Best Small Business Loans
Charting the Best Small Business Loans of 2017
While the time is right to get the best deals on small business loans, that doesn’t mean that getting a small business loan is a walk in the park. You still need to do your research to find the small business lending solution that works for your company.
The addition of online lenders and peer-to-peer lending networks has dramatically changed the small business loan industry. These new businesses have helped to fuel an increased drive at traditional lenders to give out small business loans, increased the overall number of small business loans available on the market, and enhanced the competition among small business lenders means that loans are cheaper than ever.
Top Ranked Peer-to-Peer Loans
When it comes to the new small business loan type, peer-to-peer networks, we’ve picked out the top three so that you don’t have to waste your valuable time going from site to site to find the best lending option for your business.
A peer-to-peer lending network works by assembling a group of investors for the purpose of providing small business loans. The way these companies are structured gives them greater flexibility when it comes to the loans they offer, and they are more likely to consider things other than your credit score when making determinations about whether or not to lend you money. As a result, many small businesses will find it easier to obtain a loan if their business fundamentals are good or if they have a solid and appealing business plan.
Our Top Ranked Peer-to-Peer lenders are:
Top Ranked Direct Lenders
Direct lenders are closer to the traditional loans you would expect from a bank. The difference between banks and most modern direct lenders is that the modern lenders operate entirely online. Therefore, they are able to provide loans at lower interest rates and APRs than traditional banks because they don’t have nearly as much overhead as banks do. They lack a brick and mortar building to maintain, and have fewer employees.
In addition to these qualities, modern online-only direct lenders also use automated processes to make the decision speed for your application much quicker, and they can disburse funds faster than banks can, making them more appealing to businesses that need a fast capital infusion.
Our Top Ranked Direct lenders are:
Peer-to-Peer Small Business Loan Rundown
As stated before, peer-to-peer networks connect a business with a series of investors who treat the loan as part of an investment portfolio. This makes them more flexible than traditional lenders, and means that they will consider more factors when deciding on your creditworthiness.
Funding Circle got its start in the UK and opened its doors to the US in 2013. They offer loans from $25k-$500k, and offer rates from 5.49% to 27.79%. The terms on their loans are pretty flexible and they span from 1-5 years.
Loans from Funding Circle incur only two fees, a flat origination fee that runs from 1.49% to 4.99%, and a flat late payment fee. The late payment fee equals 10% of the missed or late payment. In order to qualify for a loan from Funding Circle you must do at least $150k in business every year, and have been operating for at least two years. You will also have to provide personal and business tax returns, as well as business bank records when you apply. If your loan is more than $300k, be prepared to provide even more paperwork.
Businesses in operation for more than two years that need a bigger loan than Lending Club offers make good candidates for a Funding Circle borrower. They operate in every US state with the exception of Nevada, and are also a good choice for businesses that prefer a simple fee structure.
Newer businesses and those that make less than $150k per year should look elsewhere for their small business loan. Additionally, you should come prepared with the paperwork you need or the application process will take much longer than you expect it to.
Lending Club has been offering small business loans since 2014. The company started out offering unsecured personal loans, so their small business offerings represent an expansion for this increasingly successful network.
In order to qualify for a small business loan from Lending Club you must have been in business for at least two years and do at least $75,000 in annual revenue. You can get a loan ranging from $15k- $30k with flexible terms ranging from 1-5 years. The interest rates you’ll get run the gambit from 5.99%-35.89%. A better credit score will help you get the most favorable APR.
Lending Club does have some fees that small business owners should pay attention to. There is an origination fee that ranges from ~1%-6%, returned checks incur a $15 fee, and a late payment costs $15 or 5% of the outstanding balance, whatever is greater.
Lending club is an excellent choice for established small businesses that can take advantage of flexible repayment terms and are interested in working with one of the longest running peer-to-peer lenders.
Businesses that haven’t been open for two years or more, or those that do less than $75k in annual revenue should probably look elsewhere when it comes to small business loan funding. Moreover, Lending Club doesn’t do business in West Virginia or Iowa.
Prosper is a peer-to-peer lending network that is closer to Lending Club than it is to Funding Circle. While Prosper doesn’t have a specific small business loan product, they do offer unsecured personal loans that can be used for your small business.
