Where to Look for the Best Small Business Loans

Though I focus on online lenders in my analysis above, you should evaluate all your options before committing to a lender. Here are the places you should look when trying to get a small business loan:

Banks

Traditional brick-and-mortar banks are still your best option for borrowing the largest amount of money at the lowest interest rates. They may also offer longer repayment terms if you need them.

Sounds great, but these loans require a lot of collateral and can be notoriously hard to secure. Even though small business lending has rebounded this year, the nation’s largest banks were still approving only 20.8% of requests in November 2014.

Application and approval can also be daunting — you’ll need to complete a slew of paperwork, put up to 30% down, and possibly wait a few months to see any money.

Credit Unions

Many credit unions are issuing small business loans, and they’re approving requests attwice the rate of big banks. Rates are competitive and sometimes lower since credit unions are nonprofits with less overhead.

You’ll need to be a member, though requirements are often as simple as living in a specific area. Note that though credit unions may be more flexible than big banks, they still primarily lend to established businesses.

SBA Loan Program

The Small Business Administration isn’t a direct lender, but it does provide government backing so that riskier businesses can get financing through partner banks and credit unions, which are assured they will receive a portion of their money back even if you default.

The SBA has several programs, but the most common is its 7(a) Guaranty Loan Program. Fees are lower and terms can be longer than those of non-SBA loans, but the main draw is the looser requirements. You may encounter drawbacks such as lower loan caps and stricter requirements on the use of the loan, however. For a more detailed look at SBA loans, check out our article on Navigating the Small Business Administration.

Online Lenders

Small business owners who have trouble getting loans through more traditional channels have a growing number of options online. Some online lenders directly lend money themselves, while others use peer-to-peer models that allow individual investors to fund your request.

Either way, the advantage of going online is speed: Most lenders can get you your money in a week or less. Applications are typically much less time-intensive, too. Of course, the major drawback is that your interest rate will be higher. It’s common for small businesses to secure bank loans with single-digit APRs. While that’s possible online, double digits are more the norm.

You may also have to personally guarantee the loan, which means your own credit and assets — not just those of your business — could be at risk if you default.