Best Small Business Loans of 2021

Securing funding during critical times is a challenge for most small business owners. Alternative lending offers multiple options, including working capital loans, merchant cash advances, equipment financing, invoice factoring and term loans. We researched more than 100 lenders, scrutinizing their application process, qualification requirements, and loan rates to determine the lenders we think are best for various types of loans.

Choosing the right loan involves a clear understanding of two things: your business's current financial position and the future you see in store for your business. You want to carefully choose a loan that will not create problems for you down the road. 

When you need capital fast, it's important to maintain a clear head and think through some important issues. Assess how much money you need, how fast you need it and what you'll use it for – some loan options work better than others. You also want a clear plan before you agree to any type of loan about how you will repay it. If you don't take the time to answer these key questions and devise a repayment plan, you could be setting yourself up for a potential disaster. 

Before you apply with any lenders, reflect on how a lender would view you and your business. Also, scrutinize the lender's requirements. Check out the interest rates and determine if the loan is an amount you can reasonably afford to pay back. Compare the interest rates of various lenders until you find the rate that is best for you.  

Take time to understand the repayment terms, too. What does the payment schedule look like, and how long do you have to pay it back? Ask yourself: Does the term, the principal (the amount borrowed), and the interest rate make sense for you and your company?

Whether you're expanding your business, investing in marketing or advertising, or managing cash flow, it's hard to grow without the right kind of financing. Luckily, there are several different types of financing options for small business owners.

Traditional banks offer long-term loans for major purchases, SBA partners can provide small business-specific loans, and alternative lenders provide creative options like invoice financing and lines of credit.

Banks and alternative lenders can generally meet your funding needs if your business is financially stable.

Here is a brief overview of the types of loans that are available to small business owners and how the funds can be used. 

SBA Loans

U.S. Small Business Administration loans are processed by lenders and banks. They are low-interest loans that are available to help business owners expand their business (buy a business, land or equipment) or recover after a natural disaster. The maximum amount of money you can receive from an SBA loan is $5 million. 

There are four specific types of SBA loans: 

• SBA 7(a) loans are a good option for buying a business, working capital or buying equipment for your business. These loans are ideal if you're looking to grow your business. You can borrow up to $5 million. SBA 7(a) loans feature a variable interest rate, which is tied to the prime rate. Collateral is required.
  
  

• A 504 loan also has a cap of $5 million. Many business owners use a 504 loan to purchase machinery or land. 504 loans cannot be used for working capital or inventory. Interest rates are typically fixed and are based on five and 10-year U.S. Treasury bond rates. No collateral is required.
  
  

• SBA microloans can be used for working capital, to purchase supplies or equipment or fixtures or furniture. Rates vary from 8-13%. Loans are available from community-based nonprofits, and the maximum amount you can borrow is $50,000.
  
  

• An SBA disaster loan offers up to $2 million in loans. They are designed specifically for small business owners affected by natural disasters or global crises. According to the SBA, interest rates are fixed and are determined by legally established formulas (Rates typically range from 3-7%.)
  
  

Term Loans

When you take out a term loan, you get a sum of money that you are required to pay back in installments over a set time period. 

• Short-term loans are designed to be repaid in less than a year. Funding can be quick – it can take one or two days before the borrower can access funds. Loan amounts range from $5,000 to $250,000.
  
  

• Long-term loans are designed with established businesses in mind that are looking to grow. Repayment terms cover several years. They have low monthly interest rates and financing can be up to $100,000.
  
  

Line of Credit

An option for small business owners is a line of credit (LOC). LOCs provide quick access to capital, and you're not bound by certain rules about what the money can be used for. LOCs can be secured or unsecured (most are unsecured). The amount you can borrow and the interest rate are determined by the lender. Also, interest begins accruing as soon as you draw on your LOC. Many LOC loans have qualification requirements such as a minimum annual revenue, how long your company has been established, and, in some cases, business owners must have a minimum credit score of 500 or higher.

Merchant Cash Advance

A cash advance is a lump-sum payment – an advance – that business owners borrow against future income. Businesses repay advances using a portion or percentage of credit card income. The fees for merchant cash advances can be very expensive.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending is a loan from another business owner or individual investor interested in financing your business. This cuts out the need for banks. However, P2P lending is not allowed in some states.

Unsecured and Secured Loans

An unsecured loan doesn't require you to put up collateral. However, you must have good credit to qualify, which is considered a score of 630 to 850. Maximum loan amounts go up to $50,000. 