Prosper offers loans up to $35k, and because they are unsecured personal loans they don’t have limitations on how long you need to have been operating. The APR on a Prosper loan runs from 5.99% to 32.99%. Loans receiving funding in up to two weeks, and the only term options are three or five years.
Prosper is the best choice for new businesses and those that don’t have the revenue or history needed to qualify for a small business loan with one of our other top-ranked peer-to-peer network lenders. They are also one of the largest and best established online lenders, so they can be a good option for those who are concerned about the security of online lending.
Small business owners who don’t want to use their personal credit won’t find Prosper very appealing. Moreover, the longer wait and restrictive term limits will turnoff other businesses, so their range of appeal is somewhat limited.
Direct Lender Small Business Loans Rundown
Direct lenders fund your business directly from the company, rather than assembling a list of investors like peer-to-peer networks. As a result, they operate much closer to traditional banks, and can fund loans more quickly than peer-to-peer networks. Direct lenders will also work with a wider range of businesses in terms of how long they need to have been in business. One drawback to these types of lenders when compared to peer-to-peer networks is that they tend to have a higher APR.
OnDeck has the capacity to lend as much as $500k in as little as 24 hours. They don’t require nearly as much paperwork as many of the peer-to-peer lenders, but the APR will be higher and the term will be shorter, with a max length of two years. You will need to have been operating for at least one year, and do $100k in revenue.
OnDeck has two different small business financial products. The first is a line of credit, which are mostly offered to businesses that have been operating a bit longer. The APR on these runs from 13.99% to 39.99%. OnDeck doesn’t list the terms for its term loans. Instead they frame the terms as a fixed amount per dollar borrowed. The APR this can translate to can be rather high, so make sure you understand what you’re agreeing to.
Businesses that need capital in a hurry are the best candidates for a loan from OnDeck. However, they had better be prepared to pay the loan back quickly as well. Businesses that have been open for less than two years are also potential candidates, but they should be prepared to pay more for the loan.
Businesses that can get offers from less expensive lenders will probably want to pass when it comes to OnDeck. Their loans are large and fast, but you’ll pay a premium for them.
Kabbage is one of the best lenders if you need an infusion of capital in a hurry. Businesses can get up to $150k almost instantly. All that is required is a simple application, a business checking account or a PayPal account. Kabbage might request information from other business channels you use like Quickbooks, Amazon, or eBay.
Something to keep in mind is that the repayment term for these loans is only six months, so you should be prepared to pay the loan back quickly. You’ll also pay rates that work out to as high as 90% APR.
Kabbage can be a good option for small online businesses that have problems getting funding from other lenders, and those that need cash in a hurry and are confident they can rapidly repay the loan.
Bigger businesses and those that don’t need immediate cash should look elsewhere before using Kabbage because the cost you’ll pay for the loan will be so high.
Fundation has two different options for business loan products. They offer an operating capital loan of up to $150k, and business expansion loans up to $500k. The interest rates on their products range from 7.99% to 25%. Working capital loans have terms from one to two years, and expansion loans range from two to four year terms.
Funding can be disbursed in as little as three days, but you should be prepared to pay an origination fee of 3%. They require a more comprehensive application than other lenders, and your business will need to be at least two years old in order to qualify for funding. You will also need two full time employees other than yourself.
Fundation offers loans in all 50 states, and so many businesses can benefit from them. They’re best if you need cash in a hurry, and are looking for lower additional costs.
Fundation isn’t the best choice for new businesses or any sole proprietorships, as these businesses do not meet the qualifications. If you don’t want to spend a lot of time on an application, then you also might consider looking somewhere else for your small business loan.
Places to Find Small Business Loans
In addition to the lenders above, there are other places that you can check for small business loans. These institutions have their own set of advantages and drawbacks when it comes to securing funding for your small business.
When you need to borrow even larger sums of money for your business, banks are the best place to go to. Brick and mortar banks can offer substantial amounts of funding reasonably quickly, and have longer repayment terms. Moreover, because the process isn’t as automated, you’re more likely to be able to get a more flexible schedule on your loan terms.
