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One way to get much-needed cash for your business is with a small-business loan.

In this article, I’ll give you a tour of the business loan marketplace where traditional banks, online innovators, and hybrids compete for your business.

Plus, I’ll explain what small-business loans are, how business loans work, how they’re different from other kinds of financing, and give you pro tips on getting business loans.

You’ll also get a checklist of the documents you need to apply for a small-business loan.

What Is a Small-Business Loan?

A small-business loan provides capital received via contract with a direct lender and paid back with interest and fees. Some lenders charge fees, such as origination, service, or application fees.

Installment loans are typically paid back over a set term, ranging from months to years. Payments are usually made monthly.

Business lines of credit are another form of business loan. Unlike installment loans, lines of credit can be used repeatedly within the draw period, as previous draws are paid down.

Traditional Banks vs. Online Lenders

Banks and credit unions (sometimes referred to as traditional lenders) often provide loans at lower interest rates than non-bank online lenders. Their application process is likely longer and more complicated with a traditional lender than with a non-bank online lender. Traditional bank loans are typically harder to qualify for than online loans.

Non-bank online lenders (sometimes referred to as alternative finance, alternative lenders, or fintech lenders) are more likely to risk loans to less established new businesses or those with bad credit, no credit, or prior bankruptcies.

Many non-bank lenders use convenient one-page online application forms and little-to-no asset verification. They boast fast approval and funding times.

The line between banks and non-bank online lenders is becoming blurred. Banks like Wells Fargo have entered the online lending space, and many have partnered with online innovators. So there’s not always a clear-cut division between the two.

Small-business loan providers

Here’s a look at popular lenders for small business loans and top-line information about their offerings.

Loan amountSpecial loanInterest ratesWhich businesses is this best for? 
Wells FargoMaximum of $6.5 million from Wells Fargo and $5 million from the SBANoneCan be either fixed or variable.Businesses looking for unsecured loans and long-term repayment plans.
Bank of America$10,000 and aboveEquipment, real estate, healthcare industry, SBA, and auto loans7.50% introductory interest rateEstablished businesses that have pre-existing BoA account
ChaseSBA 7(a) loan amount: up to $5 million. SBA 504 loan amount: up to $12.5 millionSBA loans, equipment, real estateCan be either fixed or variableBusinesses looking for an SBA preferred lender
US Business Funding From $10,000 up to $2 millionSBA loans3.5% and upBusinesses looking for high-borrowing amounts and quick disbursements
SmartBiz$30,000 to $5 millionSBA loans8.25% to 9.25%Established business owners with a personal credit score of 650 and above.
Funding Circle$20,000 to $5 millionFor women and minority-owned businesses11.29% to 30.12%For owners who’ve been in business for more than two years and have good-to-excellent personal credit scores.
Credibility Capital$50,000 to $500,000Not stated8.99% and upOwners with a strong personal credit score and more than two years in business.
On-Deck$5,000 to $250,000Industry-specific loans for salons, real estate, auto repair, dental and medical practices, restaurants, and trucking companies29.9% and upBusinesses that don’t meet eligibility requirements of other lenders.

Wells Fargo: apply online

Wells Fargo landing page
Wells Fargo has several loan options for small businesses. Some loans require some fees to be paid but it may be possible to get them waived in certain cases.

  • Loan amount: SBA 7(a) loan amount: up to $5 million. SBA 504 loan amount: up to $6.5 million (maximum of $6,500,000 from Wells Fargo and $5 million from the SBA.)
  • Special loan types: None
  • Interest rates: Can be either fixed or variable.

Bank of America: Apply online — if you’re a customer

Bank of America landing page
Bank of America is the second-largest U.S. bank. It offers a wide array of loans for businesses. Some loans will incur origination fees.

You must already be a BoA customer to apply online. Otherwise, you can apply over the phone or in person.

  • Loan amounts: $10,000 and above
  • Special loan types: equipment, real estate, healthcare industry, SBA, and auto loans
  • APR: 7.50% introductory interest rate

Chase Bank: Apply in person

Chase Bank landing page
Chase Bank is one of the largest banks in North America. It offers just about any kind of loan you can imagine, but you must visit a branch to apply.

