Advertiser Disclosure
Best Small Business Loans for 2020
Right now could easily be the best time for small business loans since the subprime mortgage crisis in 2008. The improved economic conditions, combined with a big increase in competition, means more lenders are willing to slash their small business loan rates for good prospects.
- Bluevine
Loan AmountUp to $250,000APR Range15%–88%TermVariesOffer Details
1. For businesses organized as a limited liability company or corporation, we do not perform a hard credit pull at any point in our process, which means your credit score will not be impacted. For businesses organized as sole proprietors or general partnerships, we will only perform a hard credit pull after you receive and accept your offer.
2. The rate is a simple interest rate calculated from total repayments over 26 weeks.
3. Once approved, get funds deposited in your bank account in as quickly as a few hours if you choose our bank wire option ($15). Or, choose our free ACH transfer option which typically gets funds deposited the next business day, although it may take up to three.
- OnDeck
Loan Amount$5K–$50KAPR Range16.9%–99.4%Term3–36 monthsOffer Details
*There are some industries we cannot serve (see list of restricted industries), as well as some industries and states impacted by the Coronavirus to which we are temporarily not lending. In addition, OnDeck does not lend to businesses in Nevada, North Dakota or South Dakota. OnDeck is no longer accepting new Paycheck Protection Program (PPP) loan applications. Registration terms and conditions apply. Instant Funding registration and withdrawals are currently supported from your desktop and the OnDeck mobile website. They are not currently supported in the OnDeck mobile app. Occasionally, transfer may take up to 30 minutes to complete due to potential Visa & bank processing lags. This benefit is available at no additional cost with a vast majority of major banks participating. Instant Funding is available for transactions between $1K-$10K.
- Kabbage
Loan AmountUp to $250KAPR RangeVariesTerm6–18 monthsOffer Details
1. Kabbage Checking account opening is subject to identity verification.
2. The annual percentage yield (“APY”) is accurate as of 7/15/20 and may change at our discretion at any time. The APY is applied to deposit balances on the funds within your primary Kabbage debit account and each individual Wallet. We use the average daily balance method to calculate interest.
3. Beginning January 1, 2021, Kabbage Payments customers will pay 2.9% + $0.25 per card not present transaction. There is currently a 2.5% payment processing charge per gift certificate purchase from our partners that facilitate the service.
We follow a rigorous editorial policy designed to keep our writers and editors independent. Articles may reference products from our partners, so here’s more information on
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Unfortunately, that doesn’t mean it’s easy to obtain a small business loan from traditional banks. You should still try — you’ll usually receive a lower interest rate if you can qualify. But if you’re like the majority of small businesses, you may come up empt
Fortunately, a number of online lenders are giving banks a run for their money (and clients) by working directly with small business owners. In many cases, these companies make the lending process more convenient, with quicker turnaround, more transparent terms, and more flexible lending criteria. However, be aware that you’ll likely be getting a higher APR if you choose an online lender.
The Best Small Business Loans in 2020
If you’re searching for a small business loan, and have struck out at your local banks and credit unions, there are a number of top online lenders that could be options for you. Here’s a peek at our picks for the best small business financing:
Best Small Business Loans from Direct Lenders:
Best Peer-to-Peer Small Business Loans:
To find out what sets these lenders apart from the competition, keep reading. We’ll profile each company and describe the criteria that matters most in choosing the best small business loan. We’ll also cover some basics on small business financing, including where you should look first, and tips for getting approved.
Best Small Business Loans (Direct Lenders)
Unlike peer-to-peer lenders, which fund loans via individual investors, direct lenders are funding your loan with their own capital, like a traditional bank. That means you may be able to get your money faster, but the APRs will likely be higher. The lenders profiled below also work with a wider range of businesses, including very new ones.
Bluevine
Bluevine has the distinction of offering invoice factoring in addition to term loans and lines of credit. It boasts a fully online process and seeks to have a transparent process with minimal fees.
- Low credit requirements, ranging between 530 and 600
- Only need to be in business between three and six months
- Short-term loans up to $250,000
- Simple interest rates starting at 4.8%
- Invoice factoring lines up to $5 million
- No origination fees, prepayment fees, monthly maintenance fees, or account closure fees
- At least $100,000 in sales in the past year, and $10,000 monthly sales for invoice factoring
- Weekly fee charged for invoice factoring
- Established business with strong financials may qualify for better terms at another bank
Who it’s good for: Businesses that need cash to be able to stretch payment terms and increase flexibility when paying suppliers. Bluevine is also a good option for business that don’t have an established history and won’t qualify for traditional bank credit.
