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Top 8 Small Business Loans 2021

SBA Loans

These are business loans guaranteed by the Small Business Administration. SBA loans are usually provided through an SBA-approved lender and guaranteed up to 85% by the government.

SBA loans are less risky for banks and also allow the lenders to provide financing to businesses who may not qualify for a traditional loan. SBA loans can be used for just about any business purpose- including working capital, purchasing of inventory, refinancing debt or even buying real estate.

SBA loans offer competitive rates and long terms, making them a very attractive option for a lot of businesses. However, SBA loans come with a lot of requirements and take longer to fund so if you need funds quickly, this may not be the best option for you.

Business Term Loan

As the name implies, this is a loan with a set repayment term length, usually from a few months to as much as 10 years depending on who you are getting the loan from. Business Term Loans are offered by traditional banking institutions as well as online lenders and can range in size from $2,000 to $5 million, with annual percentage rates ranging from 6% to 99%

Qualifications for this type of loan differ from lender to lender, but in general banks will carry stricter requirements while at the same time offering lower rates than Online Lenders. If speed is of the essence, an Online Lender may be more appealing since they can offer loser restrictions, faster closing time frame and convenience, but typically carry a higher cost.

Business Line of Credit

Very similar to a standard credit card, this option provides you with a line of credit, you can draw funds as needed and repay them over time. Business Lines of Credit can be issued by traditional lenders, like banks, as well as online lenders. Lines of credit can range from $1,000 to $500,000 and can be used to address any business expense that comes up.

Business Lines of Credit are subject to credit review. Although not all lenders set a minimum credit score, most lenders usually look for a score of 500 or higher to qualify as well as at least 6 months in business and $25,000 in annual revenue.

Business Lines of Credit have a short approval timeframe and funds can usually be accessed in a matter of days. Traditional lenders, like banks, usually take longer than online lenders to set up new lines of credit.

Equipment Financing

This is a business loan that provides capital for the sole purpose of purchasing new or used equipment, be it vehicles, machinery, or technology. Equipment Financing is an asset based loan, where the equipment becomes the collateral for the loan in the event you fail to repay the loan. Usually you are able to borrow as much as 100% of the cost of the equipment and like a term loan, your pay back term is usually 4 to 6 years, although some lenders will offer up to 10 years terms.

Rates will vary depending on your credit score, business revenue, up-front deposit for the equipment you’re financing and rates can vary between 8% and 40%

This is an attractive loan since it is usually the financing option with the lowest interest, the business owner gets to own the equipment at the completion of the term, but also runs the risk of ending up with outdated equipment in the end.

Merchant Cash Advance

This is one of the most popular forms of financing as it provides businesses with quick access to funds, an easy approval process as well as being accessible to both startups and businesses with bad credit.

MCA loan amounts can range from $5,000 and can go as high as $500,000 but unlike a term loan where the repayment amount is fixed every month, an MCA is paid back daily or weekly and is usually set as a percentage of your credit and debit card sales for that period. The financing company will take payment directly from your payment processor, this way repayments are based on your sales.

MCA loans can be very appealing to a business owner needing cash flow since they can be funded as fast as the same day or next day, but this comes at a risk. MCAs have very little regulation and business owners should be aware of the high APRs associated with this type of funding.

Invoice Financing

This is a way for a business to borrow money solely based on their unpaid invoices, these are used as the collateral for the loan. Typically a great option for B2B and service based businesses, but not so much for B2C businesses.

Invoice Financing can be an attractive option as it provides fast cash flow with little processing time, usually 1 business day, easier qualification requisites and many lenders can advance up to 100% of the invoice value, but this can also be a pricey option.

Invoice Financing main drawback is cost as the business owners relies on getting their invoices paid on time. Extending the term usually comes with an associated factor fee for each week outstanding until the invoice is paid.

Invoice Factoring

Is basically a way for a business to sell their unpaid invoices at a reduced rate and gaining access to immediate capital in the process. Mostly an option for B2B and service based businesses since these types of businesses will usually have outstanding invoices for 30-90 days.

Invoice Factoring involves handing over your invoices and having the “funder” be the one receiving payments on your invoices directly from your customer. When working with a funding company, you’ll want to make sure they follow ethical and fair protocols when dealing with your customers.

Microloans

These are typically small loans up to $50,000 to help small businesses and provide low-interest rates. Microloans are designed to help self-employed individuals, startups or small businesses with few employees.

Microloans are not usually issued by regular banks, rather they are issued by Non-profit community based organizations or alternative lenders. Many nonprofits are mission-based, and as such, this type of loan can be very helpful to womenminority owned businesses and other underserved entrepreneurs. This type of loan can be used for a variety of purposes and include things like: Working Capital, Inventory, Supplies, Equipment and many others

Microloans usually have a max repayment term of 6 years and carry an interest rate between 8 and 13%. Terms will vary depending on the planned use, lender requirements and needs of the small business owner.

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