Where to get a business loan
Key takeaways
- Business loans are available from a variety of lenders, including banks, credit unions and online lenders.
- Banks and credit unions are ideal for established businesses with good to excellent credit.
- Compared to traditional lenders, online lenders and nonprofits are more willing to work with businesses with poor or bad credit.
If you want to grow your business or make a large purchase but don’t have the funds or revenue to achieve your goals, a small business loan may be the solution. Loan options available from various lenders, including traditional banks, credit unions, online lenders and the Small Business Association (SBA).
Choosing the best place for a small business loan is key to getting approval. According to the 2024 Small Business Credit Survey, small banks had the highest full approval rate for business loans at 54 percent, followed by finance companies and credit unions at 47 percent, large banks at 45 percent, and online lenders at just 30 percent.
Understanding how each lender differs, what eligibility criteria you have to meet and the pros and cons can help you determine the best place to get a business loan.
Where to get a small business loan
There are several types of lenders available for small businesses. But since not all lenders are alike, choosing the best place for a business loan requires you to assess the benefits and drawbacks of available loan options.
Traditional banks and credit unions
Traditional banks and credit unions offer the most small business loan variety, including term loans, lines of credit, equipment financing, auto loans for commercial vehicles and commercial real estate loans. SBA loans, backed by the U.S. Small Business Administration, are also available through many banks and credit.
Business loans from traditional banks are ideal if you have good or excellent credit and your company has been established for at least two years. Your business should also be operating profitably. Otherwise, getting approved for a loan can be more challenging.
Pros
- Build business credit
- Face-to-face support (for banks and credit unions with physical locations)
- Low interest rates
- Several loan offerings with generous limits
Cons
- Extensive documentation requirements
- Less likely to offer prequalification
- Slower loan approvals and funding times
- Stringent eligibility guidelines
The 2024 Small Business Credit Survey found that 44 percent of low credit risk businesses — those with good to excellent credit — opted for a loan, line of credit or cash advance from a large bank. Another 31 percent went with a loan from a small bank, while only 11 percent went with a credit union.
Online lenders
Online lenders, including fully online banks and financial technology companies, often feature a more streamlined application process. Online lenders commonly offer faster loan approvals and funding times than traditional banks and credit unions.
Most online lenders offer the same forms of financing as traditional banks and credit unions in their lending arsenals. However, they also offer non-traditional loan options to business owners who don’t meet traditional credit scores, annual revenue or time in business requirements. These include merchant cash advances, invoice factoring and invoice financing.
Pros
- Non-traditional lending options
- Often, flexible or more lenient lending guidelines
- Rapid approvals and funding times
- Streamlined virtual application process
Cons
- May not report payments to credit bureaus
- No in-person customer support
- Steep borrowing costs on non-traditional loan options
- Typically, less favorable interest rates than bank loans
According to the 2024 Small Business Credit Survey, 24 percent of all businesses looking for a loan, line of credit or cash advance applied for financing with online lenders. When looking at medium to high credit risk applicants — those with fair to poor credit — the number jumps to 45 percent.
Nonprofits
Many microloan programs are administered through not-for-profit organizations. A popular option is the SBA microloan, which maxes out at $50,000. Funded by the U.S. Small Business Administration, it exists to help underserved business owners grow their businesses, including veterans and women.
SBA microloan interest rates typically range from 8 percent to 13 percent. The repayment period is up to six years. The loans cannot be used to pay off debt or purchase real estate, and you’ll likely be required to pledge collateral to get approved.
If an SBA microloan isn’t right for you, inquire with local nonprofits about other potential funding opportunities for your company.
Pros
- Accessible by underserved business owners
- Lower credit score minimums
Cons
- May require collateral
- Slow approval times
- Small maximum loan amounts
Nonprofits also provide financial support to small businesses in the form of grants. Many organizations target underserved communities, such as women, minorities and veterans, since they tend to face barriers to accessing capital.
What kind of lender is right for me?
When you’re ready to choose a lender, start by assessing your needs and decide on a loan amount. If you need a sizable loan — think $500,000 or more — you may have more luck with a traditional bank or credit union than an online lender or nonprofit.
Examine your financial health and review lender requirements
This can help you determine which loans could be a good fit. Most lenders have a credit score, debt-to-income, annual revenue and time in business requirement. If your business struggles in these areas, you may still qualify for short-term loans or alternative lending options.
Also, some lenders specialize in working with startups. Along with reviewing requirements, consider using a business loan calculator to ensure you know what repayments your business budget can afford.
Search and compare lenders
Once you know how you’ll use the funds, the amount you need and what types of loans are best, begin your search for lenders offering these lending options. Compile a list of lenders that could work and dig deeper to determine if they’re reputable or if you should look elsewhere. Look for reviews on Trustpilot and complaints on the Better Business Bureau website.
Get prequalified or preapproved
Some lenders allow you to view potential loan offers without impacting your credit score, including monthly payments, repayment periods and interest rates. If you have this option, comparing loan offers before applying will help you decide which lender offers the best deal. You’ll also avoid applying with lenders who aren’t a good fit.
Ultimately, a business loan from a traditional lender or credit union is best for established companies operating profitably. Your credit health is equally important — it must be up to par to qualify for the most competitive terms.
Funding from traditional lenders like banks or credit unions may be out of the question for those with bad credit. As an alternative, subprime borrowers should consider online lenders. These often have flexible lending criteria and offer several types of bad credit business loans, including term loans, equipment loans and lines of credit.
Bottom line
Figuring out where to go to get a business loan can be a big decision. You can get loans from online lenders, large and small banks, credit unions or some nonprofits. Evaluate your credit health and business loan needs and compare several lenders before applying.
Frequently asked questions
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