If you want to grow your business or make large purchases, but you don’t have the funds or revenue to reach your goals, a small business loan could be the solution. Loan options available from a variety of lenders, including traditional banks, credit unions, online lenders, and Small Business Associations (SBAs).
Choosing the best location for small business loans is key to getting approval. According to the 2024 Small Business Credit Survey, small banks have the highest full approval rate of business loans at 54%, followed by 47% of financial companies and credit unions, and only 30% of online lenders.
Understand how different each lender is, the eligibility criteria you must meet, and the advantages and disadvantages that will help you determine the best place to get a business loan.
Where to get small business loans
There are several types of lenders available to small businesses. However, not all lenders are similar, so choosing the best location for your business loan requires assessing the benefits and drawbacks of available loan options.
Traditional banks and credit unions
Traditional banks and credit unions offer the most small business loan diversity, including term loans, credit lines, equipment financing, commercial vehicle car loans, and commercial real estate loans. Supported by US Small Business Management, SBA loans are also available through many banks and credits.
A business loan from a traditional bank is ideal if you have good credit or good credit and your company has been established for at least two years. Your business should also run profitably. Otherwise, getting loan approval is more difficult.
Online lender
Online lenders, including fully online banking and financial technology companies, often have a more streamlined application process. Online lenders typically offer faster loan approval and financing times than traditional banks and credit unions.
Most online lenders offer the same type of financing in their lending arsenals as traditional banks and credit unions. However, non-traditional loan options are also offered to business owners who do not meet traditional credit scores, annual revenue, or time for business requirements. These include merchant cash advancement, invoice factoring, and invoice financing.
Nonprofit organizations
Many microloan programs are managed through non-profit organizations. Popular options are SBA Micro Loanthis will be the biggest at $50,000. Funded by US Small Business Administrators, it exists to help underserved business owners grow their businesses, including veterans and women.
SBA microloan interest rates typically range from 8% to 13%. The maximum repayment period is 6 years. A loan cannot be used to repay debts or to purchase real estate. You may need to pledge collateral to get approved.
If SBA microloans aren’t right for you, ask your local nonprofit about other potential funding opportunities for your company.
What lender is the right one for me?
Once you’re ready to choose a lender, you can assess your needs and determine the amount of your loan. If you need a substantial loan that is considered more than $500,000, you need more luck with traditional banks and credit unions than online lenders and nonprofits.
Find out your financial health and check lender requirements
This will help you determine which loan is right for you. Most lenders have time on credit scores, debt to income, annual revenue and business requirements. Even if your business is struggling in these areas, you will still be eligible for short-term loans or alternative lending options.
Additionally, some lenders specialize in startup operations. In addition to reviewing your requirements, consider using a business loan calculator to see what repayments your business budget can afford.
Search and compare lenders
Once you know how to use your funds, how much you need, and what type of loan you’re looking for, you can start searching for lenders who offer these lending options. Compile a list of lenders that work well and can dig deeper to determine if they have a good reputation or if they should look elsewhere. Find TrustPilot reviews and complaints on the Better Business Bureau website.
Get or approve prequalification
Some lenders can view potential loan offers without affecting their credit score, such as monthly payments, repayment periods, and interest rates. If you have this option, comparing loan offers before applying will help you decide which lender will provide you with the best deal. They also avoid applying to inappropriate lenders.
Ultimately, business loans from traditional lenders or credit unions are ideal for established companies operating profitably. Your trustworthy health is just as important. To qualify for the most competitive conditions, they must be comparable.
Conclusion
Understanding where to go to get a business loan can be a big decision. You can get loans from online lenders, large and small banks, credit unions, or some nonprofits. Assess your credit health and business loan needs and compare several lenders before applying.