Who should pass: Businesses that have an established relationship with a bank lending provider could likely receive better rates and terms through those providers. Bluevine loans also top out at $250,000 – business owners who need larger loans should turn to other lenders.
OnDeck
OnDeck offers both term loans and lines of credit. (Info on the difference between the two can be found here.) It can lend up to $500,000 in as little as a day with minimal paperwork. However, you’ll need to be willing to accept a higher interest rate and shorter term (up to three years) in exchange for convenience and speed. There’s also a list of industries that OnDeck doesn’t currently lend to.
- Minimum credit score is 600
- Offers both short-term and long-term loans
- Fast funding available
- Easy application process
- Must be in business for 12 months or more
- Need at least $100,000 in sales for the last year
- Simple interest rates start at 9% but most applicants receive higher rates
- Line of credit limit is $100,000 and comes with $20 monthly fee
- 2.5% to 4% origination fee
Who it’s good for: Businesses that need cash quickly (and can pay it back quickly) are the best fit for OnDeck. Less-established businesses will want to take a look, but they should keep in mind that the high APR can become burdensome quickly.
Who should pass: Proven businesses that have less costly options should probably skip OnDeck, unless lending speed is their biggest priority.
Kabbage
If your business is truly in a jam, Kabbage can provide you with a loan of up to $250,000 almost immediately after you fill out a simple application.
- Annual revenue requirement is just $50,000
- Interest rates drop once during the course of your loan term
- No origination fees or any other fees
- Minimum loan amount is just $10,000
- Must be in business for at least 12 months
- APR on short-term loans can reach 90%
Who it’s good for: Kabbage is a compelling option for small online businesses that don’t meet the stricter requirements of other lenders. It’s also a contender for businesses that need money with as little lag time as possible. In both cases, however, you must be able to repay what you borrow within 12 months.
Who should pass: Any larger business (or even a smaller business that has the luxury of time) should look elsewhere first because of high APRs. Unless you pay off your loan early, Kabage’s monthly interest charges can equate to an APR as high as 90%.
Fundation
Fundation offers up to $500,000 for term loans, but the term can be up to four years, rather than three. They also offer lines of credit up to $150,000, with repayment terms similar to Kabbage: You pay back each new balance in equal installments over 18 months.
You can receive your funding as soon as one business day after applying — a perk of going through a direct lender like Fundation rather than a peer-to-peer lender like Lending Club or Funding Circle.
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Who it’s good for: Any established business that needs a relatively large amount fast will want to check out Fundation. Loans are available in all states except Nevada, and there are no additional costs except for the origination fee.
Who should pass: Fundation won’t be an option for any new business or sole proprietor. The application is also relatively time-intensive, and potential borrowers should be aware that this is a relatively new company with little in the way of online reviews.
The Best of the Rest: Peer-to-Peer Small Business Loans
Peer-to-peer lending connects borrowers directly with investors, each of whom typically funds a small chunk of a diversified loan portfolio. While this option isn’t usually the best for securing a low-interest business loan, the lending criteria are generally less stringent than at traditional brick-and-mortar banks.
LendingClub
LendingClub, America’s largest peer-to-peer lender, began making small business loans in 2014 as a separate program from their main product, unsecured personal loans.
- Only need $50,000 in annual sales
- Large loans available up to $300,000
- Fixed interest rates between 5.99% and 29.99% APR
- Credit score must be fair or better (640+)
- Must be in business 12 months or more and own at least 20% of your business
- Origination fee between 3.49% and 7.99%
Prosper
Prosper is similar to Lending Club, but without the separate program for small business loans. However, its unsecured personal loans can be used for small business purposes.
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Funding Circle
Funding Circle, a peer-to-peer lending behemoth from the United Kingdom dedicated solely to small business financing, launched in the U.S. in 2013.
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Where to Find the Best Business Loans
We only compared online lenders, but you should definitely evaluate all your options before committing to a loan. Here are some other options to consider when trying to secure a small business loan:
Banks
Traditional brick-and-mortar banks are still your best option for borrowing the largest amount of money at the lowest interest rates. They may also offer longer repayment terms if you need them.
Keep in mind however that these loans require a lot of collateral, and can be notoriously hard to secure. Application and approval can also be daunting — you’ll need to complete a slew of paperwork, put up to 30% down, and possibly wait a few months to see any money.
Credit Unions
Many credit unions also issue small business loans, and the approval process is typically more personal than it is at a bank, with things like an interview and letters of recommendation carrying more weight. Rates are competitive and sometimes lower, since credit unions are nonprofits with less overhead.
