A Guide to Choosing the Right Small Business Loan

If you run a small business, you may come to a point when you need a loan and when you do, you’ll spend countless hours staring at small business loans guides.

But with so many different types of small business loans available, it may be difficult to figure out exactly what you need and how to choose the right loan. At the same time, finding the best loan for your small business can be mission-critical.  

Luckily, we’re here to help you out. In this guide, we’ll walk you through the different types of lenders and loans that your business may be eligible for. From there, we’ll help you compare them so that you can decide which small business loan is right for you.

Choose your best small business loan

Name
Min. Loan Amount
Max. Loan Amount
Requirements
Name
Read our Review
Min. Loan Amount $5,000
Max. Loan Amount $250,000
Requirements
  • Minimum 1 years in business
  • $102,000
  • Minimum credit score of 560
More details

 

  1. OnDeck offers two types of products. Small business term loans and small business lines of credit
  2. There is one application and the end of you can you will be presented with the options that you have available to you.
  3. Term Loans are from $5000-$50,000 on 3-36 month termsLine of Credit go up to $100,000 on payback over 6 months (these are revolving so you can pay it back and then reuse when needed)
  4. Application takes a few minutes, you can apply online or call 1009809809809
  5. To apply you will only need your basic business information and 3 month bank statements. This is the case with most lenders so it is good to have this on hand anyway.
  6. OnDeck will do a soft credit check (which doesn’t hurt your credit score), you will need a score of over 640 to be able to qualify for with them
  7. Minimum Requirements:
      • 1 year in business (no start ups)
      • $100,000 in gross annual income

 

 

Name
Min. Loan Amount
Max. Loan Amount
Requirements
Name
Read our Review
Min. Loan Amount $10,000
Max. Loan Amount $300,000
Requirements
  • Minimum 0.5 years in business
  • $300,000
  • Minimum credit score of 560
Get started

Luckily, small business loans work in roughly the same way as personal loans. The major difference is that the loan is designed for your business instead of you. The first section of our small business loans guide will explain the different lenders who may be willing to loan you money to start (or grow) your small business:

What are the different types of small business lenders?

The Government

Did you know that the government often lends money to small businesses? These types of loans are administered by the governments of specific provinces or particular government departments – if you meet certain requirements.

For example, if you’re a farmer, you may qualify for a small business loan directly from Agriculture and Agri-Food Canada.  

The government also makes small business loans to business owners through banks, such as the Business Development Bank of Canada, or BDC. In some cases, the government may even offer to guarantee that your small business loan will be made through a bank.

For example, a Canada Small Business Financing Loan (CSBFL) is a loan through a government-sponsored loan program that offers up to $1,000,000 ($350,000 for equipment and leasehold improvements) to small businesses in Canada.

A “guarantee” means that the government will take on the debt if you default on the loan. Banks, in turn, may be more willing to lend you money if you’re applying for a government-guaranteed small business loan. Why? It’s less risky for the bank as the loan is backed by the government.

Non-Government Organizations (NGOs)

Many communities and groups have a vested interest in promoting small businesses in their area. After all, you’re making a significant contribution to the community with your small business. For that reason, you may be able to find a loan through a non-government organization (NGO). Although many NGOs have tight coffers, there are some with dedicated funds for making small business loans. It’s up to you to do your research and find out whether you may be eligible for an NGO loan.

Banks and Credit Unions

One of the most common sources of small business loans is from banks and credit unions. Yet, be aware: loans through banks and credit unions are among the most difficult types of small business loans to get. Why? Each bank or credit union sets its own lending standards for who they’re willing to lend to, and these standards can be quite high.

For example, many banks require that you have a formal business plan (a good idea nonetheless) and significant amounts of cash flow, savings, and/or capital before they’ll approve you for a small business loan.

Alternative Small Business Lenders

Although you have many options for loans, a new wave of alternative small business lenders are paving the way for many entrepreneurs to get much-needed funding.

One of the most popular lenders in this rising category are online small business lenders. These companies (which are typically not traditional banks or credit unions) make it their business to be fast and efficient, giving you a quick decision on your small business loan application with minimal fuss. You can sort through these various online small business lenders right here using our tool.

Other Options for Loans

Other options for getting a small business loan include the old-fashioned route: borrow money from your own personal savings. We get it. This isn’t always feasible, especially if you’re not sitting on top of a hefty pot of cash. But, if you have generous (and financially well-off) friends or family, you may want to consider asking them for a small business loan. We recommend being very careful with this option, however, and drafting up a formal agreement (and sticking to it!). The last thing you want to do is burn bridges with close friends and family because you didn’t repay them.

Of all the loan options in our small business loans guide, borrowing from your loved ones is the riskiest.

A Small Business Loan Primer

Now that you know a bit about where to turn for a small business loan, it’s time to learn about the lingo when it comes to term loans, as well as small business credit. Read on to learn more.

What is a Small Business Term Loan?

These loans work much like your auto loan or mortgage. If you’re approved for a small business term loan, you’ll be given the money in one giant fell swoop. Then, you make equal payments over a certain period of time — called the term — until it’s all paid off.

Term small business loans often fall under the broad umbrella of a generic “small business loan.” You can typically use the money for whatever you want so long as it’s used for your business. Yet, in some cases, small business loans are limited to specific purposes. Here are a few term small business loans that are suitable for particular situations:

Get started
  • Working capital loans. These loans are used for daily operations, such as meeting employee payroll, paying for office supplies, and covering other bills and expenses.
  • Business expansion loans. Looking to expand your business? Lease larger space? In this situation, you may want a business expansion loan.
  • Real estate loans. These loans are used specifically to purchase land and/or buildings to conduct your business.
  • Leasehold improvement loans. Are you remodeling an existing rented building to fit your small company’s needs? Perhaps you no longer want to run a cupcake shop out of a vacant auto repair garage? You may want to look into getting a leasehold improvement loan.
  • Microloans. Typically a few thousand dollars or less, microloans are useful if you’re just getting ready to launch a small business, or if you only need a small amount of financing to get off the ground.

What is Small Business Credit?

Another common way to finance your small business is with credit. This type of small business financing is handy because you only need to complete an application once. If approved, you’ll  have constant access to money if you need it, and you only need to take out as much as you need at any given time.

For example, if you operate a business which is highly seasonal like a tanning salon, you can use a small business line of credit to cover your regular operating expenses during the summer when your sales are typically much lower (when your customers are tanning outside).

Of course, it can be tempting to take out too much money if it’s readily available and dangling in your face. That’s why we suggest being very careful with small business credit, and only taking out money if you really need it.

Here are some types of small business credit that you may be able to apply for:

  • Lines of credit. Often offered by banks or credit unions, lines of credit allow you to tap into your available credit amount when you need it to help fund your business.
  • Supplier credit. This is offered by specific merchants that you purchase from. For example, a large tractor or auto purchase can sometimes be financed directly through the supplier or dealer.
  • Credit cards. Business credit cards are a popular way to finance small business purchases. Just be careful: you will often pay high interest rates if you don’t pay off the purchases each month.

Bottom Line

Hopefully our detailed small business loans guide helps point you in the right direction. When it comes to small business finance options, it can be difficult to wade through all of the choices. On the other hand, you’ll have many financing options available.  

So, take the time to sift through all of the loan choices and find the best one for you. While it may not be the most exciting thing to do, setting your business up with the right tools to expand and grow is gratifying. Plus, the right type of small business funding can help you achieve your business goals.

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