get their companies running. These types of loans are funded by alternative lenders instead of traditional banks and are available at an average of $20,000. Because short-term small business loans are funded in lower amounts than most other loans through the SBA, you need to be specific about your business’s purpose and meticulous about how you spend the money. Still, if you have a small startup or need funds for your sole-proprietorship, this type of loan might be an excellent choice for you.
Medium-term small business loans are also funded by alternative lending institutions. These loans are funded up to $500,000, with an average funding amount of $110,000. Because the funding amounts are higher, these loans are not as easy to obtain as short-term business loans. Credit, business revenues (current or potential) and multiple other factors impact your approval chances. Medium-term small business loans are typically repayable in two-to-five years, whereas short-term programs offer shorter loan terms.
SBA Startup and Community Advantage Loans
The SBA Startup (Microloan) and Community Advantage programs are designed to help business owners open new startups and additional types of businesses. The SBA Microloan is an excellent program choice for entrepreneurs, as it funds up to $50,000 for working capital, supplies, equipment, and other items/agendas necessary to start your business. Prospective business owners with low FICO scores (629 or lower) or limited income are eligible for these programs as well. As they are with the short-term loan programs, qualification requirements when applying for an SBA microloan are lenient. Loan terms last up-to eight years. Various community-based lenders participate in this program, with each setting its own APRs and term requirements as applicable for each applicant. Please note: SBA Startup/Microloan funds are also available to help established businesses expand.
SBA Community Advantage loans are available for as much as $250,000. This program is designed to help establish new businesses located in underserved communities around the country. Typical applicants to the Community Advantage loan program have been in business for under three years, if for any time at all. Typical applicants often do not qualify for business loans through other lenders or programs as well. Funds are usable for working capital, inventory purchases, office supplies and other common business needs. While these loans are also available for businesses looking to expand, they are a particularly good choice for a specialized new company with a desire to make a difference in an underprivileged community. APRs on Community Advantage loans vary based on applicable lender policies. Loan terms include ten-year and twenty five-year options for working-capital and fixed-assets loans respectively. All Community Advantage loans are funded by lenders who base their approvals on community needs/benefits, as well as mission-focused criteria.
Applying for a Small Business Loan
Applying for an SBA facilitated small business loan is simple to do when using the website’s application submission page. Applications and submission instructions for every type of loan offered through the SBA are available as you scroll down the page. A full credit check is required to establish for which programs each prospective borrower qualifies. Income level and employment history are also prioritized. Business plans must be well-prepared. Depending on the loan type and amount, an applicant might also be asked to provide detailed information about how the borrowed funds will be spent. Collateral beyond the SBA’s guarantees and backing might also be required depending on the loan type and lender policies.
Best Small Business Loan Lenders Today
Traditional banks and credit unions in additional to reputable online lenders offer small business loans today. For example, BlueVine provides $5 million maximum loans to a significant variety of borrower demographics. Fundera and Lendio are business loan marketplaces however, where borrowers can shop for the best options available. Additional small business loan lenders available on the market today include: