Running—and funding—a small business isn’t for the faint of heart. For over 82% of American entrepreneurs, funding their business means using personal savings, credit cards, or leveraging other assets. While it’s common, dipping into your personal savings isn’t something any small business owner wants to do.
Yet only 16.5% of entrepreneurs rely on small business loans from banks or other financial institutions to fund their business. While it may seem intimidating to turn to a small business loan to help you grow or expand your business, it’s an option more small business owners can—and should—consider.
If you’ve got questions about small business loans, we’ve got answers. We’re sharing everything you need to know about qualifying for a small business loan, plus giving you all the details about the 11 best small business loans to help you get the most out of your business in 2024.
What’s a small business loan?
A small business loan gives you access to capital that you can use to invest in your business. Small business loans define “small business” differently, but generally it’s described as having fewer employees, lower revenue, and operating independently of larger businesses.
The funds from a small business loan can be used for various purposes, including working capital (money available to meet your short-term financial obligations), renovations, technology improvements, real estate purchases, or staffing needs.
Depending on what kind of small business loan you’re applying for, the requirements, terms, and interest rates vary. Before accepting your application, lenders will ensure you’re eligible by looking at the condition of your business, available collateral, your cash flow, and your personal financial situation.
Who can apply for a small business loan?
Business loan requirements vary from lender to lender. However, knowing what lenders are generally looking for can help you decide whether you qualify for a loan. Here are seven factors that most lenders look at when determining if you’re eligible for a small business loan.
1. Personal and business credit scores
Most lenders will look at your personal and business credit scores to see if you can repay your debts. Traditional small business loans and government-backed SBA loans look for good personal credit (think 690 or higher) or excellent business credit to qualify. Online lenders are more likely to be lenient with credit scores, often accepting a personal credit score of 600.
2. Annual revenue
Many lenders have a minimum monthly or annual revenue to ensure you have enough cash flow to cover the cost of your loan. How much revenue you need will depend on the specific lender.
3. Business industry and size
Each industry comes with its level of risk—restaurants, for example, can have variable revenue, and therefore are seen as high risk. This can affect the terms of your loan. There are some industries that lenders won’t lend to, including adult entertainment, gambling, or money services. Additionally, the size of your business affects if you’re eligible for a small business loan. Each lender will have a definition for what makes a business “small,” so be sure to read the fine print.
4. Years in business
Most traditional business loans require that you’ve been in business for a minimum of two years. Some online lenders have less strict rules and accept businesses as young as six months.
5. Business plan
Lenders want to know that you have a plan on how to use the funds they lend you and see that you’ve got a solid plan to repay. A business plan that explains your goals and how you plan to reach them can help lenders feel confident. Some lenders might require a loan proposal specifically designed to show how you’d use the funds and how you plan to repay them.
To get a small business loan, you may be required to provide collateral to back the loan. Business collateral is an asset—equipment, inventory, or real estate—that can be seized if you default on your loan. Some loans will accept a personal guarantee, which requires you to repay the amount from your personal assets if the business defaults on payments.
7. Business and financial documentation
There’s a lot of paperwork that comes with applying for a small business loan. If you’re hoping to get your ducks in a row, here’s a list of what most traditional lenders will want to see when you apply:
- Personal and business income tax returns
- Profit and loss statements, balance sheets, and cash flow statements
- Personal and business bank statements
- Commercial leases
- Business licenses
- Articles of incorporation, if applicable
- Proof of collateral
- Business plan or loan proposal
- Any existing debt schedule
- Legal contracts and agreements
- Financial projections
Remember, each lender will have different specific requirements, but these guidelines are a great place to start.
The 11 best small business loans you can get in 2024
Whether you’re just starting or trying to expand your business, a small business loan can help you access much-needed financing—without dipping into your personal savings.
With a small business loan, you can hire the staff, buy the real estate, and do everything to help your business grow. Finding the best small business loan for your biz will depend on various factors, but these twelve loans are a great place to start your search.
Government small business loans
The U.S. Small Business Administration has a set of loans great for many small businesses in America. Their loans are designed to reduce lender risk and make it easier for small businesses like yours to access the funding they need.
All SBA-guaranteed loans have competitive terms that are comparable to non-guaranteed loans. Some of their loans come with ongoing counseling and education to help support you while you start and run your business.
Eligibility for an SBA loan is based on what a business does, the character of its ownership, and the location of the business. Additionally, you must meet their size standards (find out if you qualify here), be able to repay, and have a sound business purpose. They even have loans for those with bad credit.
1. 7(a) loans
The 7(a) Loan Program is the SBA’s primary business loan program. The maximum amount for a 7(a) loan is $5 million. Funds can be used for:
- Acquiring, refinancing, or improving real estate and buildings
- Short- and long-term working capital
- Refinancing current business debt
- Purchasing and installing machinery and equipment
- Purchasing furniture, fixtures, and supplies
- Changes of ownership (complete or partial)
- Any mix of the above
7(a) loans are available as a term loan, or you can use it as a line of credit. They cap interest rates, and you can choose long repayment terms if that works best for you and your business.
2. 504 loans
504 loans are another group of SBA loans. The 504 Loan Program provides long-term, fixed-rate financing for major fixed assets that promote business growth and job creation. The maximum funding amount for a 504 loan is $5.5 million, but certain energy projects can receive up to three loans of $5.5 million—one loan per project.
If you want to buy real estate, equipment, machinery, furniture, or fixtures, the 504 Loan Program may be a good fit.
Microloans are the SBA’s smallest loan program, offering funding of $50,000 or less to help you start or expand your business. The average microloan is approximately $13,000 and can be used for a variety of purposes to help you expand your small business:
- Working capital
A note: microloans can’t be used to pay down existing debts or buy real estate.