You do need to be a member of the credit union, but the requirements for joining are often as simple as living in a specific area. Remember that while credit unions may be more flexible than big banks, they still primarily lend to established businesses.
SBA Loan Program
The U.S. Small Business Administration isn’t a direct lender, but it does provide government backing so that riskier businesses can get financing through partner banks and credit unions, which are guaranteed to receive a portion of their money back even if you default.
The SBA has several programs, but the most common is its 7(a) Guaranty Loan Program. Fees are lower and terms can be longer than non-SBA loans, but the main draw is the looser requirements. Still, you may encounter drawbacks such as lower dollar caps and stricter requirements for the use of the loan.
Online Lenders
Small business owners who have trouble getting loans through more traditional channels have a growing number of options online. As we profiled above, some online lenders fund their loans all by themselves, while others pair you with individual investors, each of whom funds a portion of your loan.
Either way, the chief advantage of going online is speed: Most lenders can deliver your money in a week or less. Applications are also typically much less time-intensive. Of course, the major drawback is higher interest rates. It’s common for small businesses to secure bank loans with single-digit APRs. While that’s technically possible online, double digits are more the norm.
You may also have to personally guarantee the loan, which means your own credit and assets — not just those of your business — are at risk if you default.
How to Get a Small Business Loan
Getting a small business loan involves a lot more legwork than getting a personal loan. You’ll need to stay organized, have a clear idea of your needs, and be tenacious if you’re turned down. Here are some tips for securing the best financing package for your small business:
Step 1: Clean Up Your Personal Credit
If you’re trying to get a loan for a fledgling business, your personal credit score is all-important. Without a substantial business track record, lenders will perceive a low personal credit score as a greater risk since they have little else to judge. Boosting your personal credit before applying for loans isn’t a quick process, but it can save you time, frustration, and money in the long run.
If your business is very small or new, you might also consider taking out a personal loan to use for business purposes. This means your own personal finances are the only thing under the microscope (and on the hook if things go south). Your loan amount will probably be lower, but the process — and lending criteria — usually won’t be as involved. To check options, see our guide on the best unsecured personal loans.
Step 2: Have a Business Plan (and a Sales Pitch)
If you’re looking for a large chunk of change, it doesn’t pay to be vague. Tell your lender exactly why you need the money in as detailed a way as possible. Present your plan for the future and explain how the lender’s potential funding makes that plan possible.
You’ll also need a wide range of documents to support your case, including bank statements and tax returns. Be sure to lay out what makes your business a better bet than others. This is especially important if you think you might not be a slam-dunk candidate.
Step 3: Take Your Time and Compare Options
Before you embark on what can be a lengthy application process, it’s smart to shop around and evaluate all of your lending options. Consider your own bank first, especially if you have a long, responsible relationship with them. Banks that know your backstory might be more sympathetic to your needs. This also applies to credit unions that make small business loans — they often have more flexible criteria and more willingness to listen as you make your case.
Sites like Lendio can match you with lenders who are more willing to make a deal. After you answer questions about your business and your needs, you’ll receive a list of lenders that might be a good fit, all without picking up the phone.
If you’re targeting specific lenders online, be sure to compare interest rates, terms, and eligibility requirements. The loan calculators found on many lenders’ websites can help you make sure you’re comparing apples to apples.
Step 4: Target the Likeliest Loan Sources for Your Business
Bigger banks tend to make bigger loans to more established businesses. So if you and your spouse have run a business online for just a year and need only $20,000 to fill orders, you probably shouldn’t ask a big bank for a conventional loan. SBA loans or online lenders are likely better bets in that scenario. Also check to see whether there are particular lenders who make a lot of loans within your industry, especially if your industry doesn’t have a high rate of success.
On the flipside, if you have an established, low-risk business with a long track record of healthy profits, you’re probably a good candidate for a traditional bank loan, so it makes sense to pursue that first.
How to Pick the Best Small Business Loan in 2020
Most online lenders can’t compete with the low APRs big banks can offer, but they make it easier for smaller and newer businesses to get funding. Whichever route you go, prioritize transparent terms and fees, a streamlined application process, and most importantly, an interest rate you can handle. Here are the factors we considered when picking the best small business loans:
- High loan amounts: Online lenders typically don’t offer the seven-figure loans that a big bank can. However, the best still offer amounts sizable enough to make a real difference to a variety of small businesses.
- Clear requirements for eligibility: We looked for lenders who are upfront about what you need to apply. The application process at online lenders is generally more streamlined than at traditional banks, but it’s still frustrating to start an application only to find out your business doesn’t meet the minimum eligibility requirements.
