Best Small-Business Loans of 2023

Choosing the best small-business loan

Funding options for qualified business owners include bank loans, SBA loans, term loans, business lines of credit and equipment financing. You typically need a year or more of business history and revenue to qualify for financing. Startups operating for less than a year can consider other lending options. The best loan for your small business will depend on a variety of factors, such as:

• Why you need funding.

• How fast you need access to capital.

• How much capital you need.

• Your business’s qualifications.

• Total cost of debt.

Types of small-business loans

Bank loan

Banks can offer a variety of types of small-business financing, including term loans, SBA loans and lines of credit. To qualify for a bank loan, you’ll typically need a strong personal credit score (starting in the 700s), several years in business and a solid track record of business finances, such as strong cash flow. In some cases, banks will require collateral.

SBA loan

SBA loans are small-business loans partially guaranteed by the U.S. Small Business Administration and issued by participating lenders, such as banks and credit unions. SBA loans offer low interest rates and long repayment terms and can be used to finance a variety of business expenses.

Although there are multiple types of funding within the SBA loan program, the SBA 7(a) loan is the most popular. These loans are available in amounts up to $5 million, with terms up to 25 years.

To qualify for an SBA loan, you’ll need good personal credit (690 or higher, although some SBA lenders may have lower score requirements), strong finances and multiple years in business. You should also have the flexibility to wait for funding, as the loan application process is slow and time-consuming.

Business term loan

Online lenders typically offer term loans of up to $500,000. For a short-term loan, the repayment period tends to range from three to 18 months, while a long-term loan repayment can extend up to 10 years or longer in some cases. Business owners can also find financing that can be used for specific items, like commercial real estate, equipment or inventory.

Business line of credit

A business line of credit provides access to flexible cash. Similar to a credit card, lenders give you access to a specific amount of credit (say, $100,000), but you don’t make payments or get charged interest until you tap into the funds.

Equipment financing

Equipment financing is a form of asset-based financing where the equipment itself serves as collateral for the loan. You can get an equipment loan equal to up to 100% of the value of the equipment you’re looking to purchase — depending on the lender and your business’s qualifications — which you then pay back over time, with interest.

Some lenders may also pay for soft costs, such as installation, delivery, warranties, assembly and other similar expenses associated with getting your equipment up and running. Although certain lenders will finance these costs on top of the full value of your equipment, others may fund only a percentage of the cost of the equipment — 80%, for example — and devote the remainder of the loan (20%) to your soft costs.

Invoice factoring and invoice financing

Invoice factoring turns business owners’ unpaid invoices into immediate cash. You sell the invoices to a factoring company, which is paid when it collects from your customers. If you prefer to maintain control over your invoices, invoice financing is an alternative to factoring. Time to funding can be relatively short with invoice factoring or financing.

• Financing amounts: Up to $5 million.

• Approximate APR range: 10% to 79%.

• Best for: Managing cash flow, short-term financing.

Personal loans and business credit cards

Additional business financing options include personal loans for business or business credit cards. A personal loan for business is a good option if your business is still young and you don’t qualify for traditional financing. Personal-loan providers look at your personal credit score and income instead of your business history.

How do I qualify for a business loan?

Every lender has different underwriting guidelines, but they generally consider similar factors, including your personal credit score, time in business and annual revenue. Lenders also consider your cash flow and ability to repay the debt.

Having strong personal credit can help you qualify for lower rates and give you more funding options. If you don’t need business financing right away, consider building your credit score. On the other hand, if you need more immediate access to capital, you may still be able to qualify for a business loan with bad credit.

How do I get a small-business loan?

Getting a business loan doesn't have to be a painful process. You can increase your chances of approval by understanding your business's qualifications and then finding the financing option that fits your needs.

Here are the steps you can follow:

Decide which financing option is right for your needs. If you want to finance a large purchase or business expansion, for example, you might consider a traditional term loan, whereas if you need funds for day-to-day expenses, you might prefer a business line of credit.

Check your qualifications. You’ll want to consider factors such as your personal credit score, time in business and annual revenue. Bank and SBA lenders will likely have the strictest eligibility criteria. Online lenders, on the other hand, may be more flexible.

Determine what payments you can afford. You should look carefully at your business’s financials — especially cash flow — and evaluate how much you can afford to apply toward loan repayments each month. Your total income should be at least 1.25 times your total expenses, including your new repayment amount.

Decide whether and how you want to collateralize the loan. Business loans can be secured or unsecured. A secured business loan requires collateral, such as property or equipment, that the lender can seize if you fail to repay the loan. Putting up collateral is risky, but it can increase the amount lenders let you borrow and get you a lower interest rate. Keep in mind, however, that although some lenders don’t require physical collateral, they may still take out a UCC filing on your business assets. This official document allows a lender to claim your assets in the case of default.

Compare small-business lenders. You’ll typically want to get the business loan that offers you the best terms. But other factors, like funding speed, may matter to your business and different funding sources may be better in certain instances than others.