Small business loans help entrepreneurs build, maintain or expand their companies. Getting a business loan for your company doesn’t always require walking into a bank and securing funds — there are a variety of online small business lenders to consider, which may have easier qualifications and faster applications.
Small businesses make up much of the American economy. The U.S. Small Business Administration (SBA) estimates there are nearly 32 million small businesses across the country. While the nature of each one varies, many hold one major thing in common: the need for business financing.
SBA Loans
These popular government-backed loans are available up to 25 years for most business uses at moderate interest rates. SBA loans are widely available through banks, but the application process can take anywhere from five days to two months or longer.
Online marketplace matches borrowers with SBA lenders
Streamlines SBA application process
Fair or better credit required
Businesses must show at least 2 years of operating history
Short Term Business Loans
Short-term loans last anywhere from a few months to a year or more, good for when you expect a quick return. Higher rates are the tradeoff for speed and accessibility, as loan approval can be fast as a few days, even for business owners with poor credit.
Loans available between $5,000 and $500,000
Terms from 4 to 16 months
Six months to one year in business required
Time to funding could take 72 hours after approval
Long-term loan
These traditional small business loans finance lasting business investments such as machinery or the acquisition of another company for relatively low rates. Repayment terms can last up to 20 years. Approval may take weeks and require strong credit.
Repayment terms from 6 to 60 months
Loans available from $25,000 to $500,000
May require collateral
Average Funding Circle borrower makes about $1.4 million in annual sales
Business Line of Credit
Though not technically a loan, this is capital that businesses may draw upon as needed, and they would only have to pay interest on what they borrow. Business lines of credit may be used for short-term or long-term needs and can be secured or unsecured. They could be funded as soon as the next day or within weeks.
Amounts between $10,000 and $100,000
Competitive interest rates
Annual fee
Established business credit and at least two years in operation required
Working Capital Loans
These are short-term loans received within 24 hours to a week and designed to fund a company’s day-to-day operations during a time of reduced activity. When the lull ends and business booms again, the company can repay the working capital loan.
Working capital up to $400,000
Minimum credit requirement of 500
Six months in business required to qualify
Average of $15,000 in monthly bank deposits required
Equipment Financing
Equipment financing allows businesses to pay for commercial trucks, a restaurant oven or an office copier a little at a time for relatively low rates, since the equipment is used as collateral. Equipment financing is ideal for borrowers who need hard assets quickly, but can’t afford to purchase them outright.
Currency Equipment Financing
Rates starting at 0% for first 90 days, 19.99% thereafter
Financing up to $500,000
Fast funding
Few details online
$100,000 in annual revenue required
Accounts Receivable Financing
Exchange unpaid invoices for immediate cash, minus a fee. AR financing, or invoice factoring, may be right for risk-averse or poor-credit borrowers, or those without a lengthy business history.
BlueVine advances up to 90% of unpaid invoices, up to $5,000,000
Lenient personal credit score and time in business requirements
Eligible businesses must be B2B
Weekly interest rates could be expensive
The amount of time it takes to fund loans for small businesses depends on many factors. Each business lender may have its own approval processes, which could differ greatly and result in different funding timelines. Lenders may have to wait for third parties to submit documentation, or your application may require clarification, both of which could delay funding. If your small business finances are well organized, you should be able to quickly respond to any questions and keep the timeline as short as possible.
One of the most important things to determine before applying for a small business loan is how much you can afford to pay back on a monthly basis. Defaulting on a loan can cause irrevocable damage to a business and its credit history, which will impact its ability to get funding in the future. Risk can be a good thing in business, but committing to a loan repayment schedule that’s too aggressive could ruin your company.
You should determine exactly how much your business needs to borrow to achieve its goals. This should be a precise figure, not a range. Small business lending companies want to see that you’ve done your research and that you’ll spend their money in a way that will help your business thrive. Our business loan calculator can help.
Lenders may analyze your personal and business credit history when reviewing your company’s loan application. If your business is new, your personal credit profile would carry more weight.
Borrowers should expect to have good credit to qualify for traditional business loans.
Women entrepreneurs can apply for business grants or debt financing reserved for women-owned businesses. Women are more likely than men to use personal funds to grow their businesses. When women are approved for business loans, they often receive lower average loan amounts than men.
• See business loans for women
• See business grants for women
Capital is available for business owners of color in the form of business grants or loans. Compared to their counterparts, those in historically marginalized communities face more entrepreneurial hurdles related to funding. Organizations and lenders across the U.S. allocate funds to support minority-owned businesses.
• See minority business loans
• See minority business grants
There are a number of resources and funding options for veteran business owners. After leaving the military, many veterans often have trouble transitioning their military training to civilian careers and instead choose to start their own ventures. Business loans for military veterans are among the keys to success.
