Best Small Business Loans With Low Interest Rates
Here are the best types of small business loan options available to help you make the best decision for your specific business needs.
Short-term loans are a popular financing option for businesses looking to cover temporary cash flow gaps, fund emergency expenses, or take advantage of a time-sensitive opportunity. These loans typically have repayment terms of 3 to 18 months and can provide quick access to capital. You must have a business checking account to get approved.
- Fast approval and funding
- Less stringent credit requirements compared to long-term loans
- Easier to manage due to shorter repayment terms
- Low personal credit scores can get approved
- No prepayment penalties
- Good option for refinancing existing debt
- Underwriting process is very short and simple
- Loan amounts up to $5M are eligible
- May have higher interest rates compared to long-term loans
- Frequent repayment schedule (weekly or even daily), some lenders have monthly payments
- May not be suitable for long-term investments
- Higher interest rates than traditional banks
- Startups with less than 3 months of operating history have a problem with eligibility for term loan programs.
Business Line of Credit
A business line of credit is a flexible financing option that allows businesses to draw funds up to a preset limit, paying interest only on the borrowed amount. It's a revolving credit facility, which means that as you repay the borrowed amount, your credit limit is replenished, allowing for continuous access to funds.
- Highly flexible, allowing businesses to borrow and repay as needed
- Interest is charged only on the borrowed amount, not the entire credit line
- Can be used for a wide range of purposes
- Requires strong credit and financial history for approval
- May have higher interest rates compared to term loans
- Risk of overextending credit and negatively affecting credit score
Equipment financing is a type of loan specifically designed for purchasing or leasing equipment necessary for business operations. It uses the purchased equipment as collateral, which can help secure lower interest rates.
- Tailored to the specific needs of equipment acquisition
- Lower loan rates due to collateral
- Potential tax benefits from depreciation or Section 179 deductions
- SMBs with bad credit scores are eligible for equipment loans
- Limited to equipment purchases or leases
- Risk of equipment becoming obsolete before the loan is fully repaid
- May require a down payment
Invoice factoring is a financing option where businesses sell their outstanding invoices to a factoring company in exchange for a percentage of the invoice value upfront. This provides immediate cash flow and can help alleviate cash constraints caused by slow-paying customers.
- Immediate access to cash based on outstanding invoices
- No collateral required
- Can help improve cash flow management
- Your creditworthiness is not an important factor for approval
- Fees can be higher than traditional loans
- Loss of control over invoice collection
- May create a negative perception among clients if they are aware of the factoring arrangement
SBA (U.S. Small Business Administration) loans are gov-backed loans that offer low interest rates and long repayment terms. They are designed to help small businesses obtain financing when they might not qualify for traditional loans. SBA lenders are often traditional banks, financial institutions, and credit unions.
- Low interest rates due to government guarantee
- Long repayment terms, up to 25 years for real estate loans
- Can be used for various business purposes
- No origination fee
- Has specific program for disaster loans, microloans, and non-profits.
- Good option for commercial real estate loans
- Lengthy and complex application process
- Strict eligibility requirements
- Collateral may be required
- Credit score requirements are too high for many business owners
- Have to deal with traditional financial institutions
- Some online lenders can require having a business plan for SBA bank loans
Merchant Cash Advance
A merchant cash advance (MCA) is a financing option that provides businesses with a lump sum of cash in exchange for a percentage of future credit card sales. The repayment is typically made through daily or weekly deductions from credit card transactions.
- Fast access to cash
- No collateral required
- Repayment is based on sales, making it more manageable during slow periods
- Can have high fees and interest rates
- May negatively impact cash flow due to daily or weekly deductions
- Not suitable for businesses with low or inconsistent credit card sales