Best Small Business Loan Rates of 2020

Acquiring business funding may be necessary to plug a short-term cash flow issue, buying additional products, get new equipment or foster further growth. Before borrowing money for your business, take the time to understand the different types of small business loans and small business lines of credit that are available.

The 5 best small business lenders of 2020

Lender Minimum Loan Maximum Loan APR Terms Restrictions
SmartBiz $30,000 $5 million 4.75% – 7% 10-25 years AT least two years in business and 640 credit score or higher
OnDeck $5,000 $500,000 Starting at 11.89% 3-36 months At least one year in business and $100,000 annual revenue
Kabbage $500 $250,000 1.5%-10% Up to 18 months At least one year in business; $50,000 in annual revenue or $4,200 monthly revenue for three months
Bank of America $25,000 No maximum Starting at 3.00% Up to 5 years At least two years in business under existing ownership and $250,000 in annual revenue
BlueVine (Invoice Factoring) Not listed $5 million 0.25% weekly N/A Three months in business, $10,000 in monthly revenue, 530 credit score and must be a B2B operation

Different types of small business loans

SBA loans

Small Business Administration (SBA) loans are provided by financial institutions but are guaranteed against default by the SBA. Because the loan is guaranteed through the SBA, it significantly lowers the risk for the lender. Because of this, small businesses may see higher approval rates, better small business loan rates, lower down payments and longer repayment terms.

Business term loans

This classic form of financing is when a lender gives you a lump sum of cash upfront that you pay back in incremental payments over time. The payments have interest attached, essentially acting as the cost of access to the funds. The loans can be small or large and will vary on repayment terms and rates. Typically, the favorability of the terms and rate will be dependent on the amount you borrow, the repayment terms, your credit score and the health and nature of your business.

Lines of credit

Those business owners who are not sure if they’re going to need additional money or not may look into small business lines of credit. You can think of lines of credit like credit cards for businesses. Your business will be preapproved for a certain amount of funding. If you don’t need the money, you don’t have to use it and you won’t be charged anything. If you need to use a little or a lot of the money, you’re already all set up.

Equipment financing loans

Many businesses require vehicles or heavy machinery to create and deliver products or services. Often, these pieces of machinery are expensive and may be an unexpected cost the business is not prepared to cover all at once. Equipment financing loans allow businesses to stretch out the cost of most of the equipment over an extended period of time. Typically, 20% of the costs must be paid upfront and the rest can be repaid in incremental payments over time with interest.

Invoice factoring loans

Is your business waiting on accounts receivables, but you could use the cash now? Invoice factoring loans are when an outside company purchases your accounts receivables and pays you the bulk of that cash up front. You then get the remaining outstanding balance when your client subtracts a set percentage fee as the cost of the advance. Typically, you can get 70% to 90% of your invoice paid as up-front cash.

The 5 best small business lenders of 2020

SmartBiz: Best SBA loans

SmartBiz offers SBA loans starting as low as $30,000 and on up to $5 million for larger funding needs. Repayment periods are long from 10 to 25 years, which may be ideal for borrowers looking to spread out costs extensively. SmartBiz also allows customers to take out more than one SBA loan, which may be necessary from time to time in the business cycle. Rates on these loans are between 5.75% and 8.00%.

OnDeck: Best online term loans

Businesses looking for online term loans will be pleased with what OnDeck has to offer. Key benefits of the loans include loans up to half a million, minimum requirements of only one year in business, $100k in annual revenue and the use of soft credit pulls. Additionally, the application process is only 10 minutes online and you could potentially receive funding in as little as one business day. OnDeck is experienced and well-rated with $13 billion in loans originated and an A+ rating with the Better Business Bureau.

Kabbage: Best lines of credit

Lines of credit are available from Kabbage up to $250,000, with rates from as low as 1.25% up to 10.00%. Borrowers can make several draws from the account, with each correlating to a 6-, 12- or 18-month installment loan repayment period. The availability of multiple draws, each with its own repayment period, brings much-needed flexibility to the business funding equation. Minimum draws are low at only $500 when you use the mobile app or account dashboard. Need to draw less? When you use the Kabbage Card, the $500 required minimum is waived.

Bank of America: Best equipment financing loans

Those people looking for financing on general-purpose equipment, heavy-industrial equipment, construction equipment, or commercial vehicles over 2.5 tons can apply for loan financing through Bank of America. Rates start as low as 3.75% for amounts of $25,000 and greater. Bank of America also advertises no maximum on the amount it’s willing to finance for qualified businesses making the bank a very attractive option for equipment financing needs of all sizes.

BlueVine: Best invoice factoring loans

Sometimes you’re better served getting access to money you’re owed sooner than later. BlueVine offers invoice factoring loans up to $5 million with approval in as quickly as 24 hours. Additionally, BlueVine provides 85% to 90% of the outstanding invoices upfront. This is much better than some invoice factoring companies that only pay 70% of outstanding invoices upfront. The lender also extends these products to businesses with credit scores as low as 530 and time in business of at least three months.

How to get a small business loan

1. Determine precisely how much money you need and why.

Lenders are strict when it comes to lending money to small businesses. More specifically, the companies will want to know exactly how much money you need, why you need it and how you plan to spend it. You may need to provide specifics on who you are buying from with proof of costs.

2. Gather the appropriate documents.

The paperwork side of a business loan is extensive, but a necessary step in the approval process. Before you apply for a loan, you’ll want to collect the following: your business plan, balance sheet, income statement, cash flow statement, bank statements, business credit report, tax returns, business license and permits, proof of collateral if applicable and any other financial documents you have.

3. Reach out to potential lenders.

The last step is to reach out to the lenders you’re interested in and apply for funding. Make sure you follow all guidelines, steps and advice from your prospective lenders. The business loan process can be complex. By following directions closely, you set you and your business up with the best chance for approval and success.

The bottom line

Funding your small business for growth can be exciting. Regardless of the exact need you have, finding the right lender and the right type of borrowing tool are important to your success. Thankfully, small business loans and small business lines of credit exist to help you move forward.