Best Small-Business Loans (2024)

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 business loans.

SBA loans

SBA loans are small-business loans partially guaranteed by the U.S. Small Business Administration, a government agency, and issued by participating lenders, such as banks and credit unions. SBA loans offer low interest rates and long repayment terms and can be used to finance a variety of business expenses.

Although there are multiple types of funding within the SBA loan program, the SBA 7(a) loan is the most popular. These loans are available in amounts up to $5 million, with terms up to 25 years.

To qualify for an SBA loan, you’ll need good personal credit (690 or higher, although some SBA lenders may have lower score requirements), strong finances and multiple years in business. You should also have the flexibility to wait for funding, as the loan application process is slow and time-consuming.

Bank 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.

Business term loans

Online lenders typically offer term loans of up to $500,000. For a short-term loan, the repayment period tends to range 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 commercial real estate, equipment or inventory.

Business lines 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.

Equipment 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.

Microloans

Microloans are small-dollar business loans that typically offer up to $50,000 in financing. These loans are designed for traditionally underserved entrepreneurs, such as startup founders, people with limited credit histories, minority groups and those located in low-income communities.

Microloans are available from SBA intermediaries, nonprofit organizations and community lenders. These lenders tend to offer business training, educational resources and support — in addition to funding opportunities.

Commercial real estate loans

Commercial real estate loans provide capital specifically for the purchase or renovation of commercial properties, such as offices, storefronts or residential buildings. These loans typically function like traditional term loans that you repay over a set period of time, with interest.

Like equipment financing, commercial real estate loans are self-collateralizing — the property that you’re purchasing or renovating serves as collateral on the loan. To determine the amount of funding you’re eligible to receive, commercial real estate lenders use the loan-to-value ratio, or LTV. LTV is calculated by dividing the loan amount by the value of the property you own or are looking to buy.

Generally, the lower the LTV, and the higher the down payment you can provide, the better interest rates you can get.

Business auto loans

Business auto loans are small-business loans used to purchase or refinance cars, vans or trucks for your company. These loans work similarly to consumer auto loans — you borrow money from a lender and repay it over time, with interest.

The car you purchase (or refinance) serves as collateral on the loan and repayment terms often range from up to six or seven years. You can get business auto loans from bank-, SBA- and online lenders, but banks will typically offer the lowest interest rates.

Aside from the most common type of government loan, the SBA 7(a) loan, small businesses can find additional financing options from the SBA, as well as other government agencies.

USDA business loans

The U.S. Department of Agriculture operates several business initiatives that are designed to provide financial assistance and development resources to rural businesses.

One of the most well-known programs is the Business & Industry (B&I) Loan Program. Through this program, the USDA provides a partial guarantee to lenders, like banks and credit unions, that issue loans to small businesses in rural areas (populations of 50,000 residents or less).

These businesses can use the financing for a range of purposes, including business repair and/or development, real estate purchases, debt refinancing, equipment purchases and certain acquisitions.

Other USDA business loan options include:

SBA disaster loans

Unlike other SBA loan options, disaster loans are funded and issued directly by the U.S. Small Business Administration. These loans are designed specifically to help small businesses recover from physical and economic damage caused by a declared disaster.

SBA disaster loans have low interest rates, long repayment terms and may be faster to fund than other SBA loan options.

Indian Loan Guarantee and Insurance Program

The ILGP is a funding initiative administered by the Bureau of Indian Affairs. This program is designed to help American Indian- and Alaska Native-owned businesses access financing from private sources — like banks and community development financial institutions — when they would not be able to do so otherwise.

To qualify for one of these loans, you must be:

Loans issued as part of the ILGP can be used for working capital, equipment purchases, construction, business acquisition and refinancing. You must have at least 20% equity in the project being financed, however, and the project must benefit the economy of a reservation or tribal service area.

Farm Service Agency loans

The Farm Service Agency (FSA) offers a variety of loan options to help farmers and ranchers start, expand or manage their agricultural businesses. These farm loans have competitive interest rates, long repayment terms and may be available to borrowers with fair or bad credit histories.

The most common types of FSA loans include:

To qualify for an FSA loan, you’ll need to meet industry-specific requirements and show that you’ll be able to repay your financing.

Invoice factoring

Invoice factoring turns business owners’ unpaid invoices into immediate cash. You sell your invoices to a factoring company in exchange for an advance of cash — potentially up to 90% of the value of the invoices. The factoring company assumes responsibility for collecting payment on your invoices, and once it receives that payment from your customers, it sends you the difference, minus the agreed-upon fees.

Because invoice factoring companies often prioritize the value of your invoices during the underwriting process, this type of small-business financing can be easier to qualify for than other commercial loans. Invoice factoring can, however, be expensive, especially if your customers take a long time to repay.

