Best Small Business Loans for 2020 – About Your Online Magazine


At the moment, it could easily be the best time for small business loans since the subprime mortgage crisis in 2008. The better economic conditions, combined with a huge increase in competition, mean that more lenders are willing to lower their rates on loans to small businesses. companies to get good prospects.


Unfortunately, this does not mean that it is easy to obtain a loan for small businesses from traditional banks. You still have to try – you will usually receive a lower interest rate if you can qualify. But if you like most small businesses, it can be empty.

Fortunately, several online lenders are giving banks a run for their money (and customers) by working directly with small business owners. In many cases, these companies make the loan process more convenient, with faster payback, more transparent terms and more flexible loan criteria. However, be aware that you are likely to get a higher APR if you choose an online lender.

The best small business loans in 2020

If you are looking for a small business loan and have invested in your local banks and credit unions, there are several of the top online lenders that may be options for you. Here are some tips for getting the best financing for small businesses:

Best loans for small businesses from direct lenders:

Best point-to-point small business loans:

To find out what differentiates these lenders from the competition, read on. We will define the profile of each company and describe the most important criteria in choosing the best small business loan. We’ll also cover some basics on small business financing, including where to look first and tips for getting approved.

Best small business loans (direct lenders)

Unlike peer-to-peer lenders, who finance loans through individual investors, direct lenders finance their loan with equity, like a traditional bank. This means that you can get your money faster, but the APRs are likely to be higher. The lenders described below also work with a wide range of companies, including very new ones.

Bluevine

Bluevine has the distinction of offering invoice factoring, in addition to term loans and credit lines. It has a completely online process and seeks to have a transparent process with minimal fees.

Upsides Disadvantages
  • Low credit requirements, ranging from 530 to 600
  • Just need to be in business for three to six months
  • Short-term loans up to $ 250,000
  • Simple interest rates starting at 4.8%
  • Invoice factoring lines up to $ 5 million
  • No origination fees, prepayment fees, monthly maintenance fees or account closing fees
  • At least $ 100,000 in sales last year and $ 10,000 in monthly sales for billing invoices
  • Weekly fee charged for invoice billing
  • Established businesses with strong finances may qualify for better terms at another bank

For those who are good: Companies that need money to stretch payment terms and increase flexibility when paying suppliers. Bluevine is also a good option for companies that do not have an established track record and do not qualify for traditional bank credit.

Who should pass: Companies that have an established relationship with a bank loan provider are likely to be able to receive better rates and terms through these providers. Bluevine loans also reach $ 250,000 – entrepreneurs who need larger loans must turn to other lenders.

On deck

On deck offers term loans and credit lines. (Information on the difference between the two can be found here.) You can borrow up to $ 500,000 in less than a day with minimal paperwork. However, you will need to accept a higher interest rate and a shorter term (up to three years) in exchange for convenience and speed. There is also a list of industries that OnDeck does not currently lend.

Upsides Disadvantages
  • The minimum credit score is 600
  • Offers short and long term loans
  • Quick funding available
  • Easy application process
  • Must be on the market for 12 months or more
  • Needs at least $ 100,000 in sales in the last year
  • Simple interest rates start at 9%, but most applicants receive higher rates
  • The credit line limit is $ 100,000 and comes with a $ 20 monthly fee
  • Origination rate of 2.5% to 4%

For those who are good: Companies that need money quickly (and can pay quickly) are best for OnDeck. Less established companies will want to take a look, but keep in mind that high APR can become expensive quickly.

Who should pass: Proven companies that have less expensive options are likely to skip OnDeck unless the speed of the loan is their highest priority.

Kabbage

If your business is really in a jam, Kabbage can provide a loan of up to $ 250,000 almost immediately after filling out a simple application. You only need to have a commercial checking account or a PayPal account to apply, but Kabbage can also examine data from other channels that your company can use, including Amazon, eBay, Yahoo and QuickBooks.

Kabbage refers to your loans as “credit lines”, but that term only applies in the sense that you can continue to borrow, on a rotating basis, up to the approved limit. The repayment terms are like a loan, with interest paid on the principal for a fixed period of six or 12 months.

