Best business loans for small businesses

Securing the right financing can be the key to moving your small business forward. Capital often helps unlock the next stage of growth, whether you’re launching a startup, expanding operations, or managing cash flow during slower periods.

However, the world of business loans has so many options, from traditional banks to modern online lenders, that it can easily become overwhelming. Understanding your loan options is essential for making informed decisions that align with your goals. This guide breaks down different loan types, how to compare lenders, and steps to confidently apply for the funding your business needs.

Understanding small business loan basics

Small business loans provide the capital entrepreneurs need to start, operate, or expand their companies. These loans come with varying terms, interest rates, and qualification requirements depending on the lender and the specific loan type.

Before diving into specific products, it’s helpful to understand what lenders look for. Most lenders evaluate your creditworthiness based on a few core factors:

• Credit scores: Lenders will typically review both your personal and business credit scores to gauge your history of repaying debts.
• Time in business: Many lenders prefer to work with businesses that have been operating for at least one to two years, though options for startups do exist.
• Annual revenue: Your gross annual revenue demonstrates your ability to generate cash flow and repay a loan.
• Debt-to-income ratio: This metric compares your monthly debt payments to your monthly gross income, helping lenders assess if you can afford additional debt.
• Collateral availability: Some loans require you to pledge assets (like real estate or equipment) that the lender can seize if you default.
• Business plan and financial projections: A solid plan shows lenders how you intend to use the funds and how you plan to grow.

Best types of business loans for small businesses

There’s no single "best" loan for every business. The right choice depends on your specific needs, your credit profile, and how quickly you need funding. Here’s a breakdown of the most common financing options available to small business owners.

Term loans

A term loan is what most people picture when they think of a standard business loan. You receive a lump sum of cash upfront and repay it, plus interest, over a fixed period.

Bank term loans

Traditional banks typically offer competitive rates on term loans. However, they also have the most stringent qualification requirements. You will generally need excellent credit and strong annual revenue to qualify.

• Loan amounts: $25,000 to $500,000+.
• Interest rates: Typically lower than online lenders, often starting in the mid‑single digits for well‑qualified borrowers and increasing with risk.
• Terms: Typically 1 to 5 years, sometimes longer for larger or secured loans.
• Best for: Established businesses with excellent credit and strong financials.

Online term loans

Online lenders have revolutionized the lending space by using technology to streamline the application process. While rates may be higher than those of traditional banks, approval speeds are significantly faster. For example, QuickBooks Term Loans allow eligible customers to apply within their account and receive a funding decision quickly, with funding in as fast as 1-2 business days1.

• Loan amounts: $5,000 to $500,000.
• Interest rates: 10% to 40%+ APR, but it depends on risk and varies widely by lender.
• Terms: 3 months to 5 years.
• Best for: Businesses needing quick funding or those with less-than-perfect credit.

Business lines of credit

A business line of credit offers flexibility that a term loan cannot. It works similarly to a credit card: you get approved for a maximum credit limit, and you can draw funds as needed. You only pay interest on the amount you use.

• Credit limits: $1,000 to $250,000+.
• Interest rates: Typically higher than term loans, often ranging from high single digits to the high teens or low 20s (charged only on drawn amounts).
• Terms: Revolving (funds become available again as you repay).
• Best for: Managing seasonal cash flow fluctuations, covering payroll during slow months, or handling unexpected expenses.

SBA loans

Loans guaranteed by the Small Business Administration (SBA) are often considered a preferred option for many small businesses. Because the federal government partially guarantees these loans, lenders are often willing to offer lower interest rates and longer repayment terms. However, the application process can be lengthy and paperwork-intensive.

SBA 7(a) loans

The SBA 7(a) loan is the administration's most popular program. It offers up to $5 million for a wide variety of business purposes, including working capital, equipment purchases, and even refinancing existing debt.

• Interest rates: Vary by lender and loan size but must fall within SBA limits.
• Terms: Up to 10 years for working capital and equipment; up to 25 years for real estate.
• Best for: Established businesses with strong credit seeking affordable, long-term capital.

SBA 504 loans

These loans are specifically designed to finance major fixed assets that promote business growth and job creation. This usually means purchasing commercial real estate, existing buildings, or heavy machinery.

• Loan amounts: SBA‑backed portion typically up to $5 million (up to $5.5 million for certain projects), with total project costs often higher.
• Interest rates: Long‑term fixed rates that vary with market conditions.
• Terms: 10, 20, or 25 years.
• Best for: Businesses looking to purchase property or large equipment to expand operations.

