Where to get a business loan

Deciding where to get a small business loan is a big step in growing your business. According to the 2023 Small Business Credit Survey, loan approval changes depending on where you apply for a loan. For business owners, 52 percent of business loan applications were fully approved at small banks, while only 44 percent of applications were fully approved at large banks.

Among the many financing options offered by traditional banks, credit unions, online lenders and nonprofits, a business loan stands out as a reliable choice. Once you know your business needs financing, the next step is to know where to find a small 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 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 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

• Several loan offerings with generous limits
• Low interest rates
• Build business credit
• Face-to-face support (for banks and credit unions with physical locations)

Cons

• Stringent eligibility guidelines
• Less likely to offer prequalification
• Extensive documentation requirements
• Slower loan approvals and funding times

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

• Often, flexible or more lenient lending guidelines
• Streamlined virtual application process
• Rapid approvals and funding times
• Non-traditional lending options

Cons

• Typically, less favorable interest rates than bank loans
• No in-person customer support
• Steep borrowing costs on non-traditional loan options
• May not report payments to credit bureaus

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

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.

1. 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.
2. 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.
3. 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.

Bottom line

Figuring out where to go for 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.