Best Small Business Loans to Consider in 2023

A small business loan is a financial tool that can assist business owners cover day-to-day expenses, purchase or upgrade equipment or invest in business growth. 

In this review, our experts have done the homework for you by using our small business loans rating methodology. This methodology evaluates each platform based on factors like loan terms, repayment optionality, loan amounts, interest rates, fees, qualification requirements, application process, and many more.

Nearly 25% of borrowers turn to online lenders to get the business financing they need, according to a report from the Small Business Credit Survey (SBCS). However, not all lenders offer the same rates and terms for business loan products. There are also a variety of options, including short-term loans, business lines of credit, equipment financing, business startup loans, and more.

Best Small Business Loans for 2023 - Full Overview

Tips for Comparing Small Business Loans

With so many options available, it can be daunting to choose the right one. Which lender has the best reputation? Which offers the lowest rate? Here are the criteria we looked at to rank lenders.

• Loan Features: Every lender offers different loan amounts and terms. Look at a variety of types of loans and financial products.
• Application process: Consider whether applying for a loan would result in a hard pull or soft pull on applicants’ credit, as well as how complicated the application was.
• Interest rates and fees: In addition to interest rates, some lenders charge other fees, like origination or late fees.
• Qualification process: Explore what it takes to qualify for a loan, including minimum credit score, annual revenue, and business history requirements.
• Customer support: Look for lenders that are easy to contact through various channels, including phone, email, and chat.
• Online user reviews: Look at reviews of lenders from customers on independent review sites like Trustpilot.
• Perks and Bonuses: Look at what makes a lender stand out, with perks like payment flexibility, advertising transparency, and advanced technology.

Small Business Loan User Survey

The survey was commissioned by FinImpact and conducted by the market research company Pollfish. The company uses the Organic Sampling survey methodology known as Random Device Engagement (RDE). The Pollfish research team maintains response quality and accuracy by utilizing a proprietary machine-learning algorithm that detects fraudulent responses early and removes respondents immediately who aren’t up to their standards.

We have run a Pollfish survey among 2292 participants in the U.S. to find out if they’ve ever taken a small business loan; 750 participants (~33%) said yes. The data was collected in June of 2023. 

Small Business Loan Demographics

According to a FinImpact survey of 750 adults who applied for a business loan, there are slightly more female than male participants, 57.2% female vs. 42.8% male.

Age Distribution

• Majority of respondents aged 25 – 44
• 41% of respondents aged 35-44
• 33% of respondents aged 25 - 44

Income Status of Small Business Loan Applicants

The most commonly represented income groups of respondents who have taken a small business loan included:

• People earning $25,000-$49,999 – 22%
• People earning $50,000 - $74,999 – 13% 
• People earning $75,000 - $99,999 – 16%
• People earning $100,000 or more - 25%

Low to middle-income earners ($25 K – $74 K) constituted the majority of the respondents - up to 35%.

The percent of the upper-class population ($100 K +) participants adds up to 25% of the respondents, followed by the medium-to-high level earning population (16%).

That means small business loans are most attractive for the low-to-middle-earning population.

Employment Status & Other Small Business Loan Stats

• The vast majority of the respondents taking a small business loan were employed for wages (~67%)
• Self-employed constituted only ~13% of the respondents
• The majority of the respondents have a University education (~37%) and high-school education (~29%), followed by almost equal numbers of post-graduates and technical college graduates (~15% each)
• More respondents living with a spouse (39% married and 13% living with a partner) than single (35%) respondents participated in the survey
• 40% of the survey participants didn’t have any children, followed by 23% having 1 and 21% with two children
• The respondents came from all over the U.S. The most numerous locations included: 
  • Florida - ~10%
  • California - ~10%
  • Texas - ~8%
  • Georgia and New York – ~5% both

What Is a Small Business Loan?

A small business loan is a type of financing that provides the capital your business needs to pay expenses or invest in growth. You receive a lump sum of money, which you repay over an agreed-upon period, with interest.

You may use a small business loan to hire employees, buy inventory, pay bills, rent or buy a property, or buy equipment such as equipment for starting a bakery. Each small business lender may have certain requirements to qualify for financing, including credit scores, time in business, and annual or monthly revenue.

How Do Business Loans Work?

Small business loans work much like any other loan type: after you apply for a loan, you’ll receive access to a certain amount of funds. Use those funds for whatever business expenses you may have. 

You’ll be required to make monthly or weekly payments, including principal and interest until the loan is paid off. Be sure to carefully review your loan agreement to understand how much you will pay in interest and how long you have to repay the loan before you sign it.

If you're not be able to repay the loan, the lender has the right to seize any asset you put up as collateral to cover your debts. That’s why it’s important to only borrow what you are sure you can afford to pay back.

Small Business Loans Requirements

Lenders often consider a combination of multiple factors, and each lender may have specific requirements and evaluation criteria.