SBA microloans

If you don't need millions of dollars, the SBA Microloan program might be a fit. These loans are provided through non-profit community-based organizations. Keep in mind, these loans cannot be used to pay existing debts or purchase real estate.

• Loan amounts: Up to $50,000.
• Interest rates: Typically higher than standard SBA 7(a) loans.
• Terms: Up to 6 years.
• Best for: Startups, newer businesses, and entrepreneurs from underserved communities needing smaller capital injections.

Equipment financing

If you need to buy a specific physical asset—like a delivery van, a pizza oven, or computer servers—equipment financing is tailored for that purpose. The equipment itself serves as collateral for the loan, which often makes it easier to qualify for than an unsecured loan.

• Loan amounts: Up to 100% of the equipment value.
• Interest rates: 8% to 30% APR; offers will depend heavily on credit, time in business, and whether the lender is a bank or alternative finance company.
• Terms: 1 to 7 years (usually matched to the expected lifespan of the equipment).
• Best for: Businesses needing specific machinery or technology without depleting their working capital reserves.

Invoice financing and factoring

If your business has a lot of cash tied up in unpaid customer invoices, these options can unlock that capital immediately.

Invoice financing

With invoice financing, you borrow money against your outstanding invoices. You are still responsible for collecting payment from your customers. When they pay you, you repay the lender with interest and fees.

• Advance rate: 70% to 90% of the invoice value, but strong portfolios may yield higher rates.
• Fees: Often 1%–3% of the invoice amount per 30 days until the invoice is paid.
• Best for: B2B companies with creditworthy customers and long payment terms.

Invoice factoring

Invoice factoring involves selling your invoices to a factoring company at a discount. The factoring company then takes over the responsibility of collecting payment from your customers.

• Advance rate: 70% to 90% of invoice value.
• Fees: 1% to 5% per month (or equivalent weekly fee), until the invoice is paid.
• Best for: Businesses willing to outsource collections to improve immediate cash flow.

Merchant cash advances (MCAs)

A merchant cash advance provides upfront capital in exchange for a percentage of your future credit card sales. While they are very fast to fund and easy to qualify for, they are often the most expensive form of financing.

• Amounts: $5,000 to $500,000.
• Factor rates: 1.1 to 1.5 (can be equivalent to 40% to 350% APR).
• Repayment: Daily or weekly percentage of sales.
• Best for: Retail or restaurant businesses with high credit card volume that need emergency funding and cannot qualify for other options. *Note: Proceed with caution due to high costs.*

Comparing top small business lenders

When shopping for a loan, it helps to understand the different types of institutions you might work with. Below are general estimates of rate ranges and timelines, but your lender’s offer may differ based on your credit profile, loan size, and term.

• SBA lenders: Best for low rates and larger amounts, but require good credit and have a 30-90 day funding timeline.
• Traditional banks: Ideal for established businesses seeking competitive rates (6%-13% APR), with a 1-4 week funding timeline.
• Online lenders: The go-to for speed (1-3 days) and accessibility for fair credit, though rates (roughly 10%-40%+ APR) can be higher.
• Credit unions: Member-focused institutions offering fair rates (typically 7%-15% APR) and personalized service, usually taking 1-3 weeks.
• CDFI (Community Development Financial Institutions): Mission-driven lenders focusing on underserved communities, offering fair rates (roughly mid-single to low-teens APR, depending on the program) with a 2-6 week timeline.

How to choose the right business loan

Selecting the right financing option requires a clear look at your business health and your goals.

Assess your business needs

Start by clearly defining why you need the money. This dictates the loan type.

• Working capital: Look for a line of credit or short-term loan.
• Equipment purchase: Equipment financing is the logical choice.
• Real estate: Consider an SBA 504 loan or commercial mortgage.
• Expansion: An SBA 7(a) loan or a traditional term loan provides the lump sum needed for growth.

Calculate how much you can afford

Before applying, you need to know if you can handle the payments. Lenders often look at your debt service coverage ratio (DSCR). You can determine this by dividing your annual net operating income by your total annual debt payments. Most lenders prefer a DSCR of at least 1.25. This means your business earns $1.25 for every dollar of debt payment.

Creating a cash flow forecast can also help you visualize how a new loan payment will impact your monthly budget.

Compare total costs

Don't look at the interest rate in isolation. You need to understand the true cost of the loan.

• APR: The Annual Percentage Rate includes the interest rate plus any fees, giving you a more accurate picture of the cost.
• Origination fees: Upfront fees for processing the loan, typically 1% to 6% of the loan amount.
• Prepayment penalties: Some lenders charge a fee if you pay the loan off early.
• Draw fees: Charges for accessing funds from a line of credit.

