If you recently started a business, you might be wondering whether it’s a good idea to take out a small business loan. Small business loans can make it easier for you to buy equipment, hire employees, and get your business off the ground.
And fortunately, it’s never been easier to apply for a small business loan. This article will explain how to apply for a small business loan and seven different online lenders you might consider.
Best Small Business Loans
Banks and credit unions used to be the go-to source for small business loans. But borrowers increasingly turn to online lenders because of the easy application process and quick funding. Listed below are seven online lenders we recommend trying.
BlueVine
BlueVine is a one-stop shop for all your lending needs. The company offers small business loans, lines of credit, and invoice factoring for up to $5 million. And unlike other lenders, BlueVine charges minimal fees.
Pros
- Our pick for Best for Invoice Factoring
- Invoice factoring for up to $5 million
- No origination, prepayment, or monthly maintenance fees
- Low credit requirements
Cons
- Minimum $10,000 in monthly sales to qualify for invoice factoring
- Invoice factoring fees quickly add up
- May not be available in every state
Lendio
Lendio is a lending marketplace, which means they don’t loan you any money. Instead, they match you with lenders that might be a good fit for your business.
So all you have to do is fill out a 15-minute application, and you’ll be able to compare offers from multiple lenders.
Pros
- Best Lending Marketplace
- Simple, straightforward application process
- You’ll gain access to multiple lending offers
- Will save you time shopping for lenders
Cons
- Some lenders have higher interest rates
- A possible hard inquiry on your credit report
Kabbage
With just one short application, you could receive up to $250,000 in funding from Kabbage from American Express.
You’ll need to have a business checking account or a PayPal account to apply. The company refers to these loans as lines of credit, but the repayment terms will be the same as a traditional business loan.
Pros
- Best for Fast, Convenient Loans
- Low annual revenue and credit requirements
- No origination fees
- Convenient access to funding
Cons
- Must have been in business for at least a year
- High APRs on loans
Funding Circle
Funding Circle is a peer-to-peer lender, which means that it connects you to investors instead of directly funding the loan. But borrowers won’t notice much of a difference.
If you can qualify for a small business loan through Funding Circle, the rates will be much lower than what other lenders offer.
Pros
- Best P2P Lender
- Low interest rates
- Easy online application
- Can take out a loan for up to $500,000
Cons
- Must have been in business for at least two years
- Must have annual revenue of at least $150,000
- High origination fees
Fundbox
Instead of filling out an online application, Fundbox will connect to your bank account or accounting software. Then, using an algorithm, the company will determine whether they want to work with you.
Not only is the application process extremely quick, but Fundbox is an excellent option for borrowers with less-than-ideal credit scores.
Pros
- Best for Poor Credit
- Fast approval process
- Low credit requirements
- Quick funding
Cons
- Loans come with high APRs
- Loan amounts will be lower than what other lenders offer
Fundation
Fundation offers loans for up to $500,000 and lines of credit for up to $150,000. All of their loans come with flexible repayment terms and quick funding.
Pros
- Best for Flexible Repayment Terms
- Flexible repayment terms
- Low APRs
- Generous loan amounts
Cons
- Must have been in business for at least a year
- Must have at least three employees
- Minimum $100,000 in annual revenue
LendingClub
LendingClub is one of the largest peer-to-peer lenders on the market. The company offers competitive interest rates and flexible application requirements.
Pros
- Best for Low Annual Sales Requirements
- Offers loans up to $300,000
- Low fixed interest rates
Cons
- Borrowers must have a credit score of 640 or higher
- Must have been in business for at least a year
- High origination fees
Are small business loans hard to get?
Many people believe that it’s next to impossible to qualify for a small business loan, but this isn’t true. If you go into it with a plan, you can successfully qualify for the funding you need.
One thing that will affect your likelihood of approval is the lender you apply with. Some lenders have more stringent application and credit requirements and make it harder to qualify for a loan.
If you want to apply for a small business loan, there are three main types of lenders you’ll want to consider.
Banks or Credit Unions
If you’re seeking the best interest rates for a business loan, approaching a bank or credit union may be your ideal choice. Not only do they offer competitive rates, but they also provide more flexible repayment terms, which can help you manage your finances efficiently.