• See business loans for veterans
Debt-to-equity ratio (D/E)
The D/E ratio measures the proportion of the borrower’s debt divided by the business’ equity on a balance sheet.
Equity investment
Lenders prefer to assist owners who invest their own resources into the enterprise. Borrowers starting a new business should compile cash flow projections for their application, reflecting assets and cash, while existing business owners will need to provide past financial statements.
Resource management
How does your business handle customer debt recovery on products or services, its own debt repayment history and the rate for delivering products or services to customers?
Working capital
Calculate your working capital to ensure there are sufficient assets to cover the debt in emergencies. Do this by subtracting debt liabilities due within a year from current assets that can be converted to cash.
Cash flow
A cash flow projection shows when money is collected, when cash goes out and what’s left. Lenders typically like to see that the borrower has a thorough understanding of the financial operating cycle of the business.
Collateral
Collateral is an asset that lenders can legally seize if the borrower is unable to make payments including company buildings, equipment and accounts receivable. Some business owners choose to use their personal assets — including their homes — as collateral on a business loan.
Personal character
Lenders may assess management aptitude and character, including current or past criminal activity.
A half-hearted business plan or inconsistent financial statements can say as much about an applicant’s creditworthiness as their credit history. Expect both types of criteria to factor heavily in the funding partner’s evaluation of your business loan application.
The application process differs depending on the type of business loan you’re seeking. Short-term loans typically have less paperwork than long-term loans, while equipment financing usually doesn’t require as much documentation as a business line of credit. However, it’s still a good idea to have certain documents ready in case they’re requested to improve your chances of approval:
Summarizes revenue and costs and resulting profit or loss over a specified time, such as a quarter or fiscal year. Also known as a P&L or income statement.
Tracks how much cash your business has on hand at a certain point in time. A P&L takes into account non-cash costs like depreciation, but a cash flow statement allows you to understand how much cash is available for monthly bills.
Shows what the company owns and owes at a specific point in time. There is no set format for balance sheets, as the information reported varies by industry.
Describes the nature and scope of your operation, including projected income and expenses. A business plan is a guide for making business decisions and to help potential lenders, partners and investors evaluate your potential.
The most recent two years of business and personal tax returns, which help lenders verify income, documenting your ability to repay the loan. Your business accountant can prepare the business and tax documents needed to support your small business loan application and guide you in accounting and tax matters related to your business.
Failed applicants commonly make the mistake of submitting inadequate or poorly-planned financial documents and business plans. It’s imperative that you gather as much well-prepared information as you can when applying for a business loan.
After approval, the closing process involves reviewing documentation that will dictate the terms of your selected loan. It’s important to know what to expect when closing on your small business loan to help the process go smoothly.
A business loan contract is a legally binding agreement that will dictate your interest rate and repayment schedule. When you sign the contract, you’re agreeing to all of the lending company’s terms. Although reading the whole contract may take a significant amount of time, make sure you understand everything before signing to avoid getting a bad deal.
When you’re reviewing the contract, make sure you have a thorough understanding of what they’re asking of you and the implications these terms have on your business’s financial future. Pay close attention to the following:
Is the monthly payment what you expected? This is where calculating your desired monthly payment before applying would be helpful. If the payment doesn’t match your calculations, ask the lender to review how it came to that number. Make sure that there aren’t any hidden fees within the payment. In addition, determine whether the payment will remain the same throughout the loan’s term or if it may change. If it’s likely to change, make sure you understand why.
Understand how long you’ll have to repay the loan. Longer term business loans usually have lower monthly payments and lower interest costs over the life of the loan, while the opposite is usually true of shorter term loans. Make sure your business would have no issues repaying the funds during the entire term of the loan.
Make sure you know the interest rate. Find out whether it’s a promotional rate, a fixed rate or a variable rate. If the rate is variable, ask how much it will change, how quickly it can change and if there’s an interest rate cap. It’s important to know what an increase in the rate could do to your monthly payments.
Be aware of how much you’ll owe the lending company throughout the duration of the small business loan. The lender may give you the amount of money you requested, but the amount you’ll owe will likely exceed the amount you receive. This could be because of fees such as origination charges, which can be a percentage of the cash you receive. Again, ask the lender to review how they arrived at the total loan amount.
Late payments could result in consequences such as late fees, penalty interest rates or even repossession of collateral. The specific penalties would be detailed in your closing paperwork, so make sure you closely read this section prior to signing. The contract will also detail what happens if you default on your business loan. If your business survives the loan default, your business’s credit score could be damaged. If the lender required you to personally guarantee the business loan, your personal assets and credit score may be affected as well.
