Annual percentage rates (APRs), loan term and monthly payments are estimated based on analysis of information provided by lenders and publicly available information. All loan information is presented without warranty, and the estimated APR and other terms are not binding in any way. Lenders provide loans with a range of APRs depending on borrowers' credit and other factors. Keep in mind that only borrowers with excellent credit will qualify for the lowest rate available. Your actual APR will depend on factors like credit score, requested loan amount, loan term and credit history. All loans are subject to credit review and approval.
Choosing the best small-business loan
Funding options for qualified business owners include bank loans, SBA loans, term loans, business lines of credit, invoice factoring and equipment financing. You typically need a year or more of history and revenue to qualify for financing. Startups operating for less than a year can consider other financing options.
The best loan for your small business will depend on a variety of factors, such as:
Why you need funding.
How fast you need access to capital.
How much capital you need.
Your business’s qualifications.
Total cost of debt.
Learn more about some of the most popular types of small-business loans below.
Types of small-business loans
Loan terms, interest rates and qualifications vary by lender, but here are the features you can generally expect to find with the different types of small-business loans.
Banks can offer a variety of types of small-business financing, including term loans, SBA loans and lines of credit. To qualify for a bank loan, you’ll typically need a strong personal credit score (starting in the 700s), several years in business and a solid track record of business finances such as strong cash flow. In some cases, banks will require collateral.
Loan amounts: $10,000 to $1 million.
Approximate APR range: 2.54% to 7.02%.
Best for: Working capital, expanding your business.
The government-guaranteed SBA loan program works with banks to offer low interest rates and long-term repayment. But the process is time-consuming, and the requirements are strict. Only those with good personal credit (690 or higher, although some SBA lenders may have lower score requirements), strong business finances and the flexibility to wait for funding should apply.
Loan amounts: $30,000 to $5 million.
Approximate APR range: 5.5% to 8%.
Best for: Large one-time and longer-term investments, purchasing real estate or equipment, buying existing businesses and refinancing debt.
Business term loan
Online lenders offer term loans of up to $500,000. For a short-term loan, the repayment period typically ranges from three to 18 months, while a long-term loan repayment can extend up to 10 years or longer in some cases. Business owners can also find financing that can be used for specific items, like equipment or inventory.
Loan amounts: Up to $500,000.
Approximate APR range: 9% to 99%.
Best for: Large one-time investments.
Business line of credit
A business line of credit provides access to flexible cash. Similar to a credit card, lenders give you access to a specific amount of credit (say, $100,000), but you don’t make payments or get charged interest until you tap into the funds.
Credit line range: $6,000 to $250,000.
Approximate APR range: 10% to 99%.
Best for: Managing cash flow, handling unexpected expenses and financing short-term business needs.
Invoice factoring and invoice financing
Invoice factoring turns business owners’ unpaid invoices into immediate cash. You sell the invoices to a factoring company, which is paid when it collects from your customers. If you prefer to maintain control over your invoices, invoice financing is an alternative to factoring. Time to funding can be relatively short with invoice factoring or financing.
Financing amounts: Up to $5 million.
Approximate APR range: 10% to 79%.
Best for: Managing cash flow, short-term financing.
Equipment financing is a form of asset-based financing where the equipment itself serves as collateral for the loan. You can get an equipment loan equal to up to 100% of the value of the equipment you’re looking to purchase — depending on the lender and your business’s qualifications — which you then pay back over time, with interest.
Some lenders may also pay for soft costs, such as installation, delivery, warranties, assembly and other similar expenses associated with getting your equipment up and running. Although certain lenders will finance these costs on top of the full value of your equipment, others may fund only a percentage of the cost of the equipment — 80%, for example — and devote the remainder of the loan (20%) to your soft costs.
Loan amounts: Up to 100% of the value of the equipment, plus soft costs.
Approximate APR range: 4% to 30%.
Best for: Purchasing machinery and equipment.
Additional funding options
Business financing options other than traditional loans or lines of credit include personal loans for business or business credit cards. A personal loan for business is a good option if your business is still young and you don’t qualify for traditional financing. Personal-loan providers look at your personal credit score and income instead of your business history. A business credit card offers revolving credit, making it a solid option for short-term expenses. It can also be easier to qualify for a business credit card than a small-business loan. While credit limits tend to be smaller than a line of credit, a business credit card may offer rewards, such as cash back or travel points.
How do I get a business loan?
Every lender has different underwriting guidelines, but they generally consider similar factors, including personal credit score, your time in business and annual revenue. Lenders also consider your cash flow and ability to repay the debt.
Depending on the lender, you’ll be asked to share financial documents like tax returns, bank statements and cash-flow statements as part of the application process.
Additional steps to qualify for a small-business loan
Having strong personal credit can help you qualify for lower rates and give you more financing options. If you don’t need business financing right away, consider building your credit score. On the other hand, if you need more immediate access to financing, you may still be able to qualify for a business loan with bad credit. If you don’t know your credit score or want to monitor it consistently, several personal finance websites, including NerdWallet, offer free credit score access. Track your progress and open more doors for financing your business.
Why online lenders?
Only about 1 in 5 businesses that apply for a loan from a big bank are approved. We help business owners by working with online lenders that simplify the loan application process and approve more small businesses. Many online lenders also offer competitive rates and faster funding than some banks.
Why Fundera by NerdWallet?
Fundera by NerdWallet gives business owners the tools and advice they need to build great businesses. Fundera gets a percentage from the financial provider once you’re funded but isn't incentivized to work with certain financial providers over others. Our job is to offer pressure-free advice to help you find your best-fit lending product.