Invoice financing

Invoice financing is sometimes confused with invoice factoring. With invoice financing, however, you don’t sell your invoices to a factoring company. Instead, you use your unpaid invoices as collateral to secure your financing.

Lenders advance you a percentage of the value of your invoices in the form of a loan or line of credit. When your customers pay the invoices, you’ll repay the lender the amount loaned, plus fees and interest.

Compared to factoring, invoice financing gives you more control over your invoices and allows you to deal with your customers directly.

Personal loans

A personal loan for business is a good funding 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.

Personal loans are usually available in smaller amounts, but they can be used for a variety of purposes and fund within days. If you can’t repay the loan, however, your personal credit and finances can be negatively affected. This may impact your ability to access affordable financing in the future.

Business credit cards

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. Although credit card limits tend to be smaller than a line of credit, a business credit card may offer rewards, such as cash back or travel points.

Cards with 0% intro APR can also be a good choice, especially for startups. You can use these credit cards to make purchases while you’re establishing your cash flow. It’s important to make sure that you pay the full balance before the intro APR period ends, however, otherwise you’ll start to accrue interest on your account.

Merchant cash advances

With a merchant cash advance (MCA), a financing company gives you an upfront sum of capital that you repay using a percentage of your debit and credit card sales, plus a fee. MCAs are typically fast to fund and easy to qualify for, but they’re also one of the most expensive types of business financing, carrying APRs that can reach triple digits.

Because MCAs require frequent payments and those payments are deducted directly from your sales, they can also lead to a cycle of debt that’s difficult to break. As a result, you should generally consider all other business financing options before turning to a merchant cash advance.

Small-business grants

Small-business grants provide a free alternative to debt funding — offering access to capital that doesn’t need to be repaid. Business grants are available from a variety of sources, including federal, state and local governments, private companies and nonprofit organizations.

It can be difficult and time-consuming to find and apply for grants, but the process may be worth it if you can secure free financing.

To increase your chances of success, you can narrow down your search by demographics or location. Many awarding organizations offer business grants for specific communities, such as women, veterans, LGBTQ+ entrepreneurs or minority groups.

Interest rates are an important factor to consider when comparing business loan options.

Small-business lending companies typically charge interest as an annual percentage rate, or APR. Some lenders, however, quote interest as a factor rate, which is multiplied by the amount of capital you receive to determine the total cost of your funding.

Your business loan rate will ultimately vary based on the lender, loan type and your qualifications. To access the lowest interest rates, you’ll need strong finances and good credit.

Every lender has different underwriting guidelines, but they generally consider similar factors, including your personal credit score, time in business and annual revenue. Lenders also consider your cash flow and ability to repay the debt.

Having strong personal credit can help you qualify for lower rates and give you more loan options. If you don’t need business financing right away, consider building your credit score. But, if you need more immediate access to capital, 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. You can track your progress and open more doors for financing your business.

Getting a business loan doesn't have to be a painful process. You can increase your chances of approval by understanding your business's qualifications and then finding the financing option that fits your needs. Here are the steps you can follow:

Decide which loan option is right for your needs. If you want to finance a large purchase or business expansion, for example, you might consider a traditional term loan, whereas if you need funds for day-to-day expenses, you might prefer a business line of credit.

Check your qualifications. You’ll want to consider factors such as your personal credit score, time in business and annual revenue. Bank and SBA lenders will likely have the strictest eligibility criteria. Online lenders, on the other hand, may be more flexible.

Estimate what payments you can afford. You should look carefully at your business’s financials — especially cash flow — and evaluate how much you can afford to apply toward loan repayments each month. Your total income should be at least 1.25 times your total expenses, including your new repayment amount.

Determine whether and how you want to collateralize the loan. Business loans can be secured or unsecured. A secured business loan requires collateral, such as property or equipment, that the lender can seize if you fail to repay the loan. Putting up collateral is risky, but it can increase the amount lenders let you borrow and get you a lower interest rate. Keep in mind, however, that although some lenders don’t require physical collateral, they may still take out a UCC filing on your business assets. This official document allows a lender to claim your assets in the case of default.

Compare small-business lenders. You’ll typically want to get the business loan that offers you the best terms. But other factors, like funding speed or customer service, may matter to your business and different financing sources may be better in certain instances than others.

Apply for a business loan. Of the loans you qualify for, choose the one with the lowest APR and best terms for you — as long as you’re able to handle the loan’s regular payments — and gather your business loan application materials. These may include financial documents like tax returns, bank statements and cash flow statements. You may also be required to sign a personal guarantee.