Loan & Lender Information
Rates & Fees
Small Business Loans Review
The Best Small Business Loans: Our Recommendations
A small business loan can help your successful business grow. Perhaps the time is right to open a second location, or you're preparing to introduce a new product line, or you have an opportunity to acquire a competitor. Although bank loans often offer the best rates and terms, even businesses with good credit and a solid business history may have difficulty qualifying for them. In such cases, an SBA 7(a) loan is worth considering.
This type of loan is regulated and a percentage of it guaranteed by the Small Business Administration, so interest rates are low and terms are favorable. We’ve chosen to review lenders of this specific type of loan because they're highly reputable and the SBA offers certain protections to both the lender and to you, the small business owner. The three best small business lenders in our review are . . .
1. Wells Fargo
- SBA top 100 lender
- Low down payment
- Fixed and variable interest rates
- SBA top 100 lender
- Low interest rates
- Lower down payments than average
- SBLC nonbank lender
- Fastest loan funding
- No life insurance requirement
Why Get an SBA 7(a) Loan?
SBA 7(a) loans are desirable because rates are capped, fees are regulated and terms are flexible. They can also be used for a variety of purposes, including the following:
- Business expansion or acquisition
- Large purchases such as machinery and materials, furniture and fixtures, or other equipment and supplies
- Building purchase, construction or renovation
- Long- or short-term working capital
If your finances are in order and you have good credit and ample time, an SBA-backed loan can be a good option. However, if a fast turnaround is critical or your credit needs improving, online lenders offering alternative small business loans can help you procure the funding you need.
Peer-to-peer lending is another option if your credit isn't quite good enough for a bank loan or if the amount of money you want to borrow is smaller than banks want to lend. Merchant cash advance lenders can provide you with a useful solution if you need cash quickly, and it's convenient for you to repay the loan in small daily installments that the lender automatically subtracts from your credit card sales. If you fill out the survey at the top of this page, you'll receive quotes from lenders offering various funding options.
Finding the Best Small Business Loans: Our Methodology
We began our research with a list of 23 lenders. From this list, we eliminated companies that don't offer SBA 7(a) loans, bringing our list to 14. We then eliminated companies that lend only to specific industries and regional lenders, bringing our list to 10. We researched each company online and then contacted each lender via email and phone to gather and verify information about its rates and terms.
We evaluated small business loans using the following criteria:
- Availability of smaller loan amounts
- Interest rate range
- Transparency of fees
- Down payment
- Application process
- Length of time for loan funding
Although the SBA doesn't set a minimum amount on loans and caps them at $5 million, the minimum and maximum amounts vary by lender. Because of the paperwork required with an SBA 7(a) loan, most lenders prefer to offer larger loans. However, the SBA reports that the average loan amount in 2015 was $371,628. Because many small business owners need smaller loans, a more beneficial benchmark is the minimum amount each lender provides. Below are the lenders with the smallest loan minimums, which make them a more likely fit for your business’s financing needs.
Lenders Funding Smaller Loans
- Chase & Wells Fargo: No set minimum for loans
- U.S. Bank: Loans starting at $5,000
- SmartBiz: Loans starting at $30,000
- CRF & Newtek: Loans starting at $50,000
Interest Rate Range
The interest rate is the percentage of the loan that you repay the lender. For SBA loans, lenders must base the interest rate they charge off one of three base rates. All the lenders in our review use the prime rate, which is the interest rate that the nation's largest banks charge their best customers. As of the time of this review, the prime rate is 4%.
Lenders charge the prime rate plus a profit margin that the SBA caps at 2.25% if the term of the loan is less than seven years, or 2.75% if the loan's term is seven years or longer. However, different interest rate spreads may apply if you receive a different type of SBA loan, such as an SBA Express loan.
Although the SBA regulates the maximum interest rates that the lender can charge you above the prime rate, the rate you receive may be lower, as it's influenced by a variety of factors, including your business's industry, the amount of time you've been in business, your business and personal credit history, and the overall health of your business.
Lenders With Lower Interest Rates
- PMC: Prime plus 1% to 2.75%
- Chase: Prime plus 1% to 2.25%
Even though SBA 7(a) loans are highly regulated, there's some variance in the fees and costs that lenders charge. All loans greater than $150,000 come with a guarantee fee that is paid to the SBA. However, some lenders charge additional fees as well. You may pay packaging fees for the lender to help you gather and prepare the information it needs to review; these fees vary the most, as some lenders don't charge them at all, while others may charge several thousand dollars. Almost all lenders charge closing costs, which typically bundle due-diligence expenses, such as those for appraisals and lawyers' fees. Because closing costs vary from loan to loan, you should verify with your lender what your closing costs cover and the exact amount you can expect to pay.
