The top performers in our review are SmartBiz, the Gold Award winner; Grow America Fund, the Silver Award winner; and Wells Fargo, the Bronze Award winner. Here’s more on choosing a small business loan to meet your needs, along with detail on how we arrived at our ranking of 10 loans.
As a small business owner, funding obtained through a small business loan enables you to take advantage of profitable opportunities. You may need the funds to expand your business by hiring additional staff to increase your productivity or to purchase equipment or machinery that broadens the range of products you offer. You may need to purchase inventory to stock up for your busy season or jump on a discount offered by a vendor. You may even need working capital to repair or replace old or damaged equipment or to sustain your business during your off season.
If your credit is good, your finances are in order and you have time to apply for a loan backed by the Small Business Administration (SBA), you can often obtain the best rates. If a fast turnaround is critical or if your credit needs improving, alternative lending can help you procure the funding you need. Peer-to-peer lending is another option to consider if your credit isn't quite good enough for a bank loan or if the amount of money that 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 repayments that the lender automatically subtracts from your credit card sales.
Typically, SBA loans, available through banks and non-bank lenders, offer the best rates and are the first resource that you should consider. These loans are desirable because they carry lower interest rates and favorable terms, which lenders are willing to extend because the federal government assumes a large portion of the risk by guaranteeing a percentage of the loan through the Small Business Administration. The SBA also provides resources can help women, veterans and minorities obtain small business loans. The SBA 7(a) loan is the most common loan available and can range from a few thousand dollars up to five million dollars with repayment terms that can span many years.
The disadvantage of using federal money for starting a new small business with an SBA loan is that it may require you to submit more paperwork than many of your other loan options, which can be time-consuming. Although the lenders we selected for our review are preferred SBA lenders with a nationwide reach, also consider your local and regional banks, as they also offer SBA loans and may be good resources for you, especially if you've already established relationships with them.
Small Business Loans: What We Evaluated, What We Found
We looked for lenders that provide SBA 7(a) loans nationwide and that offer the most desirable amounts and a range of terms. We researched the company online and then contacted each lender via email and phone to gather and verify information about its rates and terms. Some key differentiators include the loan amounts offered by each lender, the fees and costs they charge, and how long it takes to get your loan approved and funded.
Loan Size: Amounts Vary by Lender
Although the SBA doesn't set a minimum amount on loans and caps them at $5,000,000, all lenders set a minimum amount and some also set their own maximum amount. Because of the paperwork required with an SBA 7(a) loan, most lenders prefer to offer larger loans. SmartBiz is the exception, as it caters to small businesses that want smaller loans and it offers the smallest loans in our review, starting at $5,000 and capping out at $350,000, which is around the minimum amount that some lenders are willing to consider. The lender with the highest minimum, starting at $500,000, is CapitalSpring.
Fees & Costs: Although Regulated, There Is Variance
Even though SBA 7(a) loans are highly regulated, there is some variance in the fees and costs that lenders are permitted to charge. Packaging fees vary the most, as some lenders, like the Grow American Fund, Wells Fargo, Chase and Ridgestone Bank, 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.
Approval & Funding Time: A Wide Variation
SBA 7(a) loans are notorious for taking a long time to obtain, but the amount of time it takes lenders to approve and fund a loan varies widely. After you submit you completed application and all accompanying documents, five to seven days is an average amount of time for approval. Most lenders agree that the process is faster when the borrower is motivated and responds quickly when additional information is required. SmartBiz has a faster turnaround time than most because it utilizes sophisticated technology to speed up the process.
What Else Is Important in Selecting a Small Business Loan?
Other factors that influence your overall satisfaction with a loan are the interest rate and whether the loan is secured or unsecured. As you search for the best small business loan, it's critical that you understand every aspect of the deal and that you thoroughly read and understand every document you sign so that you know precisely what you're getting and what your obligations and responsibilities are. Consider the following factors as you research your loans options. You can also read articles about small business loans to broaden your understanding of the subject.
Interest Rate Range
The interest rate is the percentage of the amount of money you borrowed that you repay the lender. Although the SBA regulates the range of interest rates that the lender can charge you, 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. Most lenders charge a couple of percentage points above prime, which is the published percentage that seven of the 10 largest American banks charge their best customers. The Grow America Fund has the lowest interest rates in our review.
Secured or Unsecured
Most small business loans require you to leverage business assets, such as real estate or equipment, as collateral against the loan in order to minimize the lender's risk. Most also require a personal guarantee from all individuals owning 20% or more of the business. You may be required to put up personal assets if you don't have sufficient collateral from your business, particularly if the loan you're procuring is for a startup. Take care to protect your home and personal savings when entering into a loan. Unsecured business loans are less common, though they are available for SBA 7(a) loans under $25,000.
In the above matrix, you can find information on other additional small business loan features, including details on noteworthy features and the lenders' status with the SBA. You can also find information on down payments, the time it takes to receive your funds after your application is approved and the availability of customer support resources.
Small Business Loans: Our Verdict & Recommendations
The best SBA 7(a) lender we reviewed is SmartBiz, which earned the Top Ten Reviews Gold Award for its ability to streamline the process and its willingness to offer loans in amounts smaller than most other lenders are interested in; these qualities make it the most accessible lender in our review. The Grow America Fund earned the Top Ten Reviews Silver Award because it offers the lowest interest rate in our review and specializes in helping small business owners who are women or minorities or who have businesses in underserved communities obtain funding. Likewise, CRF helps small businesses that are owned by women, minorities and veterans and that can provide jobs in low-income areas. Wells Fargo earned the Top Ten Reviews Bronze award for overall excellence as an SBA 7(a) lender, as it gives the most money to the most small businesses nationwide.
Getting a business loan is a significant undertaking for a small business, and it's important that you take every reasonable step to ensure that it’s the best decision for your company. Shop around for the best interest rates and small business loan terms. Pay particular attention to fees and penalties and don't be afraid to ask the lender to explain them to you. Request the fee structure and terms in writing and read your contract thoroughly before you sign it to ensure that you understand the details of your loan and your repayment responsibilities.
Top Ten Reviews strives to appraise all services and products using hands-on evaluation and research that, in so far as possible, replicates the careful exploratory process of a typical small business owner. The lenders we evaluated had no influence or input over our testing methodology, nor was the evaluation process provided to any of them in more detail than is publically available by reading our reviews, nor were the results of our research provided to the lenders prior to publication.