Best Small Business Loans of June 2024

Small business loans can be a great way to get necessary funding for your business. However, there are a lot of factors that go into picking the best loan, from the rates and fees to the repayment structure. In this guide, we'll discuss the different types of business loans and what to look for when comparing options. We'll also provide some of our top picks to help you start your search.

A business loan is an agreement between your business -- or you, as the owner of that business -- and a lender for an agreed-upon amount. The lender will give you the money, and in return, you agree to repay that money at specific intervals. You will likely also need to pay additional interest fees, based on an APR (annual percentage rate) disclosed during the application process.

There are a variety of small business loan options depending on your needs and qualifications.

1. Term loan

The simplest form of small business loan is a term loan. Think of this as similar to a basic personal loan. You'll receive a set amount of money, and you'll need to repay it in regular, equal installments. Your interest rate will be set at the time of disbursement and your payments won't change for the duration of the loan. Once you repay the loan, you're done and the account is closed.

2. Line of credit

A line of credit is sort of like a reusable term loan, or perhaps like a credit card. You can draw on the line of credit, then repay the amount borrowed to free up funds. You can then draw on the line of credit again at a future date. Exactly how often or how much you can draw at a given time will vary by loan and lender.

3. SBA (Small Business Administration) loan

An SBA loan is a term loan guaranteed by the Small Business Administration and offered by various banks and lenders. SBA loans are good for lenders because the guarantee from the SBA reduces the risk; if you default on the loan, the lender doesn't lose as much money. SBA loans are also good for borrowers, since the reduced risk allows lenders to offer better rates, lower down payments, and more flexible requirements.

4. Equipment loan

Business owners who specifically need a loan to purchase new equipment may want to look into dedicated equipment loans. These loans are typically structured like a regular term loan, except the equipment you buy will act as collateral for the loan. This often means lower rates and fees, though a down payment may still be required in some cases.

Here are a few factors to consider when deciding on a business loan:

• Structure: Do you want a one-time loan or a recurring line of credit? What type of collateral, if any, do you want to put up? Are you willing to personally guarantee the loan? All of these questions will factor into which type of business loan you choose.
• Repayment: Each loan and lender will have its own repayment structure. You may need to make daily or weekly payments, or get away with monthly ones. Consider how often you want to make payments before choosing a loan.
• Cost: Interest rates and other fees can all impact the cost of a loan. These costs will depend not only on the type of loan you choose, but on the specific lender, your credit history, and even your business's revenue. It's best to compare multiple loan offers to ensure you get the most affordable loan.
• Timing: When you urgently need a loan, you may be more concerned with how quickly you can get funding over other factors. Just make sure you aren't letting haste lead you into a bad deal.

If a small business loan isn't right for your company, consider these other ways to finance your business.

Small business credit cards

I love using small business credit cards as a source of short-term funding for three reasons:

1. It can be free. If you pay off your balance in full before the due date, most cards won't charge you interest. If you need to carry a balance, you can get a card with an intro 0% APR deal to avoid interest fees on that balance, too.
2. They're reusable. Credit cards are like a line of credit; as long as you keep paying them off, you can use them again and again. In fact, using and paying off your card on time every month is a great way to build credit.
3. You can earn rewards. When the business budget is tight, earning that 2% to 5% cash back on your big expenses can go a long way.

Check out our best small business credit cards to find the right fit for your business.

Outside investors

Many businesses grow with the help of financing from investors. This could be as simple as taking on a business partner, or as complex as finding an angel investor or venture capitalist. Just keep in mind that most investors will want some sort of say in how your business is run. At the very least, you'll need to repay your investors with regular dividends or a percentage of your revenue.

Fundraising and crowdsourcing

Plenty of small businesses get off the ground with a little help from friends and family. (If you're not going to pay that help back, then they're donors, not investors.) In today's digital age, you can also look for donations from the world at large on a crowdsourcing platform like Kickstarter or Indiegogo.

Personal loans

If your business revenue isn't great but your personal credit is, you could potentially qualify for a personal loan even if a small business loan isn't an option. Most personal loans are term loans that typically range from 24 to 60 months, though shorter and longer loans are available. Interest rates will depend heavily on your credit and income.

Merchant cash advance (MCA)

A merchant cash advance is very similar to a personal cash advance. It's an extremely expensive type of short-term financing that promises a portion of your sales revenue as repayment. The pro of this type of financing is that your personal credit isn't much of a factor. The downside is that your interest rates can easily hit triple digits. This should be considered last-resort funding, and only if you have absolutely zero other options.

The terms and fees you get with your loan will depend on a lot of factors. However, here are some general points to consider when comparing your options.

Fees to watch out for

• Origination fee: Many loans, especially term loans, come with an origination fee. It's generally considered to be for the administrative costs of the loan. Not all loans charge this fee.
• Interest fee: The main fee you'll pay on any loan is the interest fee. This will depend on your interest rate. The higher the interest rate, the more fees you'll pay.
• Factor rate: Some financing products, like MCAs, don't provide an interest rate. Instead, they provide the factor rate. Multiplying the factor rate with the principal amount tells you the total you'll need to pay back. From there, you (or an online calculator) can determine your APR.
• Prepayment fee: Some lenders may charge you a penalty fee for paying off your loan early. That's because paying your loan off early usually cuts down on how much interest you pay overall.
• Application fee: This isn't a super common fee, but a few lenders may charge a fee just to apply for a loan. (I'd personally avoid these lenders.)

Figuring out your repayment terms

Broadly, the loan terms are all the terms and conditions that apply to your loan agreement. More specifically, we usually use the phrase to refer to the repayment terms, including the APR and payment frequency.

How long you have to repay your loan will vary based on a lot of factors, starting with the type of loan. An SBA loan could have a long repayment term of 10 years or more. Many small business term loans will have shorter repayment periods of around two years. A line of credit could have an even shorter repayment period of a year or less.

Your business loan agreement will spell out all of the repayment terms. Be sure to read through it carefully. You want to pay attention not just to your payments or how long the loan will last, but also to your total overall payment and your total interest.

The specifics of a loan application will depend on the kind of loan. In general, though, you'll need this information:

• Owners' personal information: If you're the only business owner, then you just need your personal info. If there are multiple owners, the lender may want everyone on the application. In many cases, the owner will need to undergo a personal credit check.
• Business tax ID number: Depending on the structure of your business, this may be your EIN (Employer Identification Number) or your personal Social Security number (if you're a sole proprietor).
• Business checking account info: The money you borrow will need to be deposited into a business checking account. Most lenders will also require payments to be made via debit card or ACH transfer from a small business bank account.

Business banking statements: You may need at least three months' worth of bank statements to prove your company's annual revenue. Depending on your business and the lender, you may require more in-depth profit-and-loss documentation.