Small business loans are accessible through banks, credit unions and online lenders. But with so many options, it can take time to identify which lender is best.

To narrow down your list of options and find the right fit for your business, consider each lender’s eligibility criteria and reputation. Also, if it’s an option, get prequalified with the lenders you’re considering and compare loan quotes to make a wise financial decision.

Here’s a step-by-step breakdown of how to evaluate your options and move forward with selecting the best small business lender.

1. Consider your needs

How much are you looking to borrow? If you haven’t yet decided on a loan amount, you’ll need to assess your cash flow and unmet need to come up with a figure. Once you have a number in mind, use a business loan calculator to determine how much you can actually afford to borrow.

It’s equally important to evaluate the types of business loans available to you. Depending on your revenue and desired loan amount, you’ll find that some loan options are more ideal than others.

2. Consider your qualifications

Each lender has its own eligibility criteria that vary by loan product. That said, you should keep these general guidelines in mind:

  • Credit score. Most lenders have a minimum credit score requirement for small business loans. Some will also check your business credit score, particularly if you’re pursuing a large amount.
  • Debt-to-income ratio. Lenders also assess your debt-to-income ratio to determine if you’re a good fit for a loan. This figure lets lenders know if your company is in a financial position to handle more debt or if it’s overextended.
  • Time in business. You’ll generally need two or more years in business to qualify for a business loan from a bank. However, some lenders will consider you for funding if you’ve been established for at least six months.
  • Annual revenue. Lenders also typically have yearly minimum revenue requirements you must meet to be considered for a small business loan.

When evaluating lenders, ask about their specific requirements for the loan products you’re considering. You may find that some are more stringent than others and may or may not be a good fit for your company.

3. Search for matching small business lenders

Now that you’ve calculated how much funding you need and understand eligibility guidelines, it’s time to familiarize yourself with the different types of small business lenders. You can secure financing from a traditional bank, credit union, nonprofit or online lender.

Conventional bank loans come with attractive interest rates and generous loan terms. That said, the eligibility guidelines are often more stringent than you’ll find with online lenders, and the funding times are much slower.

SBA loans, backed by the U.S. Small Business Administration, also come with competitive interest rates. They’re offered through SBA-approved lenders — including banks, credit unions and online lenders. Eligibility requirements will vary among lenders.

Some nonprofit organizations extend microloans to underserved small business owners. The loans are much smaller than you’ll get with a conventional bank loan. Still, they are often more accessible even if you’ve had past credit challenges.

If you need a different option, alternative lending solutions, like online lenders, direct private lenders and peer-to-peer lenders, are worth considering. They offer small business loans, including microloans, bridge loans, lines of credit, invoice factoring and merchant cash advances, but with more flexible eligibility guidelines. Some alternative lenders also do not require a credit check to access funds.

4. Research the lender’s reputation

How are your top picks perceived by past and current customers? Do they offer exceptional or subpar customer service?

Check online reviews from Trustpilot and complaints on the Better Business Bureau platform to determine if most of the feedback is positive or if there is cause for concern.

5. Prequalify, if possible

Many lenders offer online preapproval or prequalification that only requires a soft credit check and won’t hurt your credit score. If there’s a match, you can view potential loan offers, including terms, interest rates and monthly payments.

A hard credit inquiry will be generated if you decide to move forward or if getting prequalified isn’t an option and you apply to view loan offers. It can dip your credit score by a few points, but it should rebound relatively quickly.

6. Compare your options

Review the loan quotes you receive and compare them to see who’s offering the best deal. When evaluating each option, consider the following:

  • Which lender offers the lowest interest rate and APR (annual percentage rate)?
  • Is the interest rate fixed or variable?
  • Does the lender charge an origination fee?
  • Is there a prepayment penalty if you decide to repay the loan early?
  • Are interest rate discounts available if you enroll in automatic payments?
  • Can you apply online, or do you have to visit a physical branch?
  • How fast can you expect to receive funding?
  • Can you manage the loan online?
  • Is collateral required?
  • Does the loan term and monthly payment work for your company’s budget?
  • Is in-personal support available, or are you limited to online or phone support?

Ultimately, the lender you select should be reputable and offer the lowest borrowing costs available to you. Their application process and funding timelines should also meet your needs.

7. Make your pick and complete the process

The final step is to select formally apply for a loan. Be sure to gather any documents they’ll need before applying to expedite the processing of your application.

You can apply online with many lenders, but some — particularly banks — require you to visit a branch or schedule a phone call to move forward. Either way, after submitting your application, you’ll hear back from the lender with a decision or request for additional information or documentation needed to process your application.

Online lenders generally provide a decision in minutes or within the same business day. Expect to wait a few days with most traditional lenders.

Once the lender issues the final approval, you’ll review and sign the loan documents. The lender will then close the loan and disburse the loan proceeds to you.

The bottom line

Not all business lenders are the same. So, before applying, it’s worth exploring your options. Start by understanding your unique needs and general funding guidelines.

Also, familiarize yourself with what to expect from each lender and get prequalified with at least three lenders that meet your needs to ensure you get the best deal on financing.

FAQs about choosing a small business lender

  • When evaluating small business lenders, consider their offerings, eligibility guidelines and funding times. Confirming that the lender is reputable and offers exceptional customer service is equally important. Ideally, the lender you choose should feature loan options with competitive interest rates, minimal fees and flexible loan terms.
  • Identify your unique funding needs to decide which business loan is best for your company. You should be clear on how much you need to borrow, how you’ll use the funds and how much time you’ll need to repay the loan.
  • It depends on the type of business loan you select. However, the best rates are generally reserved for borrowers with good or excellent credit. So, it’s worth improving your credit score if it’s on the lower end to qualify for attractive loan offers.
  • Use the SBA’s Lender Match tool to find SBA-approved lenders in your area. The lenders you’re matched with will depend on your industry, the age of your business and the amount of funding you need. Interested lenders will reach out within two days to discuss your funding needs, and you can compare your options based on what each offers.