Upsides Disadvantages
  • The annual revenue requirement is only $ 50,000
  • Interest rates fall once during the term of your loan
  • No origination fees or other fees
  • The minimum loan amount is only $ 10,000
  • Must be in business for at least 12 months
  • APR on short-term loans may reach 90%

For those who are good: Kabbage is an attractive option for small online businesses that do not meet the more stringent requirements of other lenders. It is also a competitor for companies that need money with the shortest possible delay. In both cases, however, you should be able to repay what you borrow in 12 months.

Who should pass: Any larger company (or even a smaller company that has the luxury of time) should look elsewhere first because of the high APRs. Unless you repay your loan in advance, Kabage’s monthly interest can reach an APR of up to 90%.

Foundation

Foundation offers up to $ 500,000 for term loans, but the term can be up to four years instead of three. They also offer credit lines up to $ 150,000, with payment terms similar to Kabbage: you pay each new balance in equal installments over 18 months.

You can receive your funding as soon as one business day after signing up – an advantage of going through a direct lender like Fundation, instead of a point-to-point lender like Lending Club or Funding Circle.

Upsides Disadvantages
  • Term loans reach $ 500,000 with terms between one and four years
  • Credit lines up to $ 150,000
  • APR from 8.99% to 29.99% and includes origination fee
  • Must be on the market for 12 months or more
  • Must have at least three employees
  • Need good personal credit
  • Needs at least $ 100,000 in annual revenue

For those who are good: Any established company that needs a relatively high amount will quickly need to consult Fundation. Loans are available in all states, except Nevada, and there are no additional costs except the origination fee.

Who should pass: Financing will not be an option for any new business or sole owner. The application is also relatively time consuming and potential borrowers should be aware that it is a relatively new company, with little in the way of online reviews.

Best of the rest: point-to-point small business loans

Peer-to-peer loans connect borrowers directly to investors, each of whom typically finances a small portion of a diversified loan portfolio. While this option is generally not the best option for securing a low-interest commercial loan, the loan criteria are generally less stringent than in traditional brick and mortar banks.

LendingClub

LendingClub, America’s largest peer-to-peer lender, began lending to small businesses in 2014 as a separate program from its flagship product, unsecured personal loans.

Upsides Disadvantages
  • You only need $ 50,000 in annual sales
  • Large loans available up to $ 300,000
  • Fixed interest rates between 5.99% and 29.99% APR
  • Credit score must be fair or better (640+)
  • Must be in business for 12 months or more and own at least 20% of your business
  • Origination rate between 3.49% and 7.99%

Thrive

Thrive it is similar to the Lending Club, but without the separate small business loan program. However, your personal unsecured loans can be used for small business purposes.

Upsides Disadvantages
  • APRs vary between 6.95% and 35.99%
  • Lowest origination rate included, ranging from 2.41% to 5%
  • Loans only reach $ 40,000

Financing Circle

Financing Circle, a UK point-to-point lending giant dedicated exclusively to small business finance, launched in the U.S. in 2013.

Upsides Disadvantages
  • You can borrow up to $ 500,000
  • APRs vary between 4.99% and 22.99%
  • Quick online registration
  • Must be in business for at least two years
  • High minimum annual revenue of $ 150,000
  • A fair or better credit score (640+) is required
  • The origination rate varies between 3.49% and 6.99%

Where to find the best business loans

We only compare online lenders, but you should definitely evaluate all of your options before committing to a loan. Here are some other options to consider when trying to get a small business loan:

Banks

Traditional brick-and-mortar banks are still your best option for borrowing the most money at the lowest interest rates. They can also offer longer payment terms, if you need them.

However, remember that these loans require a lot of collateral and can be notoriously difficult to obtain. Enrollment and approval can also be daunting – you will need to complete a huge amount of paperwork, cut it down by up to 30%, and possibly wait a few months to see some money.

Credit unions

Many credit unions also issue loans to small businesses, and the approval process is generally more personal than at a bank, with things like an interview and letters of recommendation with more weight. Rates are competitive and sometimes lower, as credit unions are non-profit organizations with less overhead.

You must be a member of the credit union, but the requirements for joining are usually as simple as living in a specific area. Remember that, although credit unions may be more flexible than large banks, they still lend mainly to established companies.

SBA Loan Program

The US Small Business Administration is not a direct creditor, but it does provide government support so that riskier companies can obtain financing through partner banks and credit unions, who are guaranteed to get a share of the money back, even if you default.