Steps to apply for a small business loan

Once you have identified the right type of loan, follow these steps to streamline the application process.

Step 1: Check your credit

Review both your personal and business credit reports. Ensure there are no errors that could drag down your score. If your score is on the borderline, taking a few months to pay down balances could improve your business credit score and unlock better rates.

Step 2: Gather documentation

Lenders want to see proof of your financial health. Being organized speeds up the process. Most lenders require:

• Business and personal tax returns (past 2-3 years)
• Business license and registration documents
• Bank statements (past 3-6 months)
• Profit and loss statements and balance sheets
• A debt schedule

Step 3: Prepare your business plan

Even if a lender doesn't strictly require it, having a solid business plan is crucial. It demonstrates exactly how you will use the funds to generate a return on investment. If you haven't updated yours recently, you can use a business plan template to ensure you cover all the necessary details.

Step 4: Compare multiple lenders

It is smart to shop around. Apply to 3-5 lenders to compare offers. Try to do this within a short timeframe (about 14-45 days) so the credit inquiries are treated as a single event on your credit report, minimizing the impact on your score.

Step 5: Review terms carefully

Before signing, read the fine print. Ensure you understand the total repayment amount, the payment schedule (monthly vs. weekly), any prepayment options, and the consequences of default. Pay close attention to whether a personal guarantee is required, which puts your personal assets at risk if the business cannot pay.

Alternative financing options

If a traditional business loan doesn't fit your needs or you don't currently qualify, there are other ways to fund your business.

Business credit cards

For smaller, short-term expenses, a business credit card is a convenient tool. They often come with rewards and can help build business credit. However, APRs can be high (15% to 25%), so they are best used for expenses you can pay off quickly.

Crowdfunding

Crowdfunding allows you to raise capital from many individuals through online platforms. This is excellent for product launches and community-driven businesses. Keep in mind that platforms typically charge fees of 5% to 10%.

Angel investors and venture capital

If you have a high-growth startup, you might consider trading equity for capital. Angel investors and VCs provide funding and expertise, but you will have to give up a portion of ownership and control.

Business grants

Grants are essentially free money that does not require repayment. However, small business grants are highly competitive and usually specific to certain industries, demographics, or business purposes.

Friends and family

Borrowing from personal connections can be a flexible option for new businesses. To protect your relationships, it is vital to formalize the agreement in writing with clear repayment terms.

Tips for getting approved

Boosting your chances of approval often comes down to preparation and positioning.

• Strengthen your application: Focus on paying bills on time to improve your credit score. Work on reducing existing debt to lower your debt-to-income ratio.
• Prepare detailed financials: Lenders trust applicants who understand their numbers. Accurate, up-to-date financial statements show you are a responsible manager.
• Work with the right lender: Match your needs to the lender's specialization. If you already have a relationship with a bank, start there, as they may offer better terms to existing customers.
• Time your application strategically: Apply when your cash flow is strong and your financials look their best. Avoid applying during your busiest seasons or tax time when lenders are swamped.

Common mistakes to avoid

Navigating the loan process can be tricky. Avoid these common pitfalls to protect your financial future.

Borrowing too much or too little

Calculate exactly what you need. Include a buffer for unexpected costs, but avoid over-borrowing, which creates an unnecessary debt burden. Conversely, borrowing too little may leave you short on a project, forcing you to seek expensive emergency funding later.

Ignoring the fine print

Hidden fees, variable interest rates that can skyrocket, and strict prepayment penalties can turn an affordable loan into a financial burden. Always read the full agreement.

Choosing speed over cost

When you’re in a crunch, it’s tempting to take the first offer you get. However, emergency funding usually comes with premium pricing. Whenever possible, plan ahead to access better rates.

Neglecting your business credit

Building strong business credit separates your personal and business finances. This not only protects your personal score but also improves your future borrowing terms.

Making your final decision

The best business loan for your small business depends on your unique circumstances, including your credit profile, time in business, funding needs, and timeline. SBA loans offer competitive rates for qualified borrowers, while online lenders provide speed and accessibility for those who need funds quickly.

Before signing any loan agreement, ensure you understand the total cost, repayment terms, and your ability to meet obligations even if business slows. The right financing should support your growth without creating unsustainable debt.

Consider consulting with a financial advisor or accountant to evaluate how different loan options impact your business's financial health. The time invested in finding the right financing solution pays dividends through lower costs and better terms that support your long-term success.

QuickBooks Term Loan and QuickBooks Line of Credit loans are issued by WebBank.

1. Loans are typically deposited within 1–2 business days. Actual funding time can vary depending on third party processing time. Terms and conditions apply. Subject to eligibility.