5 Best Small Business Loans of 2023

5 Best Small Business Loans of 2023

Our Top Picks for Best Small Business Loans

• Bluevine – Best for Lines of Credit
• OnDeck – Best for Prepayment and Loyalty Benefits
• Peak Capital Funding– Best For Quick Approvals
• Fundbox – Best for Cash Flow Predictions
• Biz2credit – Best for Business Insights
• Lendio – Best for Startup Loans

Types of small business loans

Business loans is more like a catch-all term for a variety of business financing products. The term includes loans, lines of credit, merchant cash advances, invoice financing and invoice factoring. The best funding solution depends on the type of business, the purpose of the loan, the owner’s credit profile and the business’s financial history.

Commercial real estate loans

Commercial real estate loans are used to purchase or renovate commercial property. Typically, lenders require business owners to occupy at least more than half of the property to qualify for this type of loan.

Invoice factoring

With invoice factoring, you sell your outstanding customer invoices to a factoring company at a discount. The company will give you a portion (say 90%) of the total outstanding amount and then collect payment directly from your customers. Once the company has collected payment from your customers, the factoring company will release the rest of the funds to you, minus a factoring fee.

Invoice financing

Not to be confused with invoice factoring, invoice financing involves borrowing against your unpaid invoices. Say you’re strapped for cash and have a stack of unpaid invoices. You can go to an invoice financing company, use the invoices as collateral and access a cash advance equivalent to the invoice’s value. When your customers pay their outstanding balances, you use that money to pay the invoice financing company.

The key difference between invoice financing and invoice factoring is that invoice factoring involves selling unpaid invoices to a third party while invoice financing does not. You still own the invoices and are responsible for collecting payment from your customers.

Equipment loans

Equipment loans are commercial loans that allow you to buy or lease the equipment you need without putting any money upfront. These loans use the equipment itself as collateral; if you can’t repay the loan, the lender will seize your equipment.

Business lines of credit

Business lines of credit are revolving loans, which means more funds become available to you as you repay what you borrow — similar to a credit card. Lines of credit are a good alternative for companies that need funds quickly to cover emergency expenses. You pay interest on what you borrow, and repayments are scheduled daily, weekly, or monthly.

Business credit cards

Business credit cards keep commercial credit card expenses separate from the owner’s personal credit activity. Cardholders benefit from higher credit limits, free employee cards for authorized users and rewards programs for regular business expenses like office supplies or ads on social media. Typically, business card issuers will report your credit activity to business credit bureaus so this is also a useful tool to boost your business credit history.

Term loans

Term loans are disbursed as lump sums and paid over a predetermined period, also known as term. Term loans can have fixed or variable interest rates and repayment terms of up to five years.

Merchant cash advances

A merchant cash advance allows you to get a lump sum amount in exchange for a percentage of your future credit and debit card sales. You can get same-day funding with a merchant cash advance, which makes this a great option for emergencies. However, MCA rates can be extremely high, and repayments must be made daily or weekly.

Franchise loans

Franchise loans allow you to get upfront financing to cover franchise fees, legal fees, real estate costs and other day-to-day expenses related to becoming a franchise.

How to get a small business loan

When looking for small business funding, consider the following tips.

1. Decide which loan type is best

Financing an expansion or covering cash flow issues, payroll and other overhead costs require different loan types. Take time to evaluate which lending institution is the right fit for your business too, be it an SBA-backed bank, an online lender or a peer-to-peer lending platform.

2. Look into various lenders

Business financing is available from banks, credit unions, online banks and peer-to-peer lending platforms. First, narrow down your options by choosing lenders based on their reputation and reliability. Once you’ve got a shortlist, finding the right match depends on what you qualify for, the type of financing your business needs and which banking service you prefer, whether online or traditional.

3. Compare interest rates

Shop around and compare funding options from different lenders to get the lowest rate. Keep in mind that revolving loans, business credit cards, accounts receivable financing and merchant cash advances can have higher interest rates than other funding options. Additionally, non-bank online lenders tend to offer much higher rates than banks. Don’t forget about the lender’s maximum loan amounts and term length options while you’re comparing interest rates.

4. Look into fees

Take into account any fees associated with the lender or the loan type. Most lenders will charge an origination fee, yet many will waive prepayment penalties and closing fees. Other fees may include funding, opening, closing, draw, maintenance and wire transfer fees.

5. Prepare to apply

To qualify for a small business loan, you will need a good business or personal credit score (rates of 660 or above are preferable) and a business checking account. You will also need to meet a minimum revenue requirement (most online lenders require at least $100,000) as well as business, legal and financial documentation:

• Loan application form
• Evidence of business history
• Business plan
• Business credit report
• Personal and business tax returns
• Bank statements
• Accounts receivable and accounts payable
• Collateral in the form of business or personal assets
• Legal documents such as articles of incorporation