The SBA has several programs, but the most common is the 7 (a) Guarantee Loan Program. The rates are lower and the terms may be longer than non-SBA loans, but the main attraction is the more flexible requirements. Still, you may encounter disadvantages, such as lower dollar limits and stricter requirements for using the loan.

Online Creditors

Small business owners who have trouble getting loans through more traditional channels have an increasing number of options online. As discussed above, some online lenders finance their loans on their own, while others associate it with individual investors, each of whom finances a portion of their loan.

Either way, the main advantage of going online is speed: most lenders can deliver your money in a week or less. Applications are also much less time consuming. Obviously, the main drawback is higher interest rates. It is common for small businesses to secure bank loans with single digit APRs. While this is technically possible online, two digits are more the norm.

You may also have to personally guarantee the loan, which means that your own credit and assets – and not just your company’s – are at risk if you use the standard.

How to get a small business loan

Getting a loan for small businesses involves a lot more work than getting a personal loan. You will need to stay organized, have a clear idea of ​​your needs, and be tenacious to refuse. Here are some tips to ensure the best financing package for your small business:

Step 1: Clean up your personal credit

If you are trying to get a loan for a startup, your personal credit score is very important. Without a substantial business history, creditors will perceive a low personal credit score as a greater risk, as they have little more to judge. Increasing your personal credit before applying for loans is not a quick process, but it can save time, frustration and money in the long run.

If your company is very small or new, also consider taking out a personal loan for business purposes. This means that your own personal finances are the only thing under the microscope (and on the hook if things go wrong). Your loan amount is likely to be less, but the process – and the loan criteria – will generally not be the ones involved. For options, see our guide on best unsecured personal loans.

Step 2: Have a business plan (and a sales step)

If you are looking for a big part of the change, it is not worth being vague. Tell your lender exactly why you need the money in the most detailed way possible. Present your plan for the future and explain how potential lender financing makes that plan possible.

You will also need a wide range of documents to support your case, including bank statements and tax returns. Be sure to define what makes your company a better bet than others. This is especially important if you think you may not be a slam-dunk candidate.

Step 3: Don’t rush and compare options

Before embarking on what can be a lengthy application process, it is smart to purchase and evaluate all of your loan options. Consider your own bank first, especially if you have a long and responsible relationship with them. Banks that know your background can be more sympathetic to your needs. This also applies to credit unions that lend to small businesses – they generally have more flexible criteria and more willingness to listen while you stand up.

Sites like Lendio can match you with creditors who are more willing to make a deal. After answering questions about your company and its needs, you will receive a list of creditors that may be suitable, all without answering the phone.

If you are targeting specific lenders online, compare interest rates, terms and eligibility requirements. The loan calculators found on many lenders’ websites can help you compare apples to apples.

Step 4: target the most likely sources of loan for your company

Larger banks tend to make larger loans to more established companies. So if you and your spouse have been running an online business for just a year and need only $ 20,000 to fill orders, you should probably not ask a large bank for a conventional loan. SBA Loans or online lenders are probably better bets in that scenario. Also check to see if there are specific lenders who make a lot of loans in your industry, especially if the industry does not have a high success rate.

On the other hand, if you have an established, low-risk business with a long history of healthy profits, you are probably a good candidate for a traditional bank loan, so it makes sense to look for it first.

How to choose the best small business loan in 2020

Most online lenders cannot compete with the low APRs that large banks can offer, but they make it easier to finance smaller and newer companies. Whichever way you go, prioritize transparent terms and fees, a simplified application process and, most importantly, an interest rate that you can manage. Here are the factors we consider when choosing the best small business loans:

  • High loan amounts: Online lenders do not normally offer the seven-digit loans that a large bank can offer. However, the best still offers considerable sums enough to make a real difference for a variety of small businesses.
  • Clear eligibility requirements: We look for lenders in advance about what you need to apply for. The application process for online lenders is generally more streamlined than for traditional banks, but it is still frustrating to start an application only to find that your company does not meet the minimum eligibility requirements.
  • Competitive interest rates: Large banks can usually make loans to small businesses with single digit APRs. Although the best candidates may receive similarly low rates from online lenders, double-digit APRs (up to 30%) are more common. Cash flow loans with very fast returns also tend to have higher rates.
  • Flexible terms: Online lenders generally do not provide the long payment terms available on loans to large banks, but the best ones offer some flexibility: ideally up to four or five years.
  • Detailed and transparent website: The best lenders have extensive FAQ pages and clearly detail the total cost of borrowing, including possible extra fees and variable interest rates.
  • Quick application and quick return: You can apply for a loan with some of the best lenders online in five minutes, and some can obtain funds in just a day or two.
  • Reputation: Since online loans are still a relatively new phenomenon, we place less weight on the longevity of each lender than usual. However, we were still looking for a significant number of positive reviews, BBB certification and at least a few years of business.