A secured loan requires collateral. Loan amounts range from $50,000 to $100,000, and many owners use these funds to cover startup costs.

When seeking a loan, understanding the ins and outs of the lending process, the lender's qualification requirements and the terms of your loan is vital to securing the capital you need now without compromising your business's future. 

As you compare various lenders, pay attention to the following elements.

Loan Process

As you evaluate lenders, ask how long or detailed the application process is. During this time, your lender collects information like how much income your business generates and the debts you have to assess your ability to pay back the loan. 

In each of our reviews, we've listed the average turnaround time from the time an individual applies to when the loan is funded. 

You can speed the approval process by having certain documents in order, including your business's tax income tax forms, bank statements, financials, and possibly other documents like your articles of incorporation, franchise agreements, etc. As part of our reviews, we've listed the documentation you'll likely be asked to provide.  

Interest Rate

Small business loans accrue interest, which is the price you pay for a loan. Rates can be fixed or fluctuate (variable). Generally, though, alternative lenders offer a fixed interest rate. Your interest rate will vary depending on the lender you partner with, your business's financials, the credit score and credit history of the business owner, and how long your company has been established.

Term

The loan term is the period of time the lender specifies during which you make minimum payments that comprise the principal of the loan and interest. Ensure the loan has a reasonable term that helps you plan accordingly so you can meet your company's needs while also making the minimum payment.

Qualifications

There is a lot that goes into getting approved for a business loan. Qualifications are the standards a lender has for its borrowers. If there is a specific loan you have in mind, investigate the lender's qualification criteria beforehand so you know what you need and must do to qualify. 

Typically, lenders have certain minimum credit score requirements or expectations regarding other aspects of your business that they use to determine if you qualify. We've detailed eligibility requirements for each of our six best picks.

Collateral

Collateral is an asset you offer or pledge to back your loan. In the event you cannot pay back your debt, the collateral is forfeited to the lender. Collateral can be your building (if you own it), equipment, personal accounts or property.

Lenders that offer secured loans usually request that the business owner put up a certain amount of collateral. Unsecured loans, though, do not require collateral. But before you breathe a sigh of relief, lenders sometimes require that the business owner make a personal guarantee – a binding legal document that states you will personally pay back the loan if your business can't. If the debt is nondischargeable and you go on to file personal bankruptcy, you're still obligated to repay the debt.

Funding Time

Qualifying for a loan is great, but it is important to know when you will actually have the funds deposited into your account. Knowing this upfront helps you plan accordingly so you're not in a cash crunch for payroll or other business operating expenses.  

Special Documentation

Some lenders require you to provide additional documentation like tax returns, photo identification, bank and credit processing statements or a voided check. We've specified with each of our best picks the documentation requirements they have.

What is the easiest business loan to get?

The answer to this question depends on how much you need and how you intend to use the funds. There are many lenders that have minimal qualification requirements for annual revenue, time in business and the personal credit score of the business owner. This is helpful for startups without a financial history that cannot meet the requirement lenders have for more established organizations. Be sure to read our reviews to see which lenders have less-onerous eligibility requirements.

Do startup business loans require personal guarantees?

If the loan you're considering is unsecured (no collateral is required), more often than not, you're going to need to provide a personal guarantee. This is the case for most startup loans because this is how lenders protect themselves if you're unable to repay the loan.

Will lenders look at my personal credit?

If you are starting a new business, there isn't a financial history for your company. Rather than evaluate your business's credit, lenders check your personal credit. This is common, especially if you are a new business owner. Sometimes looking into your personal credit is the only option lenders have.

How important is your credit profile when applying for a small business loan?

Your credit profile has a significant impact on whether you'll be approved for a small business loan. Unless your business has been around long enough to establish solid credit, lenders look at your personal credit profile to assess your creditworthiness. The higher your credit score, the better.

Many lenders also require collateral to underwrite the loan. It could be your home, car or other private property of value. If your business fails to pay back the loan, the lender can come after that collateral.

What credit score do I need to qualify for a small business loan?

The minimum credit score you need to qualify for a loan ranges from 620 to 640 or more. However, the requirements are based on the type of SBA program you're seeking and your lender. For an SBA 7(a) loan or SBA 7(a) express loan, borrowers should have a score of 640 or more. If you're interested in the SBA CAPLines program or an SBA export loan, you should have a credit score of at least 660. SBA CDC/504 loans require a minimum score of 680, and for an SBA microloan, a score of 620 to 640 is preferred. 