If any questions arise, or you don’t agree with a fee or penalty, the closing process is the time to stop and look for another lender. After you sign, you have agreed to everything in the contract — including what happens when you make late payments or default. Do your research before the closing process and compare business lenders to ensure that you’re getting the most cost-efficient terms.
| Rank | State | July 2019 Business Applications | July 2020 Business Applications | Change |
| 1 | Louisiana | 3,860 | 13,100 | 239.4% |
| 2 | Mississippi | 2,220 | 7,290 | 228.4% |
| 3 | Illinois | 8,100 | 22,980 | 183.7% |
| 4 | Georgia | 12,900 | 35,160 | 172.6% |
| 5 | Michigan | 6,790 | 17,000 | 150.4% |
| 6 | Alabama | 3,030 | 7,460 | 146.2% |
| 7 | Nevada | 2,460 | 5,650 | 129.7% |
| 8 | Tennessee | 4,250 | 9,420 | 121.6% |
| 9 | South Carolina | 3,840 | 8,220 | 114.1% |
| 10 | Indiana | 3,790 | 7,900 | 108.4% |
| 11 | Ohio | 6,860 | 14,210 | 107.1% |
| 12 | Arkansas | 1,760 | 3,580 | 103.4% |
| 13 | Maryland | 5,640 | 11,080 | 96.5% |
| 14 | Texas | 22,840 | 43,510 | 90.5% |
| 15 | Florida | 28,310 | 52,390 | 85.1% |
| 16 | Wisconsin | 3,040 | 5,480 | 80.3% |
| 17 | Pennsylvania | 7,520 | 13,080 | 73.9% |
| 18 | District of Columbia | 960 | 1,640 | 70.8% |
| 19 | Delaware | 1,800 | 3,070 | 70.6% |
| 20 | North Carolina | 8,170 | 13,720 | 67.9% |
| 21 | New Jersey | 8,310 | 13,790 | 65.9% |
| 22 | Virginia | 6,600 | 10,930 | 65.6% |
| 23 | California | 26,480 | 43,470 | 64.2% |
| 24 | Rhode Island | 570 | 920 | 61.4% |
| 25 | Missouri | 4,560 | 7,250 | 59.0% |
| 26 | Wyoming | 1,330 | 2,110 | 58.6% |
| 27 | Connecticut | 2,240 | 3,550 | 58.5% |
| 28 | Minnesota | 3,320 | 5,140 | 54.8% |
| 29 | New York | 16,720 | 25,440 | 52.2% |
| 30 | Kentucky | 2,310 | 3,500 | 51.5% |
| 31 | Arizona | 5,920 | 8,830 | 49.2% |
| 32 | Massachusetts | 3,880 | 5,430 | 39.9% |
| 33 | Nebraska | 1,030 | 1,400 | 35.9% |
| 34 | Kansas | 1,560 | 2,120 | 35.9% |
| 35 | Vermont | 370 | 500 | 35.1% |
| 36 | Iowa | 1,520 | 2,030 | 33.6% |
| 37 | Maine | 660 | 880 | 33.3% |
| 38 | Colorado | 6,240 | 8,210 | 31.6% |
| 39 | Oklahoma | 3,070 | 3,970 | 29.3% |
| 40 | Hawaii | 1,010 | 1,300 | 28.7% |
| 41 | New Hampshire | 740 | 950 | 28.4% |
| 42 | Idaho | 1,380 | 1,770 | 28.3% |
| 43 | Montana | 950 | 1,210 | 27.4% |
| 44 | Alaska | 540 | 670 | 24.1% |
| 45 | Washington | 5,420 | 6,610 | 22.0% |
| 46 | New Mexico | 1,290 | 1,550 | 20.2% |
| 47 | South Dakota | 510 | 610 | 19.6% |
| 48 | West Virginia | 740 | 880 | 18.9% |
| 49 | Oregon | 2,700 | 3,180 | 17.8% |
| 50 | Utah | 3,570 | 3,870 | 8.4% |
| 51 | North Dakota | 480 | 500 | 4.2% |
We looked at the number of new business applications and the percentage of business applications by high-propensity businesses filed in each state in July 2020, as compared to July 2019. To rank the states, we found the percentage change between the two periods. Business applications — per 2019-20 data from the U.S. Census Bureau — are defined as all applications for an Employer Identification Number (EIN), except for applications for tax liens, estates and trusts.
Getting a business loan is something that should be done with intention. Compare financing options so that you feel comfortable knowing that you’re getting the right rate, term and payment for your business. Follow your instincts — if you’re uncomfortable with any aspect of the process, get clarification from the lender you’re working with, or find another one.
Finally, don’t be afraid to negotiate. You may not be able to negotiate every aspect of the business loan contract, but there are certain areas where lenders can be flexible. Make sure that you’re getting the best funding solution for your business.