Lenders Charging No Additional Fees
- Grow America Fund
- U.S. Bank
Time to Receive Funding
SBA 7(a) loans are notorious for taking a long time to obtain, but some lenders are faster than others. The time it takes for you to receive funding varies greatly and is influenced by several factors, including the amount of money you’re applying for, the underwriting required, and how long it takes you to gather all appropriate documentation. Most lenders agree that the process is faster if you're a motivated borrower and you respond quickly when they request additional information from you.
Lenders With the Shortest Average Closing Time
- SmartBiz: 7 days
- Celtic Bank: 14 days
- U.S. Bank: 30 days
Risks to Consider Before Getting a Small Business Loan
Before you decide to take on debt, you need to be certain that you can repay the loan. SBA 7(a) loans are secured, which means your business is required to put up collateral, such as real estate or machinery. If your business doesn't have sufficient collateral, you may have to pledge personal assets, such as your home.
Additionally, these loans require personal guarantees from any party who owns 20% or more of the business, so if the business struggles or closes and can't meet its obligations, you're personally responsible to repay the loan. If you're unable to repay the loan, you'll lose your collateral, your wages will be garnished, and your tax return and bank accounts will be seized and applied to your debt.
Does Your Business Qualify for an SBA 7(a) Loan?
Before applying for any loan, it’s wise to make sure you qualify for it. While each lender may have its own requirements, the SBA mandates some basic requirements for any business to qualify for an SBA 7(a) loan. For example, you must do business in the United States and have invested equity, a sound business plan and purpose, and a legitimate need for funding. You must also have utilized other sources of funding, including personal assets, before seeking a 7(a) loan. We list several additional qualifications below. You can read more about eligibility for SBA 7(a) loans here.
- Be a small business. To qualify for an SBA 7(a) loan, your business must be categorized as a small business as defined by current SBA standards. Sizing standards for businesses vary by industry and are measured by revenue or number of employees. The sizing method depends on the North American Industry Classification System code and description.
- Work for profit. Your business must be trying to make money; nonprofit organizations don't qualify for these loans. However, other programs, sponsored by the government and independent lenders, are available for nonprofits.
- Work in a qualifying industry. While many industries qualify for an SBA 7(a) loan, there are some that don't, such as government-owned companies, lending institutions and life insurance businesses. A complete list of ineligible industries is posted on the SBA’s website.
- No government loss incurred. If your business has caused the government to lose money, it isn't eligible for an SBA 7(a) loan. On a related note, if one of the company’s owners (any individual owning 20% or more of the business) is associated with another business that has caused such a loss, your business is ineligible.
- No delinquencies on government debts. You can be indebted to the government, for things such as a mortgage or a student loan, but you must be current on your payments.
Should You Consider an Alternative Small Business Loan?
Although the SBA 7(a) loan is prized for its low rates, few fees and lengthy repayment terms, alternative small business loans are increasingly popular because they're easier to apply for, with shorter applications and fewer documentation requirements. They're also more readily available for companies that may not qualify for conventional bank loans or SBA loans, such as those with less-than-perfect credit or new companies that haven't been in business long enough to establish a credit history. Plus, online alternative lenders can approve and fund the loan more quickly than banks, which is an important consideration for many businesses.
These loans are typically smaller than SBA 7(a) loans, ranging from $2,000 to $150,000, though some lenders may offer as much as $500,000. However, the amount your business qualifies for may vary depending on the health of your business, which online lenders gauge using your cash flow, personal and business credit history, and other considerations. This type of loan has shorter terms, as most lenders offer terms between one month and five years. On average, however, most loans terms are between 12 and 24 months.
Alternative loans typically have higher interest rates and more fees than conventional loans. Although there are many reputable alternative lenders, this market lacks the regulations of bank loans. Because these are business loans rather than personal loans, the Truth in Lending Act doesn't apply, potentially leaving small businesses vulnerable to predatory lenders.
No matter which type of loan you apply for, it's important that you thoroughly read the contract and understand the loan's interest rate, fees, penalties and repayment terms. Taking out a small or startup business loan is a risky undertaking for a small business, and it's important that you're certain you'll be able to repay the loan, as consequences for defaulting are significant. Although applying for an SBA 7(a) loan may require you to submit more paperwork than many other loan options, it's a regulated loan with capped interest rates, limited fees and flexible terms. These are important considerations when you're looking for business funding, as it makes the 7(a) loan more affordable than many other types of loans, especially those that lack regulation.
Disclaimer: The interest rates listed are reflective of the date this review was last updated.