The problem with bank loans is that they usually require large amounts of collateral, which isn’t as desirable as the unsecured loans that direct online lenders and peer-to-peer lenders offer. Moreover, banks don’t make as much money on small business loans as they do on other kinds of financial products, so they don’t give out as many loans. The application and approval process can also be intimidating for many small business owners, as you’ll be required to have far more paperwork, and will have to have a large down payment – as much as 30% or even more in some cases.
Credit Unions are becoming an increasingly popular alternative to banks for small business loans and other financial products and services. They approve a higher percentage of small business loans than banks do, and they have competitive rates compared to banks. Sometimes, the rates are even lower because credit unions are non-profit institutions and thus don’t have as much overhead or the need to generate money for shareholders.
One of the drawbacks to credit unions is that you’ll have to be a member of the credit union in order to secure a loan. Usually membership isn’t that hard to come by, but credit unions are even more likely to prefer working with established businesses than other lenders.
The Small Business Administration is a government agency that doesn’t offer loans directly, but it does secure loans by banks to small businesses if they meet certain qualifications. Because these loans are secured by the government businesses can be confident they’ll get a great deal on them relative to other loans. The government backing means the loan isn’t as risky, so you can get a much lower interest rate.
There are some limits and drawbacks with SBA loans, however. They can take a while to get approved, sometimes as long as two years. The application process is tedious and there might be caps on and limitations regarding how the money is used.
Online Small Business Lenders
Online lenders are a growing option for small businesses that can’t get loans through other channels. These lenders offer speedy service and flexibility on terms and requirements. They can come in the form of direct lenders where the money comes directly from the institution, or from a peer-to-peer network where the loan is funded by a collection of investors. Additionally, many of these lenders require that the owner personally guarantee the loan, which puts individuals at risk as well as businesses.
Best Advice for Getting a Small Business Loan
When it comes to getting a small business loan, there’s no such thing as a sure bet. You can increase your chances for success by following these steps.
Make sure your personal credit history is as clean as possible. This will help demonstrate that you know how to manage money and make your business a more appealing option for lenders and investors. Newer businesses might also consider taking out a personal loan to start their business, in which case the decision will be made solely on your personal credit.
Make sure you’re clear about how you plan to operate and get the loan paid back. This will help lenders and investors have the confidence they need to decide your business is a good bet. Make sure you have all of your documentation and explain how you’re going to beat the competition.
Do Your Research
Savvy business owners know that you should always evaluate your options, and small business loans are no different. Check out several different sources for funding so you can compare the rates and terms and make the decision that’s best for your particular business situation.
Pick the Right Lender
Make sure you know what kind of lender you want to work with. If you’ve been doing business for a while then you may consider a bank for your first choice, whereas a new business will want to look for different funding channels.
Best Small Business Loan Ranking Methodology
You should know how we decided on the businesses we did for our Top-Ranked Small Business Lenders, so we’ll explain our criteria and methodology here.
We checked how much money different lenders were willing to offer, and favored those that had higher limits so that businesses can be confident they’ll have access to all the capital they’ll need for their loan.
We heavily penalized companies that don’t clearly state what the requirements are for the loan, as this can result in wasted time and energy for small business owners.
APR determines how much you’ll be paying for the loan overall, so the lower the APR, the better the deal on the loan. We looked into which institutions offered the best APRs to ensure the most value for your money.
Having different options for payment scheduling and term length can mean the difference between a loan being an aid or a hindrance. This is especially true for businesses with seasonal fluctuations and retail stores, so flexibility was favored.
Clear Terms on Website
Clear, transparent terms on the website means that a lender is upfront and allows you to understand what you’re getting into so you can plan accordingly. This planning and predictability is key for any business, and that’s doubly true for business loans and debt.
We also favored lenders that had a faster turnaround time from application to funding. More often than not, the faster a business gets access to the capital it needs, the faster it will be able to pay back the loan. Getting your money quickly puts you in a better position to take advantage of a favorable situation.
We also looked at the reputation of the various lenders and made sure they had an established track record when deciding who the top-ranked small business lenders of 2017 are.
Finding the Best Small Business Loans
Finding the right small business loan can be intimidating, but the infusion of capital for your business can help take you to the next level. Don’t let fear stop you from making the moves you need to set your business up for success. A well-thought-out and strategically used small business loan can mean all the difference in the world for any small business, so don’t let yours miss out on potential opportunities.