- Competitive interest rates: Big banks can typically make small-business loans with single-digit APRs. While the best candidates might receive similarly low rates from online lenders, double-digit APRs (up to 30%) are more common. Cash-flow loans with very quick turnarounds also tend to carry higher rates.
- Flexible terms: Online lenders often won’t provide the lengthy repayment terms available on big-bank loans, but the best ones offer some flexibility: ideally up to four or five years.
- Detailed, transparent website: The best lenders have extensive FAQ pages and clearly detail the total cost of borrowing, including potential extra fees and variable interest rates.
- Quick application and fast turnaround: You can apply for a loan with some of the best online lenders in five minutes, and some can get you funds in only a day or two.
- Reputation: Since online lending is still a relatively new phenomenon, we gave less weight to each lender’s longevity than usual. However, we still looked for a significant number of positive reviews, BBB accreditation, and at least a few years in business.
Searching for the Best Small Business Loan Rates
Despite the rise of alternative lenders online, it can still be tricky to land a small business loan. Even if you’re a solid candidate, you might not be right for a particular lender.
Your research on potential lenders is as important to the process as the lender’s research on your business. The tools profiled above should help jumpstart your research, but we also recommend checking out LendingClub if you have an established small business, or a lender such as Kabbage or OnDeck if you’re just getting started.
Finally, if you feel overwhelmed when it comes to handling your business finances, consider hiring a professional, like a certified public accountant, to help you get organized. Many CPAs moonlight as CFOs for businesses and can be used part-time. Making that type of investment before applying for small business loans can pay off with quicker acceptance and better terms. And if you need tips on keeping your small business in the black, read our primer on Small Business Money Traps to Avoid.
Ask the Experts
Nick Loper, SideHustleNation.com
Ask the Experts
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Nick Loper
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Kristen Edens
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Brian Cairns
Dan Bailey
Anna Serio
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Andrew Rodderick
Nick Loper
Kristen Edens
Brian Cairns
Dan Bailey
Anna Serio
Andrew Rodderick
Given the current situation with COVID-19, what should small business owners be wary of when seeking a small business loan?
Be wary of adjustable interest rates, balloon payments, and personal guarantees. There’s a lot of fine print with some of the SBA and EIDL loans; just make sure you’re good with all the terms and conditions.
How do you recommend someone prepare for applying for a small business loan?
You’ll want to get all your books in order. That means your most recent profit and loss statements, balance sheets, and tax returns. Get an accurate picture of your projected monthly revenue and expenses and be able to explain exactly what you intend to spend the borrowed money on.
As a small business owner, what should I do to prepare for retirement?
As a business owner, you have a couple distinct advantages when it comes to retirement planning. First, you can contribute far more to retirement plans tax-deferred. For example, for 2020, you can contribute up to $57,000 to a Solo 401(k).
The second advantage is that at the end of your working career, your business may be a sellable asset in itself. Small businesses usually sell for a multiple of annual profits, so the more you can grow the company
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Methodology
We’ve created the SimpleScore to help you objectively compare products and services here at The Simple Dollar.
Our editorial team:
- Identifies five factors to compare across each brand
- Determines the rating criteria for each factor
- Calculate an average of those five factor scores to get one SimpleScore™
We break down each of these five factors and their rating criteria for our review of the best auto loan companies of 2020.
Why do some brands have different SimpleScore on different pages?
Some brands offer a variety of financial products, which is why they have different SimpleScores on different pages. We rate individual products that brands offer — not the brand as a whole.
For instance, in our American Express personal loans review we rated the company a 4.25 out of 5 based on rates, loan amount, customer satisfaction, customer support and fees. In our review of the best small business loan rates, American Express earned a 3.4 out of 5 SimpleScore based on its business loan product. By tailoring our SimpleScore to each financial solution, we’re able to give you a more accurate view of each brands’ services and how they compare to competitors’ products.
Median APR
Lenders with a lower median APR are awarded higher scores — because even if you’re APR is average, your business is not.
Maximum loan size
Lenders that dole out loans with high maximums are also rewarded with higher scores. It takes money to run a business, and businesses need access to as much capital as it takes.
Product variety
Need more than just a business loan? Lenders that offer more than one type of financial product for businesses score higher than others that don’t.
Educational Resources
We gave out higher scores to lenders that have the following subjects covered in their blogs: loans, marketing, employee and staff, and credit or finance resources.
Fees
Fees can add up fast and eat into operating costs –– that’s why we give a higher score to lenders that have fewer fees.
