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Compare the Best Small Business Loan Options for 2021

Compare the Best Small Business Loan Options for 2021


When starting a business, you need access to money to expand your business, support operations, refinance your existing borrowing, increase inventory or invest in assets. There are plenty of small business loan options out there, each with their own advantages, disadvantages and requirements. We’ll talk you through options for your small business borrowing in 2021 and beyond, so you can make the perfect choice for your company.

Where’s the Best Place to Get a Business Loan for 2021?

Traditional Bank Term Loans for Small Business

Traditional bank loans involve banks lending your small business money that you’ll repay with interest over a set term (typically three or five years). Most banks have very rigorous requirements for lending to small businesses, which can put them out of reach for newer businesses or those without a good credit history.

A traditional bank loan could be great for your business if:

  • You want to pay less interest than you might with other types of small business lending.
  • Your business has a proven track record and you have the documents to provide it.
  • You don’t mind going through a lengthy and rigorous loan application process.

Traditional bank loans may not work for you if:

  • Your small business is new and doesn’t have a well-established history.
  • You cannot categorically demonstrate that you can easily repay the loan in full.
  • Neither you nor your business has a good or great credit history.
  • You need the funds quickly, as traditional loans can take weeks or months to be processed.

Small Business Administration Loans

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The Small Business Administration (SBA) in the U.S. provides low-interest-rate loans to companies. They’re often a more competitive option than banks but have equally strong standards for deciding who they will lend to.

An SBA loan could be great for your business if:

  • You want the lowest interest rates available to small businesses.
  • You have extensive documentation and proof of your company’s success and history.
  • You want to borrow a significant amount — SBA loans are available up to $5 million.
  • You want to expand or refinance existing business debt.
  • You want lots of time to repay your loan, as the SBA offers longer-term loans than most other providers.

SBA loans may not work for you if:

  • You cannot provide an extensive business history and proof of success.
  • You cannot demonstrate that you can repay the loan in full.
  • Neither you nor your business has a good credit history.
  • You need the funds quickly, as SBA loans can take weeks or months to be processed.

Online and Non-Traditional Loans for Small Businesses

business loan application on smartphone

If you want to borrow outside the traditional bank or SBA system, you have many, many options. There are hundreds of specialist small business lenders that can help you with your borrowing needs, although requirements, terms and interest rates vary widely.

Online and non-traditional loans could be great for your business if:

  • You need funding quickly, as these types of loans can normally be approved in a few days.
  • You can’t get funding from more traditional options because you don’t have a long track record.
  • You can’t get funding from more traditional options because you don’t have a good credit history.
  • You need to borrow more than you may get from other lending options.
  • You don’t mind searching around for lenders, as requirements and eligibility can vary widely.

Online and non-traditional loans may not work for you if:

  • You don’t want to pay too much in interest, as many of these lenders will have higher interest rates.
  • You don’t want to pay upfront fees or other costs.
  • You don’t want to provide a personal guarantee, which means your personal assets would be at risk if you default on your loan.
  • You don’t want to provide a business lien, which means your business assets would be at risk if you default on your loan.

Small Business Lines of Credit

A “line of credit” means that a bank or other provider sets aside funds up to a certain credit limit that you can borrow against. You only take out the money you need for financing, and you only pay interest on the amount that you’ve “drawn down.” For example, you have a line of credit for up to $10,000, but you only need to occasionally borrow and repay $3,000 to cover costs. You only pay interest on that $3,000.

Lines of credit could be great for your small business if:

  • You need a flexible way to borrow money and have varying needs from month to month.
  • You can repay the money you owe fairly quickly, as lines of credit typically have higher interest rates.
  • You have variable cashflow or expenses that means you need a little more money over the short term.
  • You don’t want a traditional long-term loan.
  • You don’t have any collateral, as some lines of credit don’t require it.

Lines of credit may not work for you if:

  • You want to keep your interest charges down.
  • You don’t want to pay additional costs like recurring or drawdown fees.
  • You can’t prove stable, strong revenue.
  • You don’t have a good business or personal credit history.

Startup Loans for Small Business

Some non-traditional lenders specialize in startup loans and offer financing to get your business off the ground. There’s a lot of risk attached to this type of loan, so expect high interest rates and the need to provide personal guarantees.

Startup loans could be great for your business if:

  • You’re starting up a new venture and you don’t have a proven track record you can use to demonstrate success.
  • You have an excellent personal credit score.
  • You don’t mind searching around for lenders, as requirements and eligibility for startup loans can vary widely.

Startup loans may not work for you if:

  • You don’t want to pay too much in interest, as many startup lenders will have high interest rates.
  • You don’t want to pay upfront fees or other costs.
  • You don’t want to provide very extensive records, business plans, research and insights to validate your business idea.
  • You don’t want to provide a personal guarantee, which means your personal assets would be at risk if you default on your loan.
  • You don’t want to provide a business lien, which means your business assets would be at risk if you default on your loan.

Invoice Factoring and Accounts Receivable Financing for Small Business

man working at laptop
Invoice factoring and accounts receivable financing are similar borrowing concepts that mean you can get a short-term loan collateralized against money your business is owed. The interest rates on these advances can be higher than a normal loan, and there are often other fees.

Invoice factoring and accounts receivable financing could be great for your business if:

  • You want fast cash and funding for your business.
  • You have a good amount of unpaid invoices or accounts receivable payments to collect.
  • You don’t want to wait for the payment terms on the invoice (e.g., 30 or 60 days) to come due.
  • You want to be approved quickly and easily, as you won’t need to provide extensive records.

Invoice factoring and accounts receivable financing may not work for you if:

  • You don’t want to pay too much, as advance fees and other costs can add up quickly.
  • You don’t need to borrow too much (i.e., not more than the total value of your unpaid invoices).

Merchant Cash Advances for Small Businesses

A merchant cash advance gives you money upfront that you repay by withholding some money from your card sales each day or you allow the cash advance provider to take money from your bank account on a daily or weekly basis.

Merchant cash advances could be great for your business if:

  • You want fast cash and funding for your business.
  • You can’t or don’t want to provide collateral for your lending.

Invoice factoring and accounts receivable financing may not work for you if:

  • You don’t want to pay too much as advance fees and other costs can add up quickly.
  • You don’t need to borrow too much.

For small businesses with a track record, good credit history and the documents to back that up, traditional bank loans or SBA loans are going to be your best option — you’ll get lower interest rates and better terms. If you’re a new or unproven business, then another choice may be best, but be sure you understand the interest rates, fees, terms, personal guarantees, liens and risks you may be taking on before you sign on the dotted line.