Researching the best small business loan rates

Despite the increase in alternative lenders online, it can still be tricky to get a small business loan. Even if you are a solid candidate, you may not be the right candidate for a creditor.

Your research on potential creditors is just as important to the process as your research on your business. The tools described above should help boost your search, but we also recommend that you check LendingClub if you have an established small business or a lender like Kabbage or On deck if you’re just getting started.

Finally, if you feel overwhelmed when it comes to dealing with your company’s finances, consider hiring a professional, such as a certified public accountant, to help you get organized. Many CPAs stand out as corporate CFOs and can be used part-time. Making this type of investment before applying for small business loans can pay off with faster acceptance and better terms. And if you need tips on how to keep your small business in black, read our booklet at Money traps for small businesses to be avoided.

Ask the Experts

Nick Loper, SideHustleNation.com

Nick Loper

Given the current situation with COVID-19, what should small business owners be concerned about when looking for a small business loan?

Be wary of adjustable interest rates, balloon payments and personal guarantees. There are many fine print on some of the SBA and EIDL loans; just make sure you are good with all terms and conditions.

How do you recommend that someone prepare to apply for a small business loan?

You want to put all of your books in order. This means your most recent profit and loss statements, balance sheets and tax returns. Get an accurate picture of projected monthly income and expenses and explain exactly what you plan to spend the borrowed money on.

As a small business owner, what should I do to prepare for retirement?

As a business owner, you have some distinct advantages when it comes to retirement planning. First, you can contribute much more to your tax-deferred retirement plans. For example, for 2020, you can contribute up to $ 57,000 to a Solo 401 (k).

The second advantage is that, at the end of your professional career, your business can be a salable asset in its own right. Small businesses generally sell for a multiple of annual profits, so the more you can expand the company

Kristen Edens, KristenEdens.com

Kristen Edens

What advice would you give to someone with little credit when applying for a business loan?

If you are considering a loan for your company, my first suggestion is to explore the purpose of that loan. What will the money be used for? Is it to build inventory or buy equipment? Is it to buy a store front? Is it for building a website?

If any of your capital needs can be met through personal savings, bootstrapping and sweat, explore these options first. So when you start a business, your income can help you pay off existing loans, which will increase your credit score and therefore make your case more attractive to creditors.

As a small business owner, what should I do to prepare for retirement?

Preparing for retirement as a business owner involves well-known advice on earning, saving, investing and eliminating debt. I also suggest creating your financial support team. This includes an accountant, a financial advisor, a real estate planner (regardless of the size of your assets) and your banker. Each specialist has a different view of how to help you better plan all aspects of your life, including unexpected health problems, unemployment, economic crises or other unplanned events. Some will require fees to resolve problems, but most are more than reasonable for the peace of mind they offer.

Brian Cairns, ProStrtegix Consulting

Brian Cairns

Given the current situation with COVID-19, what should small business owners be concerned about when looking for a small business loan?

There are a few things you must do before considering any loan. First, check your personal credit score and anyone in your company who owns more than 20% of it. Unless you have guarantees, and even if you do, the interest rate you receive will be highly dependent on the credit score of anyone who has a material interest (20% +) in the company.

Second, determine how much loan you can afford. How? You want to make sure that you earn 1.15-1.25 times the debt payment. Be wary of those who promise more than you can afford. You can ruin your credit the same way with easy money [as] with hard earned money.

What questions should you ask a credit agent when looking for a small business loan?

If you go to a major bank, you will need a credit score above 700. If the loan officer tells you that they can get it for less than that, ask them how many loans they have approved with grades below 700.

You also want to know if there is an early repayment penalty, that is, if you pay the loan before maturity, you are penalized. These deals basically mean that the bank will get all the interest on the money, whether you’re paying it on time or earlier.

How can someone get a loan on the best terms?