Online lenders often have more flexible requirements. Some provide loans to businesses with credit scores between 500 and 550. However, if your credit score is that low, you will likely pay higher interest rates.

Can you get a business loan if you have bad credit?

It can be hard, but it's not impossible. There are lenders who don't use your credit score as a determining factor in whether you qualify for a business loan or not. Some weigh your financial history and business success more than your credit score. 

If your credit score isn't great, shore up other parts of your business lenders value, such as revenue or sales. 

Does applying for a business loan affect your personal credit score?

Often, to be approved for a small business loan, you must personally guarantee the debt, meaning you will pay back the loan yourself if your company doesn't. The lender has every right to go after you individually if the loan is delinquent, and that could hurt your personal credit score. The same applies to a business line of credit. If you personally guarantee any loan and the business is unable to pay it, you are on the hook for it.

What documentation is required to get a business loan?

Among the documents you will need to provide lenders are your annual business revenue and profit, bank statements, personal and business tax returns, a business plan, business licenses and permits, proof of collateral, a balance sheet, a copy of your commercial lease, and any legal contracts and agreements you already have in place.

What is the fastest and easiest way to get a business loan?

The traditional way of borrowing money has long been to tap a local bank or credit union, but this route can take weeks before your business is approved and funded. Online lenders tend to do a better job in this regard, getting loans into business owners' hands in days.

Alternative lenders typically offer several loan options, including working capital loans, merchant cash advances, equipment financing, term loans and invoice factoring. Depending on the type of loan you choose, you could have money in your bank account in less than 24 hours.

Either way you go, you can speed up the entire approval process by having your business documentation ready, including tax forms, bank statements, financials and other documents related to your enterprise.

What assets can be used to secure a business loan?

Lenders vary in the collateral they'll accept, but in general, anything with value can be used. Common types of collateral for business loans are equipment, vehicles, real estate, inventory and accounts receivables.

Some lenders may require you to offer personal collateral not tied to your business. This could include vehicles, real estate and cash in the bank.

What are typical business loan terms?

There are several types of business loans, all with varying terms. Business loan terms can be as short as a few weeks or as long as 25 years.

A traditional bank loan has terms from three to 10 years. Medium-term business loans last one to five years, while short-term business loans are typically three to 18 months in length.

SBA small business loans have terms up to 25 years, but 10-year loans are more common.

What payback terms can you get for your merchant cash advance?

A merchant cash advance gives you quick access to the money from your credit card sales. However, it's a costly and risky way to access cash, with complicated terms.

With a merchant cash advance, you get an upfront payout and pay it back with a percentage of your future credit card and debit card sales, or you can make daily or weekly fixed payments. Either way, you make payments plus fees and interest until you've paid back the advance. The lender assesses how likely and able you are to pay back the advance, which impacts the fees you'll pay; your riskiness to the lender is known as the factor rate. The higher your factor rate (i.e., the greater risk the lender determines you to be), the more fees you're on the hook for.

Where can you find an SBA loan application?

There are a couple of ways to find an SBA loan application. You can DIY the entire process, starting out by searching for lenders who are approved by the SBA. Armed with that list, you can comparison shop and then apply directly on the lenders' websites or through their mobile apps.

Another option is to use the SBA's Lender Match tool, which connects borrowers with SBA lenders. You answer a series of questions, which the SBA says takes five minutes, and two days later you'll receive an email with offers from lenders. It falls on you to pick the right lender for you, but once you've settled on your lender, you apply directly with them. (The SBA's Lender Match tool is not for its disaster relief loans and assistance.)

What is a business installment loan, and why would I need one?

An installment loan is financing that you use to pay for equipment or property over a set period of time. Unlike a credit card where you have a revolving line of credit, your payments are fixed over the terms of the loan. Once you pay it off, the debt is settled.

Interest rates on installment loans are typically lower than credit cards' rates, but there's more risk. If you can't pay back the loan, the lender claims your collateral.

Installment loans are common for purchasing property, expensive equipment, business vehicles or other high-priced items. You can also use an installment loan for your startup funding. If you want it for this purpose, you'll need good credit, collateral, a sound business plan, and a willingness to offer up more guarantees.

What is a business line of credit, and how does it work?

A business line of credit is a revolving loan that business owners tap as they need funds to grow and/or fill cash-flow gaps.

