Best small business loans in April 2024

As a small business owner, being able to leverage a financial institution’s deep pool of capital is important. After all, with a small business loan, you can do everything from fund essential start-up costs to purchase operating expenses for stability and expansion. Moreover, you won’t need to depend on or delete our own cash as you move forward with your venture. The right loan for you will be easy to manage and come with the lowest associated costs.

There are many small business loans on the market, though, so how do you choose? Here is a list of our best picks.

Best for fast SBA loans: Wells Fargo

There are plenty of advantages to doing business with Wells Fargo, including its size and stability. As a preferred Small Business Administration (SBA) lender, the bank offers two loan options: SBA7(a), which can be used for a variety of business needs, and the SBA 504, which is designed to help small business owners buy equipment and real estate.

The major benefits of a Wells Fargo SBA loan include access to a large amount of capital as well as comparatively low interest rates. SBA 7(a) loans can have maximum loan amounts of $5,000,000 while the SBA 504 can offer a cumulative loan of $15,000,000. The APRs range from 13.25% to 16.25%, so are low compared to loans not backed by the SBA.

The SBA loan program was developed to help people start and grow their businesses. As long as you qualify (which entails a strong credit history and a demonstrated ability to repay the loan) the process is fast and easy.

Wells Fargo has an excellent reputation for personalized customer service, too, so if you need any assistance with paperwork - which can be extensive - this bank will guide you along the way.

Best for crowd-funded microloans: Kiva

Maybe you don't want to partner with a bank or credit union for your funding, and would prefer to work with a nonprofit organization. Depending on the nature of your business, Kiva can be a compelling option. Kiva exists to support a wide variety of industries, but the primary purpose is to help businesses that have a clear positive social or environmental impact.

You would not be using a financial institution’s funds, but multiple lenders would get together to provide you with at least some of the capital you seek. This is the power of crowdfunding.

Although the loans max out at $15,000, you would not pay any interest on the amount that you borrow. Instead, you have the option to donate to the organization so they can continue to help worthy companies get off the ground and grow.

To apply, you would need to create an account on the website then make a loan request. You would provide your personal story, which gives you the chance to explain why you need the money and how you would use it. Once done, your application goes through a fundraising period, which can take weeks or months. If you are accepted, you will receive the money, which can take several days or weeks. Loan repayments begin one month after the money is disbursed into your bank account.

Best for business line of credit: American Express Business Blueprint

Instead of a term loan where you would repay a fixed amount within a set number of months, American Express Business Blueprint line of credit (LOC) gives you access to funds that you can draw from in installments. When you do, the repayment period is your choice of 6, 12, or 18 months.

With an American Express Business Blueprint LOC, you will pay a fee only on the portion of money you borrow during the months that you have an outstanding balance. Such flexibility is an immediate asset, and it can keep costs down.

American Express Business Blueprint LOCs are ideal for people who have not built up their credit rating quite yet. As long as your credit score is at least 660, you have been in business for a minimum of a year, and have an average monthly revenue of at least $3,000, you may qualify.

LOCs can be especially attractive when you use the product for short-term purposes because the interest rate will be favorable. For example, if you take out cash and the loan term is six months, the fees will be between 3% and 9%. The longer the loan term, the higher the fees will be, so small business owners would need to take that into consideration.

Best for bad credit: Accion Opportunity Fund

Another nonprofit organization that garners high marks from us is Accion Opportunity Fund. As long as you qualify, this fund can work to your advantage.

If you are a small business owner in an underserved community, are an entrepreneur with a low to moderate income background, or a woman or minority owned business, you may be eligible to borrow up to $100,000. Interest rates range from 5.99% to 17.99%. You don't need to have a high or even fair credit score to qualify.

You can use the money for almost any business purpose. Repayment is incredibly flexible, too. Loan terms are 12, 24, 36 or 60 months.

Applying for an Accion Opportunity Fund loan is done online and you will be able to submit all necessary documentation through the website. Because of its mission, this nonprofit is committed to helping business borrowers through the process with extra hand holding. You will receive all the support you need, and then some. If you're looking for a loan that also comes with education and guidance so you can make your business a success, Accion Opportunity Fund is definitely worth a look.

Best for fast funding: OnDeck

There may come a point when you need a short-term small business loan in record time. In that case, OnDeck can be your best bet.

You may receive a loan of up to $250,000. Compared to many other banks, OnDeck is prepared to offer small business loans to cash-strapped borrowers by focusing on business performance and cash flow, with a minimum expected annual revenue of $100,000.

You will complete the application online, and OnDeck is known for its quick turnaround time. As long as you’re eligible, the money will be ready for you in a few days at the most.

OnDeck loans can be great for business owners who need a temporary bridge. The repayment term is up to 24 months, so much shorter than many other loans. And though the interest rates are high (the average is 60.9%), there is no prepayment penalty if you choose to delete the balance early. OnDeck may even waive remaining interest on your debt with its Prepayment Benefit program. If you don’t qualify, you will have to pay 75% of the remaining interest.