Small business bank loans
Most banks offer some form of small business loan program. Every loan will come with different eligibility requirements and conditions, so do your research. Below, you’ll find some of the best small business loans and lines of credit available from banks.
4. Bank of America
Bank of America has the most commercial and industrial loans of any U.S. bank. They offer several types of small business loans, including SBA loans, term loans, and business lines of credit.
If you’re already a Bank of America customer, you’ll benefit from discounted interest rates and other perks. Your business needs to be at least two years old for most Bank of America funding options, but their competitive interest rates and flexible repayment terms make it a great choice.
The maximum funding you can receive is $100,000, and you must have a minimum credit score of 670.
5. Wells Fargo
Another excellent option for small business bank loans is Wells Fargo. It’s one of the most active SBA loan lenders with three different lines of credit ranging from $5,000 to $1 million.
Wells Fargo’s lines of credit offer competitive interest rates and require no collateral to qualify. It does need your business to be at least two years old and have a credit score of 680 or higher to qualify.
If you’ve been in business for at least three years, PNC has options for unsecured and secured loans. Unsecured loans require no collateral, range from $20,000 to $100,000, and come with fixed interest rates and terms of up to five years.
PNC-secured loans start at $100,001, can be fixed or variable interest rates, and have terms of up to seven years.
7. U.S. Bank
For new businesses, take note: you can qualify for some U.S. Bank small business loans with less than a year in business under your belt. The fast-term business loan has a $250,000 maximum but has a quick application process compared to their larger loans (up to $1 million). It’s these fast-term business loans that only need a minimum of six months in business to apply.
8. Chase Bank
If you are looking for a smaller loan, Chase Bank offers fixed- and adjustable-rate loans starting at $5,000 with repayment terms of up to seven years. It also offers business lines of credit from $10,000 to $500,000, renewable every five years.
If you want to purchase real estate for your business, Chase has commercial real estate loans with fixed or variable rates starting at $50,000.
Online small business loans
Online small business lenders offer loans from the comfort of your home. What are the benefits of going with an online lender? Online lenders tend to accept lower credit scores and have quicker turnaround times. You may find that online lenders have less favorable interest rates and terms, but it all depends on the lender. Let’s look at the three best online lenders for small businesses.
Founded in 2006, OnDeck is one of the leading online lenders in the U.S. It offers term loans from $5,000 to $250,000 with payment terms of up to two years. They have a quick turnaround time, with some funding available as quickly as the same day. And, you qualify with a minimum of 625 credit score.
You do need to have a minimum of $100,000 in annual revenue to qualify, and must be operating for at least one year. OnDeck doesn’t lend to businesses in Nevada, North Dakota, or South Dakota, and can’t lend to businesses in certain industries.
An online lender offering lines of credit, Bluevine gives small business owners access to a line of credit that can be used on an as-needed basis. With funds ranging from $6,000 to $250,000, there’s flexibility to get a line of credit that matches your financial needs. You only need a minimum credit score of 625, and you must have been in business for two years to be eligible.
Bluevine doesn’t support businesses in North and South Dakota, Puerto Rico, and U.S. territories.
Are you looking for funding quickly? How about in just three minutes? Fundbox is an AI-powered lending platform that makes it quick and easy to access funding. In just three minutes, you’ll know if you’ve been approved for a line of credit between $1,000 and $150,000. And, the funds can be available as soon as the next business day.
Fundbox only requires a 600 credit score to qualify. But the repayment terms are quite short—only 12 or 24 weeks. So, if that timeline isn’t realistic for your business, look elsewhere for a financial solution.
What to do once you’ve secured a small business loan
Once you’ve secured a small business loan, it’s time to invest in your growth. Whether you’re using your funds for a new location, more employees, or better equipment, when you grow your business, you need to be ready to support it with the right tools.
Homebase gives you everything you need to take control of your growing business. Simplify scheduling, streamline payroll, and keep your team connected in one app built to help small businesses thrive.
Small business loans FAQs
How do small business loans work?
While all small business loans have different terms and conditions, they all work in the same general way. Small business loans give business owners funding as either a lump sum or a line of credit you can access on demand. When a lender gives your business money, you agree to pay the money back over a set period, plus agreed-upon interest and fees.
How do I qualify for a business loan?
There are different qualification requirements for small business loans depending on the lender. Most lenders have certain factors they’ll consider when determining who does or doesn’t qualify for a loan with their business.
These factors include, but aren’t limited to:
- Your personal and business credit scores. Most traditional lenders look for a credit score of at least 690 or higher; comparatively, online lenders usually accept lower credit scores (some as low as 600).
- Annual or monthly revenue. While the amount of revenue required differs from lender to lender, most lenders want to know you’re making a consistent amount of revenue to ensure you can meet your repayment obligations.
- Business size. Lenders will have a definition of “small business” that you’ll need to meet to qualify. This is usually dependent on the number of employees and revenue you generate.
- Business industry. Some lenders won’t lend to specific industries. It depends on the lender, but this often includes adult entertainment, gambling, and money services.
- Years in business. Most lenders require a certain number of years in business to qualify. Traditional lenders require a minimum of two years, while some online lenders only require six months.
What’s the average interest rate for small business loans?
The average interest rate for small business loans depends on the type of loan and lender. Here’s a breakdown of some of the most common small business loans and their average interest rates:
|Loan type||Approximate interest rate|
|Bank small business loan||5.75% to 11.91%|
|Online term loan||6% to 99%|
|SBA loan||11.5% to 15%|
|Business line of credit||10% to 80%|