I have time. The best terms are through the SBA. These can take 3 to 6 months to be approved. If you need money quickly, you will pay a premium.

The best time to ask for money is when you don’t need to, but you anticipate that you can. This may seem counterintuitive, but your financial position will be better when you have more money available. If you are a seasonal company, get your loan during the season, instead of waiting until the end.

Dan Bailey, President, WikiLawn Lawn Care

Dan Bailey

Given the current situation with COVID-19, what should small business owners be concerned about when looking for a small business loan?

As much as we want to expect loans to be granted in good faith, many lenders can take advantage of the desperation of entrepreneurs. If you have been passed over by PPP (like many companies), don’t make decisions in a hurry. Consider and compare the terms. You will be overwhelmed with this loan for years to come. You need to make sure it’s favorable to you, however desperate it may be.

What advice would you give to someone with little credit when applying for a business loan?

Low credit is not always a disaggregator, especially now. However, I would recommend doing what you can to improve your score first. Make sure you have a business account and credit card and use it to make purchases that you pay for immediately. Also work with your suppliers to obtain extended credit, as this counts a lot.

Anna Serio, Loan Specialist at Finder.com

Anna Serio

Given the current situation with COVID-19, what should small business owners be concerned about when looking for a small business loan?

Small business owners should be careful about their ability to repay a commercial loan before withdrawing it. If you are unsure about your income in the coming months or year, look for a lender who will offer deferred payments for at least six months.

Also consider interest, which usually increases during the postponement. Some offer 0% interest during the postponement of emergency coronavirus loans, but not all (including loans from SBA). If interest rates continue to rise, your loan will generally cost more and you will have higher monthly payments.

What advice would you give to someone with little credit when applying for a business loan?

Support your secured loan and consider emergency loans. Usually, emergency loan providers do not consider your credit score when you apply and offer competitive rates and terms. This includes SBA programs like the Paycheck Protection Program (PPP). The SBA may consider your credit score when you apply for an EIDL (Economic Injury Disaster Loan), but it does not offer as much weight as other creditors.

As far as possible, stay away from high-cost financing, such as cash advances from merchants. They typically come with daily payments and can consume your cash flow. And many lenders do not make the cost easy for entrepreneurs to understand or compare with other loans.

What questions should you ask a credit agent when looking for a small business loan?

Ask about the loan rates, terms and amounts your company may qualify for when talking to a loan agent. Most companies do not qualify for the lowest advertised rates and many lenders do not advertise a maximum rate.

Also, ask about fees and how payments work. If there is a closing cost, ask if the lender adds or deducts it from your loan before receiving the funds, to see if you need to adjust your loan application to cover your costs.

Andrew Rodderick, Credit Repair

Andrew Rodderick

What questions should you ask a credit agent when looking for a small business loan?

1. Am I applying for the appropriate small business loan? The loan officer should be able to advise you on the right amount. More is not always better. The less risk you can put yourself in, the better. Getting enough to cover what you need, not a dollar more!

2. What else could I ask for? Você pode solicitar isso durante a sua inscrição para estar pronto para solicitar opções alternativas, caso seu empréstimo seja negado. O funcionário do empréstimo sugerirá coisas pelas quais você provavelmente será aceito.

Como você recomenda que alguém se prepare para solicitar um empréstimo para pequenas empresas?

Garantir [your] classificação de crédito está correta e revisar [your] arquivar completamente por quaisquer erros. Agrupe todas as suas finanças e as administre por um contador ou contador para garantir que tudo esteja em ordem. Verifique todas as opções disponíveis para empréstimo e faça uma auditoria do valor necessário para manter seus negócios sob controle.

O que é uma pontuação de crédito comercial? Como isso afeta a obtenção de um empréstimo?

Uma pontuação de crédito comercial é a medida da linha de crédito de uma empresa e sua capacidade percebida de pagar contas e pagar empréstimos. A pontuação é composta de vários fatores para determinar a posição financeira de uma empresa e seu nível de risco financeiro. A pontuação varia de 0 a 100. Quanto maior, melhor.

Quanto maior a pontuação, mais empréstimos e quantias serão assinadas pelas empresas. Pontuações mais baixas indicam riscos mais altos, portanto, mais chances de receber crédito negado e / ou oferecer taxas de juros mais altas.

Paula Fonseca