• Credit Score—Lenders consider personal and business credit scores. A good credit score improves loan approval chances. Higher scores indicate responsible financial management, reducing lender risk.
• Time in Business—Lenders prefer businesses with at least 1-2 years of operation. Longer histories signify stability and reliable revenue generation, increasing loan eligibility.
• Business Revenue—Lenders evaluate revenue to assess repayment capability. Higher revenues indicate strong cash flow, boosting loan approval prospects.
• Industry—Industry impacts loan requirements. Some industries are perceived as higher risk, making loan acquisition more challenging due to market conditions, regulations, or historical performance.
• Business Ownership—Lenders assess ownership structure and the owner's level of investment and commitment. Personal involvement demonstrates accountability and motivation for business success, influencing loan decisions.
• Bankruptcies—Lenders consider the presence of past bankruptcies. Recent bankruptcies can adversely impact loan eligibility, while older bankruptcies may have less significant effects. Each lender has specific policies regarding bankruptcies in loan applications.

Types of Small Business Loans

There are several types of small business loans available. Which you choose depends on your business needs.

• SBA Loans: These are loans backed by the Small Business Administration, and come with some of the lowest interest rates and most favorable terms. Generally speaking, you need to have good to excellent credit to qualify.
• Term Loans: These are offered by banks and online lenders and may range in their criteria to qualify, as well as their rates and terms. There are term loans available even for businesses with poor credit, though these may charge more interest.
• Lines of Credit: Rather than getting all your money upfront, with a line of credit, you have access to a certain amount of money, which you can borrow from and repay again and again.
• Merchant Cash Advances: This isn’t a loan but rather an advance on future credit and debit card sales. You repay this through automatic payments made daily or weekly from card transactions.
• Invoice Factoring: With invoice factoring, you sell your unpaid invoices to a factoring company, minus a fee. The factoring company then collects the payment on the invoice.
• Equipment Financing: This is specifically for purchasing heavy machinery or company vehicles.  The equipment you purchase acts as collateral on the loan, which may help you get a lower interest rate.

Where Can You Get a Small Business Loan?

There are multiple ways you can get a small business loan, including:

Banks and credit unions

Most banks and credit unions in your area will offer loans and lines of credit to small businesses. The qualifications are typically more stringent than online lenders, but you will typically receive better interest rates if your credit is in good standing. Also, more documentation is required and funding may take up to a few weeks from loan approval.

Online lenders

Acquiring a small business loan through an online lender is most likely going to be the quickest form of financing. Qualifications are not as strict, with some lenders catering specifically to businesses with less-than-ideal credit, and start-ups may qualify. Due to the speed of funding and flexible requirements for loan approval, interest rates may be higher than other small business lending options.

Small Business Administration

The Small Business Administration doesn’t lend to businesses directly, but instead partners with online lenders, banks, community development organizations, and microlending institutions to help fund your small business. Requirements for a loan backed by the SBA are higher than other options, but you most likely will receive better interest rates and longer loan terms.

How to Get a Small Business Loan

Though the application process may vary a bit from lender to lender, there are a few basic steps you can expect once you choose the right lender for your business.

Step 1: Gather Documents: Start by seeing what your lender requires with the application. Many lenders will ask for:

• Photo ID
• Social Security number
• Bank or accounting records
• Business licenses

Step 2: Apply: Each application may vary in its complexity. Some may take just five minutes to fill out, while others may take a lot longer. If you’ve gathered your documents, this step should be fairly straightforward. Expect to be asked about:

• Business address
• Industry
• Annual revenues
• Time in business
• Personal details, including address, Social Security number, income
• Personal and business tax returns
• Amount you want to borrow

Step 3: Wait: Some lenders approve loans instantly whereas others take a few days. SBA loans have the longest approval rate, typically taking a few weeks or more.

Step 4: Review Loan Agreement: Once you’ve been approved, you will be sent a loan agreement that includes how much you are borrowing, the interest rate, and repayment terms. If you agree with the terms, sign and return to the lender.

Step 5: Get Paid: Once the lender receives your signed loan agreement, the loan funds will be deposited into your business bank account in as little as one business day.

Conventional Business Loans vs. SBA Loans

Small business owners with good credit might consider applying for either a conventional business loan or an SBA loan.

• Conventional small business loan: offered through a bank or online lender, such as the ones listed above. Some have strict criteria to qualify, while others may approve borrowers with less than perfect credit. Some require repayment in a few months, while others have repayment periods of a few years.
• SBA loan: Backed by the Small Business Administration, which sets the rates and terms. Those rates and terms tend to be the lowest and best option for small business financing, but you’ll need good to excellent credit and a track record of doing business to qualify. Many banks and online lenders offer SBA loans, but they can take weeks or months longer than conventional loans to process and be approved.

Which Industries are Most Likely to Apply for Loans?

Small business loans are available for almost any industry. The type of funding that's available may depend on your specific business type.

According to the 2022 Small Business Credit Survey, companies most likely to seek financing include manufacturing, retail, leisure and hospitality, healthcare and education, and professional services and real estate. The report found that loans and lines of credit are the most common forms of financing sought by applicants.

Other industries that may need financial assistance to help with growth and day-to-day operations include construction, transportation, restaurants, and specialty niches like vending machine businesses and internet-based companies.

Conclusion

Your small business needs capital to thrive. Whether you need money to get through a slow period or to expand your business by opening a second location, there are financing options available. Most lenders offer both small business loans and business lines of credit, so you can decide which type of financing is right for you.

That being said, take the time to shop around because rates and terms can vary wildly from one lender to the next. You want the loan with the terms that best suit your business. Start with the list we’ve provided here.