You need a loan for your business. There’s nothing new there. Small businesses have relied on financing since the first merchants began setting up operations in ancient Babylonia and Assyria. It has always taken money to make money.
In our modern world, between 40 and 50% of small businesses seek funding in a given year. What about the businesses not included in that financing club? They’re probably in need of capital, but for 1 reason or another, they’ve opted not to seek a loan at the time. Maybe they’re among the fortunate few who inherited a large sum of money from a deceased family member (research indicates that millennials will inherit $68 trillion over the next decade).
What about those of us who don’t have wealthy relatives nearing the end of their days? Financing will likely be our source of capital.
“Sure, you’ll hear plenty of inspirational stories about tech companies starting in garages,” explains business accounting expert Jody Grunden. “But once you dig through the details, there’s almost always capital coming from somewhere. Most small businesses struggle to grow without an infusion of capital. Until you start generating high revenue that you can use to scale, your capital will likely need to come from small business loans.”
Knowing that you need a small business loan is only a small portion of the battle. What remains is to identify the source for your small business loans.
The Best Banks for Small Business Loans
As the economy continues to regain its post-pandemic footing, banks are also growing their portfolio of loans available for small business owners. More banking companies than ever before have pledged to provide funding for small businesses, which is good news if your business is relatively young.
Perhaps you don’t need a bank loan at the moment. That’s OK—you should still review the best small business loans so you’re ready for action when the time for financing arises. It’s always better to be proactive instead of reactive, as planning allows you to sift through the nuances of financing to find the right mix for your needs.
“Bank loans involve a lot of different variables, including the term of the loan, the fees that apply to the loan, the requirements for application, the interest rates, and so on,” says entrepreneurship guru Nicky LaMarco. “These will be different from one bank to the next and are typically negotiable, allowing you to go for the terms that favor you the most. With the ability to shop around from one bank to another and to negotiate for better terms, it’s very easy to get a sweet deal with a bank loan […] If you take out a long term loan from a bank and make all of your payments on time, your credit score will improve over the life of the loan. In case you finish paying off the entire loan on time without any missed payments, your credit score will actually improve.”
Given the potential impact (for good or bad) that financing can have on your business, it’s essential for you to find the best place to get a loan. Let’s look at some of the prime options available to you:
Live Oak Bank
You may have never heard of Live Oak Bank, but the North Carolina-based firm is 1 of the nation’s leading lenders of SBA loans. This high number of SBA loans is because Live Oak focuses on such loans and offers them for small businesses in certain industries that often find it hard to secure funding. Live Oak prides itself on offering loans to businesses in fields like hotels, agriculture, wine, healthcare, self-storage, and others.
Bank of America
Bank of America is gaining ground among small business owners. The bank generates billions of dollars in revenue annually from small business loans, and the company has loaned out some $30 billion to small businesses in recent years. The firm offers a Business Advantage Line of Credit, which is a revolving line of credit in case your business runs into cash flow issues. The interest rates start as low as 6.75%, which is one of the best interest rates available for business lines of credit from large nationwide banks.
Chase has some 5,000 physical locations around the United States, and the bank has really pushed into the small business lending arena over the past decade. Chase requires small business lenders to already be a Chase customer and to apply for the loans at a physical branch of the bank, but this requirement is made a bit simpler because there is probably a Chase bank somewhere close to you. Millions of small business owners across the country use the bank’s business credit cards.
You’re probably familiar with Capital One’s “What’s in your wallet?” commercials, but you may not know that they’re a growing player in the small business world. While their loan products certainly aren’t the largest in the world, they can deliver faster financing that often comes with borrower-friendly terms.
TD Bank is among the most respected small business lenders in the US. Even though the bank’s branches are mostly located on the East Coast, the SBA notes that TD Bank is one of the biggest small business SBA loan lenders in the country, providing thousands of loans. You have to make an appointment at a physical branch to apply for a loan, but they offer term loans, small business lines of credit, and commercial mortgages.
Like TD Bank, US Bank is limited in terms of location—the bank only has branches in 25 states. Unlike TD Bank, though, these locations are located mostly in the West and Midwest. Still, it is 1 of the largest SBA small business lenders. One of the most popular lending products offered by US Bank is its Quick Loan for Business, which earns the name because it has a simple online application and a speedy credit check. Additionally, the bank offers a similar quick loan for commercial vehicles. US Bank is known among small business owners because its requirements are a little less stringent than many other large-scale banks.
Huntington National Bank
Huntington Bank has been a Midwest staple for more than 150 years, but it doesn’t have a huge footprint outside of the region. However, it has an impact nationwide because it approves more SBA loans than most other banks. While Huntington Bank obviously offers other forms of financing such as term loans and lines of credit, the bank is famous for its SBA loan offerings, which include SBA 7(a) loans, SBA 504 loans, and SBA Express loans. If you’re a Midwestern business owner and you are seeking an SBA loan, Huntington Bank has options for a range of business sizes and ages.
This well-known bank is also among the most prolific each year in terms of number of SBA loans. Wells Fargo has made a name for itself for term loans, too, and the bank bills itself as “America’s leading small business lender.” The Wells Fargo Unsecured Business Loan is popular because the application, available online, is only 1 page long.
In this modern world, you don’t necessarily need to have brick-and-mortar locations in order to be a significant player in the lending market. Celtic Bank is 1 of the biggest SBA lenders around and also offers products such as the Celtic Express Term Loan that can deliver amounts up to $150,000.