Best for low interest asset based: SMB Compass

If your business has accumulated property that can serve as collateral, an SMB Compass asset based loan can be a great way to borrow money at preferred interest rates.

Instead of focusing on your credit rating or cash flow, SMB Compass will take those assets into account when determining loan eligibility. Up to $100,000,000 may be available to you with an SMB Compass asset based loan, with interest rates starting at just 4% and topping out at a reasonable 13%.

To determine qualification, this financial service provider will evaluate your collateral, which can include inventory, real estate, accounts receivable, machinery, and equipment. Once done, it will determine the loan amount, which is based on between 50% to 85% of its value. The underwriting process typically takes a few weeks.

Repayment terms are up to five years, and during that time SMB Compass may audit the value of the collateral.

As a borrower, it will be particularly important to maintain payments and delete the debt as per the agreement. If you don't, the company does bear the right to claim the assets that are being held as collateral.

Types of small business loans

There are quite a few different varieties of small business loans. The three most common are:

Term loans

You borrow a fixed amount that you would repay in equal installments over a set number of months. Interest is built into the loan payments.

Line of credit (LOC)

The financial institution grants you a credit limit from which you can draw from if and when you need the money. Only the amount you borrow will be subject to interest.

SBA loan

Because this type of loan is guaranteed by the Small Business Administration, interest rates are on the low side. You also would be able to borrow large sums of money with long repayment terms.

Pros and cons of business loans

There are upsides as well as downsides to loans for your small business. The major pros include:

• Access to a large amount of necessary capital.
• Potentially long repayment terms.
• As long as you qualify, low interest rates.
• Can be secured or unsecured.

The major cons include:

• Most require that you have been in business for at least six months, though a year is typical.
• Extensive supporting documentation is usually required to apply.
• If you are pursuing a non-traditional business loan, funding can be slow.
• A personal guarantee is typically required, which can put your personal income and assets at risk if you don’t repay as agreed.

How to choose a small business loan

You will want to pursue a small business loan that is right for your needs. Determine the amount of money that you are seeking, and make sure you have a realistic plan to repay.

Then review the different loan options. You may want a term loan for upfront costs that you will repay on a fixed payment schedule or a line of credit that you can draw from on an as-needed basis. If your credit rating is good, and your cash flow is positive, you will have a much greater chance of obtaining a small business loan through a conventional lender than if your credit rating is low and you are financially struggling.

If your business has a social impact, or you are a member of a marginalized community, nontraditional funding options can be very appealing.

An asset-based loan can be perfect if you have the collateral and can easily make the payments.

Before accepting a loan offer, compare and contrast it with other offers. Be particularly aware of all terms and conditions, such as APRs, prepayment penalties and origination fees.

It is essential that you are comfortable with the ultimate cost of the loan. Always take the time to read the documentation and agreement, and if you have any questions, ask the lender for clarification before signing.

How to get a small business loan

Once you have determined the small business loan that you not only qualify for but also matches your requirements, you will go through the application process. Compile all relevant information and documentation:

• Your business’s name, address, and tax identification number.
• Financial statements related to your business.
• Partnership information and business structure.
• Collateral information, if the loan will be backed by assets.

After the lender has reviewed your application, you may also be required to sign a personal guarantee. That means that you will be responsible for repaying the loan with your personal income or assets.

Small business loans alternatives

If you would prefer not to get a small business loan or are unable to qualify for one, you still have options for funding, such as the following alternatives.

Business credit or charge card

Credit cards will give you a credit limit. You can charge up to that limit and then repay the debt in as little as the minimum requested payment. Charge cards do not have a set credit limit, but most require that you have to pay the debt within 30 days, though some may give you 60 days or a revolving debt option. Some will even offer 0% APRs for a year or more.

Friends and family loans

If your loved ones would like to invest in your business, you may pursue them for a personal loan. Just make sure you make it official with a contract that all parties accept and sign.

Personal savings

If you have money in savings and investment accounts and you have a strong belief in your business, consider using it. Or sell property and apply the proceeds to your venture. Although risky, you may also use the equity in your home, or borrow against your retirement account.

Grants

You may qualify for money that you don’t have to repay. Various government agencies and foundations and corporations have set funding aside for qualifying applicants.

Frequently asked questions (FAQs)

What is a small business loan?

Small business loans are for borrowers who want to start, maintain, or grow their companies.

How do small business loans work?

Small business loans are similar to personal loans but the lender assesses other factors for qualification and to set terms. These considerations include industry, length of time in business, cash flow, business credit score, and collateral.

What credit score is required for a small business loan?

There is no single credit score for small business loans. Loans are available for borrowers with low to high credit scores.

What is the best loan option for a business?

When analyzing which loan is right for you and your business, you will look for the one that has the lowest interest rate, and payments that you can easily meet. Every business owner will have their own unique requirements, so there is no one best loan for a business.

Which SBA loan is easiest to get approved for?

Many small business owners pursue the SBA 7(a) loan because approval is relatively easy and fast.