However, it’s essential to note that securing these loans can be a tough task if you don’t have an established business already. Apart from meeting strict eligibility criteria, you may have to provide collateral to guarantee the loan, which can be a significant challenge for many entrepreneurs.
Additionally, one potential drawback of obtaining a loan from a bank or credit union is the application process, which can take weeks or even months to complete. This can be discouraging if you’re in a rush to get your business started or have pressing financial needs that require immediate attention.
SBA Loan Program
An SBA loan may be a suitable choice due to its backing by the U.S. Small Business Administration, which makes it less risky for banks to loan you the funds. Notably, the 7(a) Guaranty Loan Program is the most popular SBA loan program available.
While SBA loans offer benefits like low interest rates and longer repayment terms, they are notoriously difficult to qualify for. This can be a significant obstacle for many entrepreneurs. Furthermore, if you require immediate access to the funds, SBA loans may not be the most appropriate option, and you may want to consider other alternatives.
Online Lenders
Online lenders are becoming increasingly popular among entrepreneurs due to their streamlined application process, broad range of lending options, and speedy funding. Additionally, there are no shortage of online lenders to choose from, making it easy to find a loan that fits your needs.
One significant benefit of working with an online lender is that you may still qualify for a business loan even if your credit score is not particularly high. However, it’s worth noting that the trade-off for this flexibility is often higher interest rates. As a result, you’ll need to carefully consider the overall cost of the loan before making a final decision.
How do you qualify for a small business loan?
So, now that you know where to go to apply for a small business loan, how can you maximize your chances of getting approved? Below are four steps you should take to qualify for a small business loan.
Step 1: Improve your Credit Score
Having a low credit score doesn’t necessarily rule you out from qualifying for a small business loan, but it makes it much harder. The first place to start is by trying to improve your personal credit score as much as possible.
Improving your credit score takes time, but here are a few simple steps you can take that can make a difference:
- Check your credit report and request to have any derogatory marks removed
- Dispute any inaccuracies on your credit report
- Make sure you pay all your bills on time since this counts for 35% of your score
- Consider taking out a small unsecured loan to build your business credit score
Step 2: Get Your Paperwork Together
There is a lot of paperwork involved in applying for a small business loan. You’ll make the process much easier on yourself if you organize everything you need before you start the application process. This paperwork includes the following documents:
- Personal tax returns
- Business tax returns
- Bank statements
- A copy of your driver’s license
- Article of incorporation
- Your resume
- A detailed business plan
- Financial projections
Step 3: Shop Around and Compare Lenders
As you shop around for small business loans, it’s wise to be prepared before diving into the application process. Before investing significant time filling out applications, it’s a good idea to create a list of potential lenders to approach. You’ll then need to determine whether you prefer to work with a bank, credit union, or online lender, based on your unique business needs and financial situation.
If you’re considering online lenders, utilizing lending marketplaces can be an effective way to simplify the process. By filling out one application, you’ll be matched with multiple lenders, saving you time and providing more options to choose from. Lending marketplaces can also help you maximize the value of your loan by connecting you with the most suitable lenders for your specific needs.
Step 4: Choose the Lender That’s Right for You
Now it’s time to choose a lender and finalize the application process. Here are a few things you’ll want to consider when you’re choosing a lender:
- What kind of credit requirements does that lender have?
- What is the average loan amount the lender offers?
- How long are the repayment terms?
- What is their average turnaround time for funding loans?
- What is the APR range?
- Does the company have a good reputation?
What if my application is denied?
Even if you do everything right, there’s always a chance you could be denied your small business loan. If this happens, there are other options you can consider.
For example, applying for a business credit card could be a viable option. Business credit cards have more lenient qualifications than small business loans, albeit they charge exorbitant interest rates. Nonetheless, by using an appropriate business credit card, you can profit from cashback rewards.
Alternatively, if you require a lump sum of cash, a personal loan may be a better choice. Compared to credit cards, personal loans have lower interest rates. Even a small personal loan could provide the impetus you need to jumpstart your business.
Summary
If you’re interested in applying for a small business loan, there are plenty of options available. The key to getting the lowest interest rates is applying with a bank or credit union. Alternatively, if you prioritize speedy funding and a streamlined application process, an online lender may be the better option.
It’s vital to comprehend the lender’s prerequisites and to be well-prepared before initiating the application process. In the event of an unsuccessful application, don’t despair; there are plenty of other options at your disposal.