How to Apply for the Best Small Business Loans
Whether you’re applying for an SBA loan from Live Oak Bank, a term loan from Huntington National Bank, or a completely different type of financing from another bank of your choice, you can plan on a substantial process. The documents required and timelines involved vary depending on the specific loan you’re seeking, but it’s always a good idea to have the following documents and details ready in advance if they’re applicable.
- Your personal background information such as previous addresses, education history, names you’ve used, and criminal record.
- Your resume so that the bank can assess your business experience.
- A robust business plan with profit and loss, proof of cash flow, and balance sheets for your business.
- Credit reports from the 3 major consumer credit reporting agencies.
- Business and personal tax returns from the past 3 years.
- Signed personal financial statements (assuming you own at least a 20% stake in your company).
- Projected financial statements.
- Personal and business bank statements for the past year.
- The value of personal or business property that can be used as collateral if necessary.
- Business licenses and registrations required for you to conduct business.
- Articles of incorporation for your business.
- Copies of contracts you have with third parties.
- Franchise agreements for your business.
- Commercial leases for your business.
There aren’t many areas of your life where you could ever expect to be perfect, but following submission guidelines is 1 of them. There’s simply no excuse for sloppy loan applications that omit required documents. If you’re serious about getting financing, you’ve got to be serious about following instructions.
What Are the Best Small Business Loans for You?
It’s not enough to simply know that you need a loan from a good bank. What you need is the right loan for your unique situation. The first detail to ascertain is how much money that you will need. Loan amounts vary widely, so the specific dollar amount can help you narrow down the field.
The second question to ask yourself is how quickly you’ll want to see the money. Some loans can fund in a matter of days, while others could take months. When you have the timeline figured out, you’ll once again have a narrower group of options that will make it easier to find the prime choice.
Finally, you’ll want to identify how much you can afford to spend on your financing. It can be difficult at times to see the cost of a loan, as there are sometimes hidden expenses such as processing fees or early repayment fees. Using these 4 pricing metrics, you’ll at least be able to get some basic comparables:
- Annual Percentage Rate (APR): How much your financing costs on a yearly basis.
- Total Cost of Capital (TCC): Adds up interest, ancillary fees, and fees on loans that don’t charge any interest.
- Average Monthly Payment: How much you will be paying each month for your loan.
- Cents on the Dollar: A user-friendly metric that reveals the amount you pay in interest in fees for every dollar borrowed.
Although these pricing metrics are helpful, it can sometimes be difficult to find enough comparables for an accurate decision. Some lenders in the loan marketplace handle their disclosures differently, so it can be hard to find that common ground even when you’re using a reliable loan calculator.
To address this issue, the Innovative Lending Platform Association partnered with some of the leading lending platforms to launch a comparison tool named SMART Box™ (Straightforward Metrics Around Rate and Total cost). This resource helps to cut through the confusion by highlighting certain calculations and pricing metrics.
“It is important to note that the SMART Box is not intended to replace a lender’s existing disclosures or detract from the importance of providing clear and conspicuous information to a small business regarding the relevant finance product,” explains the introductory statement on the ILPA’s website. “The SMART Box is instead intended to serve as a supplemental disclosure that presents key pricing information in a uniform fashion and helps to flag for the small business, in plain English, certain product features or policies. We ultimately believe that there are many responsible providers and products in the market, but these products often convey their pricing characteristics in different ways.”
The SMART Box™ resource is currently designed for a variety of loans, including term loans, merchant cash advances, and lines of credit. Even when aided by this resource, it’s essential to take your time during this selection process. Due diligence is the name of the game.
“You may feel like you have time against you, but it’s OK to slow down a bit,” advises a small business financing report from Business.com. “The absolute worst thing you can do is rush into this. Prematurely selecting a loan, only to figure out a month from now that you chose the wrong one, can be devastating to your business. Be patient and carefully evaluate all of your options before proceeding too far in the process.”
Once you have defined the details of your financing needs, you’ll be ready to choose your loan. Here are 7 popular options from the best banks for small business loans:
1. Business Term Loan
Versatile and reliable, these loans can provide your business with as much as $2,000,000. They can fund in as few as 24 hours.
2. Business Credit Card
These cards are similar to the personal variety you carry in your wallet and have limits as high as $500,000. Business credit cards are quite easy to acquire.
3. Equipment Financing
Most businesses require equipment to operate, and these loans can deliver up to $5,000,000 for your needs. Better yet, the funds can become available in just a few days.
4. Business Line of Credit
Similar to a credit card, this type of financing connects you with revolving credit that has limits up to $500,000. Plan on the money becoming available in a couple of weeks.
5. SBA 7(a) Loan
Here’s the most popular loan program offered by the SBA. The maximum amount can reach as high as $5,000,000 for qualified borrowers.
6. SBA 504 Loan
Another popular product from the SBA, this program also usually limits out at $5,000,000. If you are looking to fund major fixed assets, an SBA 504 loan could be just the ticket.
7. SBA Express Loans
When you’re operating with a tighter timeline, this streamlined version of SBA 7(a) loans can deliver cash faster than the rest. Given the speed of funding, it’s not surprising that the maximum amount is $500,000.
Your Loan Is Out There
There is certainly no shortage of small business loan options out there. Your job, on top of everything else you do as a small business owner, is to sift through the possibilities to find an optimal solution. Perhaps that loan is available through a bank, or you might find an even more streamlined and favorable option through a lending marketplace.
This process takes time and effort. But you can hang your hat on the fact that there’s a loan out there that is ideal for your needs. Stay focused, and don’t stop until you’ve found the best business loans for your business.