Instead of getting a lump sum and paying interest on the full amount, you pay interest on the money you draw from the line of credit. Typically, a line of credit ranges from $1,000 to $250,000, though some lenders may issue higher amounts. Most lines of credit have a variable interest rate, which means the amount you pay changes depending on the prevailing interest rate.

A business line of credit can either be secured or unsecured. With a secured line of credit, you need to provide collateral – which is usually real estate or a valuable piece of equipment. If you don't pay back the money from the line of credit, the bank or lender can seize your collateral.  

With an unsecured line of credit, you don't have to provide collateral, but you may need to sign a personal guaranty. [Read related article: Should You Get an Unsecured Business Loan for Your Small Business?]

What is the Paycheck Protection Program Flexibility Act?

The Paycheck Protection Program (PPP) is part of the CARES Act, which received more than $2 trillion in aid to businesses and individuals in March 2020 to weather the pandemic. The PPP provided small business owners with forgivable loans on the condition that they used the money to keep workers on the payroll.  The program proved extremely popular, and the money earmarked for loans quickly ran out.

Under the new stimulus approved in late December, the U.S. government is providing $284 billion in new PPP loans to small business owners. Small business owners who received a PPP loan in the first round but have seen sales decline 25% or more can apply for the new PPP loan.

How can you use your small business loan?

Business loans can be used for multiple purposes. Some business owners take out a line of credit to expand their business, to manage cash flow or just for peace of mind. Term and installment loans can be used to cover an expensive piece of equipment, for inventory or for other business purposes.  Equipment loans are typically used for specific equipment purchases, similar to how a real estate loan can only be used for properties.

Depending on the type of small business loan, there could be restrictions on how you can use the proceeds. For example, some banks won't let you use term loan funds for speculative investments and other risky endeavors.

How is the CARES Act supporting small businesses?

In the early days of the COVID-19 pandemic, the federal government passed the CARES Act, a $2 trillion stimulus package aimed at lifting up struggling individuals and small businesses. Two programs born out of the CARES Act designed specifically for small businesses are the Paycheck Protection Program and the Small Business Administration's COVID-19 Economic Injury Disaster Loans. The PPP, which has been funded twice, provides forgivable loans to small business owners who keep employees on the payroll, while the EIDLs are low-interest loans that business owners pay back over 30 years.

We reached out to our small business owner readers about the qualities they looked for in a lender. Chef Kyndra McCrary, owner of Swift Cafe LA, said she wanted a lender who offered flexibility and support. McCrary said OnDeck had the qualities she wanted most in a lender. They met her at her level, and she used the funds to launch her business. 

"It was more customized," McCrary said. "And the terms and rates were more lenient." OnDeck, she said, took the time to build a rapport with her, and understand her business situation and needs. This level of communication was important to McCrary. "[OnDeck] worked … to [provide] the payments and terms that fit our time frame." 

Consistency was another feature that stood out to McCrary and why she chose OnDeck. During her search, she encountered lenders who provided inconsistent information on their website and in person, which made working with them difficult. Transparency and consistency are key qualities in a good lender, McCrary said. It is also a vital part of the loan process, because trusting your lender eliminates back and forth and confusion. 

"They were truthful, and I went to them more than once, and they were honest with their information," McCrary said about OnDeck.  

Other qualities that McCrary looked for in a lender were the interest rates and terms offered. McCrary said she wanted to choose a lender who would best serve her financially and not cripple her later with a difficult repayment plan.  

In the case of Brian Cairns, CEO of ProStrategix Consulting, a long loan term, coupled with low-interest loans, were important for him. Cairns has used SBA loans and highly recommends them, if you qualify.  

"These are the most stringent with qualifying requirements," Cairns said. "If you do not qualify for an SBA loan, commercial loans from smaller banks and alternative lenders are a good fallback." 

Using a merchant cash advance can be difficult in the long run if you do not do your research, said Cairns. He suggested using a merchant cash advance as a last resort. "We've seen many companies get into trouble by not doing their due diligence before entering these contracts."

The COVID-19 pandemic has been particularly tough for small business owners, and more of the same is expected in 2021 as the coronavirus continues to surge. When the pandemic hit, small business owners were forced to close operations or spend extra cash on social distancing measures. Many businesses didn't survive. The ones that did needed government aid and loans.

The government responded with the CARES Act, providing business owners with forgivable loans through the PPP. That has since expired, but more help from the federal government may come in 2021.

