Best Business Loans for 2022

Before your borrowing journey begins, you need to figure out how much you need, how soon, and for what. That helps you determine if you should take out a long-term loan or choose a quick financing option. When you need capital fast, it's easy to accept the first offer, giving little thought to interest, fees and the need for collateral. But that could leave you with an expensive loan you're ill-equipped to repay. 

Before you apply with any lenders, pore over all the terms and requirements. Check the interest rates and fees, then determine if the loan is an amount you can reasonably afford to pay back. Compare the interest rates and fees of various lenders until you find a rate that's best for you. 

Take time to understand the repayment terms, too. Do the terms, principal (the amount borrowed), and interest makes sense for you and your company? Will you be able to pay it back? Once you have a clearer understanding of the issues, you can start shopping for a business loan.

Tip: Small business lenders cater to different types of borrowers and segments of the market. It's important that you shop around for a loan based on your business's needs.

There are a lot of options when it comes to business loans. The one that makes the most sense for you depends on your credit score, time in business and the amount of money you're looking to borrow. The speed in funding and the terms also vary from one product to the next. With that in mind, here's a look at the small business financing options available to you.

SBA Loans 

U.S. Small Business Administration loans are processed by lenders and banks. They are low-interest loans that are available to help owners expand their business (buy a business, land, or equipment) or recover after a natural disaster. The maximum amount of money you can receive from an SBA loan is $5 million.

There are four specific types of SBA loans:

• SBA 7(a) loans are a good option for buying a business, working capital or buying equipment for your enterprise. You can borrow up to $5 million. SBA 7(a) loans feature a variable interest rate, which is tied to the prime rate. Collateral is required.
  
  
• A 504 loan also has a cap of $5 million. Many business owners use a 504 loan to purchase machinery or land. SBA 504 loans cannot be used for working capital or inventory. Interest rates are typically fixed and are based on five and 10-year U.S. Treasury bond rates. No collateral is required.
  
  
• SBA microloans can be used for working capital, and to purchase supplies, equipment or fixtures, and furniture. Rates vary from 8 to 13%. Loans are available from community-based nonprofits, and the maximum amount you can borrow is $50,000.
  
  
• An SBA disaster loan offers borrowers up to $2 million. They are designed specifically for small business owners affected by natural disasters or global crises. According to the SBA, interest rates are fixed and are determined by legally established formulas (Rates typically range from 3% to 7%.)

Did you know? Volume for the Small Business Administration’s 504 and 7(a) loan programs increased in 2021, reaching $44.8 billion. With more of the same expected in the coming years. But an SBA loan may not be right for you, which is why it’s important to consider all loan types.

Term Loans

With a term loan, you get a lump sum of money and are required to pay it back in installments over a set period of time. Term loans come with different repayment schedules depending on your business needs.

• Long-term loans: These loans have terms of at least six years. They are typically used for big purchases, such as a company vehicle or property.

• Medium-term loans: These loans have terms that range from two to five years and are commonly used to purchase business equipment or to fund expansion.

• Short-term loans: These loans have terms of less than two years. They are typically used to purchase inventory, fill cash flow gaps for working capital or meet other short-term cash needs.

Lines of Credit

Lines of credit or LOCs provide business owners with quick access to capital. There are no rules for what the money can be used for, and you only pay interest on the money you drawdown. The loan size and interest rate are determined by the lender. Many LOC loans have qualification requirements such as a minimum annual revenue, how long your company has been in business and minimum credit scores of 500 or higher.

Merchant Cash Advance

With this type of loan, the lender offers merchants an advance in exchange for future credit card sales. You get access to cash quickly and are required to pay it back daily via a percentage of your credit card sales.  

[Related Content: Small Business Loan vs. Cash Advance: What's the Difference?]

Peer-to-Peer Lending

Peer-to-peer (P2P) lending is a loan from another business owner or individual investor interested in financing your business. This cuts out the need for banks. These types of loans have drawbacks and are not allowed in all states. [Related Article: The Pros and Cons of Bootstrapping] 

Unsecured and Secured Loans

An unsecured loan doesn't require you to put up collateral. However, you must have good credit to qualify. A secured loan requires collateral, which may be an asset, a piece of equipment, accounts receivable or real estate property. 

Equipment Financing

This occurs when a business owner takes out a loan to pay for equipment. The collateral is the equipment you are financing. Most business owners can get approved given the collateral component. 

Invoice Financing

With invoice financing, business owners get an advance on unpaid invoices. It's often referred to as accounts receivable financing. Invoicing companies advance you as much as 85% of the value of your unpaid invoices. You receive the final 15%, minus any fees when the invoices are paid off.

Alternative Loans

Alternative lenders are non-bank lenders that provide loans to business borrowers. They are typically more flexible than banks and have a quicker application process and funding time. The requirements to get approved are usually more relaxed than those of a bank. Any financing outside of a bank is considered an alternative loan.