  • Loan amounts: Up to $12.5 million
  • Special loan types: SBA loans, equipment, real estate
  • APR: Fixed or variable interest rate

US Business Funding: Equipment leasing and financing

US Business Funding landing page
US Business Funding specializes in equipment leasing and financing, but they also offer SBA and working capital loans. The company states that they have funded over $2 billion to small businesses.

  • Loan amounts: From $10,000 up to $2 million
  • Special loan types: SBA loans
  • APR: 3.5% and up

SmartBiz: Streamlined SBA loans

SmartBiz landing page
SmartBiz specializes in SBA loans of all types. They’re known for taking the “headache” out of the complicated SBA application process.

You’ll work with the same “relationship manager” throughout the process. The SmartBiz interactive “Intelligent CFO” tool walks you through the loan process as well.

  • Loan amounts: $30,000 to $5 million
  • Special loan types: SBA loans
  • APR: 8.25% to 9.25%

Funding Circle: Peer-to-peer marketplace

Funding Circle landing page
Funding Circle charges loan origination fees of 4.49% to 8.49%. Their loan application only takes 48 hours.

  • Loan amounts: $20,000 to $5 million
  • Special loan types: For women and minority-owned businesses
  • APR: 11.29% to 30.12%

Credibility Capital: Fast funding, transparent fees

Credibility Capital landing page
Credibility Capital charges no pre-payment fees. However, they don’t loan to businesses in Nevada, North Dakota, South Dakota or Vermont.

  • Loan amount: $50,000 to $500,000
  • Special loan types: Not stated
  • APR: 8.99% and up

OnDeck: Minimum one year in business, 600 FICO score

OnDeck landing page
OnDeck requires one year of business operations, a FICO credit score of 600 or more, and yearly revenue over $100,000. They also exclude certain industries.

  • Loan amounts: $5,000 to $250,000
  • Special loan types: industry-specific loans for salons, real estate, auto repair, dental and medical practices, restaurants, and trucking companies
  • APR: 29.9% and up

Business loan portals

Loan amountSpecial loanInterest ratesWhich businesses is this best for? 
Lending Club$5,000 to $500,000None4.99% to 29.99%Business owners who are looking for personalized loan offers.
NavDependent on lendersDependent on lendersDependent on lendersStartups who are looking for funding resources.

The next two providers, LendingClub and Nav, are not direct lenders. They’re online platforms where you can comparison shop and find a loan.

LendingClub

LendingClub landing page
LendingClub is a loan portal, not a direct lender. Their tools will match you with loan providers that fit your needs.

  • Loan amount: $5,000 to $500,000
  • Special loan types: None
  • APR: 4.99% to 29.99%

Nav

Nav landing page
Nav is a business loan marketplace. They don’t offer loans, but they provide an interactive tool that can match you with a loan provider.

Just toggle the filters to get a personalized list of banks and other loan providers. Filters include APR, funding speed, loan amount, and minimum credit score required.

How Much do Small-Business Loans Cost?

The cost of small-business loans depends on many qualification factors, such as minimum credit scores, credit history, previous bankruptcies, and average monthly revenues. It also depends on what fees the lender charges, including origination fees; pre-payment penalty fees or application fees; the interest rate and APR; and the term length.

Why term length is important

Often, the longer the term length, the more the loan will cost you. Let’s look at a term loan estimate.

Example: You have good credit and are offered a term loan for $50,000.

Term lengthInterest and feesInterest amountEstimated interest rateEstimated monthly payment
3 months$6,000$4,5018.3%$18,167
6 months$11,500$10,00016.7%$10,000
12 months$18,000$16,50424.8%$5,542
18 months$23,500$21,49630.1%$3,972

Using a calculator, you can see the difference that changing your term length would make on total interest and fees, and your payment amount.

What’s the Business Loan Application Process?