In lieu of more forgivable loans, in late October, the Federal Reserve Board reduced the minimum loan size for loans available through its Main Street Lending Program from $250,000 to $100,000. The Fed also clarified that PPP loans up to $2 million can be excluded from determining how much a business can borrow under the Main Street Lending Program.

These moves are designed to spark interest with business owners who favored PPP loans over the Fed's lending program. In 2021, small business owners who took advantage of PPP will need guidance on how to receive forgiveness on their loans and whether they will face a tax hit as a result.

Without a clear idea whether additional stimulus is coming, small business owners will continue to turn to online and alternative lenders for cash in 2021. Banks and credit card issuers have been less willing to lend to small businesses during the pandemic. Online and alternative lenders have stepped in to fill that void. In 2020, the Federal Reserve slashed interest rates, nearly to zero, and they aren't expected to rise dramatically in 2021.

Business owners who tap online and alternative lenders in 2021 will not only receive low interest rates, but advances in technology may improve the process. Artificial intelligence and machine learning are reducing loan approval wait times. Credit scores still matter, but lenders are increasingly scrutinizing other aspects of a business owner's finances to ascertain their creditworthiness. Altogether, these changes are designed to make it easier and quicker to get a small business loan in 2021.

As in 2020, the number of companies that offer online and mobile lending is expected to grow. Since digital options provide extensive financing opportunities and faster approval, they are expected to be increasingly popular choices compared to traditional banks and credit unions.

In recent years, large companies like PayPal and Amazon have made a big impact on the small business lending market. By 2019, PayPal had provided $10 billion and Amazon over $1 billion in loans to American small business owners. Along with Square, they have become top loan options for small businesses.

Digital lenders' use of personalized offers makes them more attractive to small business owners. Brands have learned to target consumers based on their specific interests, and we expect more lenders to follow suit. To provide entrepreneurs with the specialized funding they need at the right time, we predict digital lenders like PayPal and Amazon will increase their personalized offers to small businesses.

Peer-to-peer lending is also projected to increase among small businesses. With peer-to-peer lending, interest rates and loan offers are based on a business's earning potential rather than its credit score. As peer-to-peer loans become more common, the camaraderie within small business groups is likely to strengthen and grow. Transparency Market Research predicts the global peer-to-peer lending market will reach $897.85 billion by 2024.

Everything seems to be digital these days. Even grocery shopping has become a digital task, so it's no surprise business loans have followed suit. In 2020, the number of organizations that offer online and mobile lending is expected to increase.

While some credit unions and banks may jump on the bandwagon by creating digital loan applications for businesses, their platforms aren't expected to perform as well. Digital options offer more financing options and faster approval, which is why they've become popular among small businesses.

Companies like Amazon and PayPal have joined the small business lending market. Amazon gave more than $1 billion in loans to American small business owners. PayPal has shelled out $10 billion within five years. Along with Square, they have become primary loan options for small businesses.

We expect more lenders to follow the example of digital lenders like Amazon and PayPal, increasing their personalized offers to small businesses to provide entrepreneurs with the specific funding they need, when they need it.

Another trend we expect to increase in 2020 is small businesses seeking funding on P2P business lending platforms. Transparency Market Research predicts the global P2P lending market will reach $897.85 billion by 2024.

P2P lending is expected to increase in popularity, thanks to its low interest rates and loan offers based on a business's earning potential instead of its credit score. Automated lending platforms have grown steadily, which are steering businesses away from traditional methods and lenders and toward businesses within their circles and communities.

To help you find the right business loan, we researched and analyzed dozens of options. Here is a roundup of our 2020 best picks, followed by an explanation of how we chose them.

Locating the Best Services

We asked small business owners which lenders they have used and would recommend to others. To this list, we added lenders on our current vendor list, those who had reached out to us asking to be reviewed, plus others we learned about as we researched this topic.

Choosing the Best Services

After preliminary investigation, including a look at other best-pick lists, Better Business Bureau ratings, and initial research into each lender, we whittled the list down. After several rounds of research and other considerations, we arrived at a shortlist of companies to research further.

Researching Each Service

Next, we researched each lender, investigating the types of loans it offers, the amount of money that can be borrowed, the loan term, the application and approval process, and repayment process. We contacted each lender by phone and live chat (if this option was possible) and posed as business owners to gauge the support each company offers.

Our Best Picks

Ultimately, we settled on six best picks: Rapid Finance, OnDeck, Noble Funding, Kabbage, SBG Funding and Crest Capital.