Did you know? Business owners have a lot of options when it comes to accessing capital, all with varying costs and terms. SBA loans, term loans, lines of credit, equipment financing and alternative lending are among the popular ones.

When seeking a loan, understanding the ins and outs of the lending process, the lender's qualification requirements and the terms of your loan is vital to securing the capital you need without compromising your business's future.  As you compare various lenders, pay attention to the following elements.

Loan Application Ease

As you evaluate lenders, ask how long or detailed the application process is. Your lender will collect information, such as how much income your business generates and the debts you have. That information is used to assess your ability to pay back the loan. Some lenders require a lot of paperwork, while others don't, depending on the loan size and length. If you need money quickly, select a lender that offers an online application and relaxed requirements about the documentation you need to provide. You can speed the approval process by having certain documents ready, including your business's tax returns, bank statements, financials and articles of incorporation, franchise agreements, etc. 

Interest Rate

Small business loans accrue interest, which is the price you pay for a loan. Rates can be fixed or fluctuate (variable). Generally, alternative lenders offer a fixed interest rate. Your interest rate will vary depending on the lender you partner with, your business's financials, credit score, years in business and your personal financial history. It is important to weigh the cost of the loan against the benefits of borrowing. If it does not make sense, seek a lower-cost alternative.

Rules and Requirements

Lenders charge business borrowers money to access capital. That includes interest, an origination fee, and other charges, such as maintenance and late payments. Pay attention to the annual percentage rate or APR. That tells you the full cost of the loan, including fees. The size of the loan also impacts how much interest you'll pay. The loan term is the amount of time you have to pay back the loan. Terms can range from as short as a few weeks to as long as several years. 

Qualifying Criteria

Depending on the type of loan and lender, the qualifications for approval will vary. Most lenders look at your business and/or personal credit score, years in business, annual sales and your business plan. Lenders don't want to lose money and will scrutinize you and your business to ensure you are capable of repaying the loan.  

Collateral

Collateral is an asset you pledge to get, or secure, your loan. If you can't pay the loan back, the collateral is forfeited to the lender. Collateral can be your building (if you own it), equipment, accounts receivables, property or something else of value. Lenders that offer secured loans require the business owner to put up a certain amount of collateral. Unsecured loans do not require collateral. Many lenders also require a personal guarantee, which is a binding legal document in which you pledge to personally pay back the loan if your business can't. If the debt is nondischargeable and you file personal bankruptcy, you're still obligated to repay the loan.

Funding Speed

It is important to know when you'll have the funds in your bank account. Knowing this upfront helps you plan accordingly so you don't face a cash crunch for payroll or other business operating expenses. Some alternative lenders can fund your loan the same day you're approved, while others take a few business days.   

Paperwork

Some lenders require you to provide additional documentation, like tax returns, photo ID, bank and credit processing statements or a voided check. Each lender has specific requirements.  

Key takeaway: There is a lot to consider when applying for a small business loan, from the cost of the loan to the terms. The more information you have before you begin shopping for a loan, the better prepared you will be to make a good choice.

The COVID-19 pandemic is having a big impact on the small business lending market. Many small businesses have permanently closed. In the early days of the pandemic, the government passed the CARES Act, a $3 trillion aid package targeting small business owners. The Paycheck Protection Program was born out of that legislation, providing business owners with forgivable loans if they kept staff on their payroll. It proved to be a huge lifeline but quickly ran out. Economic Injury Disaster Loans (EIDL) are another option; these are low-interest loans you pay back over 30 years.

To encourage more business owners to take advantage of the EIDL program, the White House recently raised the cap on the amount small businesses can borrow to $2 million, up from $500,000. Small business owners have to act soon to take advantage of these low-cost, long-term, small business loans. The program expires at the end of the year.

FYI: Paycheck Protection Program loans are coming due, which means it behooves you to apply for forgiveness. The good news is that the process has been streamlined by the SBA and lenders. If you borrowed $150,000 or less all it takes is completing a one-page application.

What business loans are the easiest to be approved for? 

The answer to this question depends on how much you need and how you intend to use the funds. Many lenders have minimum qualification requirements for annual revenue, time in business and the business owner's personal credit score. This is helpful for startups without a financial history that cannot meet the requirements lenders have for more established organizations. Be sure to read our reviews to see which lenders have less-onerous eligibility requirements.

What are the types of SBA loans?

There are several types of SBA loans available for business owners. Three of the most common ones are:

1. SBA 7(a). This loan is the most popular type of SBA loan. It has a loan limit of $5 million and can be used to obtain working capital, buy commercial real estate and repay debts. The SBA 7(a) loan is ideal for small to medium-sized businesses. It has low interest rates and long repayment terms.
   