After you’ve researched loan providers and figured out how much money your business needs to borrow, you’ll want to gather the documents you’ll need for your loan. After that, the process is straightforward:

  1. Make sure you understand the lender’s business loan requirements.
  2. Submit your application along with any required documents.
  3. If approved, your finance representative will meet with you to present an offer.
  4. If you accept the offer, and it’s from an online lender, you may receive the funds in your bank account in as little as 24 hours.

Credit scores and credit quality

When you apply for a loan, the provider will check your personal credit score and your business credit score (Paydex). Each lender has different minimum scores it will accept.

Beyond scores, underwriters will check to see if your credit report lists any derogatory items like recent late payments, charge-offs, or bankruptcies. How much debt your business is already carrying will be analyzed, and accounts receivable will be compared to your assets or revenue.

If you get declined, it may just be temporary until you can clear up issues with your credit. Your lender may direct you to pay off some accounts to obtain your desired loan.

Some business owners who can’t qualify immediately for a term loan may qualify for other financing options in smaller amounts. They can use one of those options to pay down their accounts and obtain the loan.

Consider Loan Alternatives

Of course, loans aren’t the only way to get a financial boost for your business. If you’re not sure you want to take on the obligation of a loan, here are some alternatives.

  • Invoice factoring: You can sell your qualifying invoices to a factoring company for immediate cash, minus a fee.
  • Merchant cash advance: This is upfront money in return for a portion of your future sales minus a fee.
  • Business credit cards: This option can help build up your small business credit and provide some cushion for unexpected cash flow hiccups.

Note: Learn about other ways to gather cash for your business by reading our Small Business Financing Guide.

What Documents Do You Need for a Small-Business Loan?

Regardless of which loan provider you pick, you’ll need to gather information about your business and relevant documents when applying for a loan.

Loan checklist:

1. ☐ Identification

☐ Identity documents, such as a driver’s license or passport

☐ Social security card

☐ Resident alien card

2. ☐ Proof of income and business ownership

☐ Business tax ID (EIN), industry, and launch date of your business

☐ Business overview and history, including challenges and how you plan to use the loan

☐ List of aging accounts receivable/accounts paid (AR/AP)

☐ Business tax returns from the last three years to indicate your annual revenue

☐ Business bank statements for the past three to six months

☐ Profit and loss (P&L) statement

☐ Any required business licenses or certifications

3. ☐ Assets and credit history

☐ A copy of your latest credit report

☐ Bank statements, all pages (last two to three months)

☐ Money market statements (last two to three months)

☐ 401k statements

☐ Debt schedule

☐ List of prior loans you have applied for

☐ Insurance policy or preferred insurance provider

☐ Financial projections for the upcoming year

Frequently Asked Questions About Small-Business Loans

Here are some answers to common questions about business loans.

Are small business loans hard to get?

The difficulty of obtaining a loan depends on variables like personal credit score, business credit score, length of time in business, average monthly revenue, and amount of debt you are currently carrying. Traditional banks tend to have more strict business-loan requirements than online lenders.

Can I get a small business loan from the government?

The U.S. government is not a direct funder of business loans. However, through its Small Business Administration (SBA) you can obtain an SBA loan which is guaranteed by the government. There are a wide variety of loan types available including the SBA express and loans for import-export businesses.

The SBA sets the guidelines for these loans, including capping the interest rates.

Do banks give loans to start a business?

SBA loans, which you can obtain from a bank or online lender, are available to startups. But realize that SBA loans are difficult to qualify for and it’s likely that acquiring one as a startup is challenging. Review the qualifications before moving forward.

The SBA also provides information on investment programs that may benefit startups.

How do I qualify for a small business loan?

Qualification factors for business loans vary between traditional banks and online lenders (or “alternative finance” providers) with the former being more strict. Typically underwriters will look at your personal and/or business credit scores, length of time in business, quality of credit, average monthly revenue, and your current debt schedule, among other factors.

What is a minority business loan?

Some institutional or private lenders have diversity and inclusion loan programs that target women, minorities, and veterans. Usually, the loan products are exactly the same as those offered to all business owners. There are also SBA loans that target underserved communities. These options include the SBA Community Advantage loan and the SBA 7(a) and 8(a) development programs.

Related Links

Check out these resources for additional information.