   
2. SBA 504. This loan is a combination of two loans, one from a traditional lender and the other from a Certified Development Company. It has no funding limit, and an owner can use it to purchase real estate for their business or pay for construction or renovations.
   
   
3. Microloans. Microloans are distributed through nonprofit intermediaries without the SBA guarantee behind 7(a) loans. SBA microloans have a cap of $50,000, making them ideal for very small businesses whose owners need to offset startup or early expansion costs.
   

Are SBA loans fixed-rate or variable?

The interest rates on SBA 7(a) can be fixed or vary with time. SBA 504 loans and microloans are fixed-rate.

Do you need to provide a personal guarantee if you're a startup? 

If the loan you're considering is unsecured (no collateral is required), more often than not, you'll need to provide a personal guarantee. This is the case for most startup loans, because this is how lenders protect themselves if you're unable to repay the loan.

Will lenders look at my personal credit?

If you are a startup, there isn't a financial history for your company. Rather than evaluate your business's credit, lenders check your personal credit. This is common, especially for new business owners. Sometimes, looking at your personal credit is the only option lenders have.

How important is your credit score when you're applying for a small business loan?

Your credit profile has a significant impact on whether you'll be approved for a small business loan or not. Unless your business has been around long enough to establish a history of good credit, lenders look at your personal credit profile to assess your creditworthiness. The higher your credit score, the better. Many lenders also require collateral to underwrite the loan. It could be your home, car or other private property of value. If your business fails to pay back the loan, the lender can come after that collateral.

What credit score is necessary to qualify for a small business loan?

The minimum credit score you need to qualify for a business loan ranges from 500 to 640 or more. However, the requirements are based on the type of loan you're seeking and your lender. For an SBA 7(a) loan or SBA Express loan, borrowers need a score of 640 or more. If you're interested in the SBA CAPLines program or an SBA export loan, you need a credit score of at least 660. SBA CDC/504 loans require a minimum score of 680, and for an SBA microloan, a score of 620 to 640 is preferred. Online lenders often have more flexible requirements. Some provide loans to those who have credit scores between 500 and 550. However, if your credit score is that low, you will likely pay higher interest rates.

Can borrowers with bad credit get approved for a business loan?

It can be hard, but it's not impossible. Some lenders don't use your credit score as a determining factor in whether you qualify for a business loan or not. Some weigh your financial history and business success more than your credit score.  If your credit score isn't great, shore up other parts of your business value, such as revenue or sales. 

Does applying for a business loan affect your personal credit score?

Often, to be approved for a small business loan, you must personally guarantee the debt, meaning you will pay back the loan yourself if your company doesn't. The lender has every right to go after you individually if the loan is delinquent, and that could hurt your personal credit score. The same applies to a business line of credit. If you personally guarantee any loan and the business is unable to repay it, you are on the hook for it.

Is there specific documentation required to get approved for a small business loan?

Among the documents you'll need to provide lenders with are your annual business revenue and profit, bank statements, personal and business tax returns, a business plan, business licenses and permits, proof of collateral, a balance sheet, a copy of your commercial lease, and any legal contracts and agreements you already have in place.

What is the fastest and easiest way to get a business loan?

The traditional way of borrowing money has been to apply at a local bank or credit union, but this route can take weeks before your business is approved and funded. Online lenders tend to do a better job in this regard, getting loans into business owners' hands in days or hours.

Alternative lenders typically offer several loan options, including working capital loans, merchant cash advances, equipment financing, term loans and invoice factoring. Depending on the type of loan you want, you could have money in your bank account in less than 24 hours.

Whichever option you go with ‒ a traditional lender or an alternative lender ‒ you can speed the approval process by having your business documentation ready, including tax forms, bank statements, financials and other documents related to your enterprise.

What are some assets business owners can use as collateral for a loan?

Lenders vary about the collateral they'll accept, but in general, anything valuable can be used. Common types of collateral for business loans are equipment, vehicles, real estate, inventory and accounts receivables. Some lenders may require you to offer personal collateral not tied to your business. This could include vehicles, real estate and cash in the bank.

What are typical business loan terms?

There are several types of business loans, all with varying terms. Business loan terms can be as short as a few weeks or as long as 25 years. A traditional bank loan has terms from three to 10 years. Medium-term business loans last one to five years, while short-term business loans are typically three to 18 months in length. SBA small business loans have terms up to 25 years, but 10-year loans are more common.

What payback terms can you get for a merchant cash advance?

A merchant cash advance gives you quick access to the money from your credit card sales. However, it's a costly and risky way to access cash, with complicated terms.

With a merchant cash advance, you get an upfront payout and pay it back with a percentage of your future credit card and debit card sales, or you can make daily or weekly fixed payments. Either way, you make payments, plus fees and interest, until you've paid back the advance. The lender assesses how likely and able you are to pay back the advance, which impacts the fees you'll pay; your riskiness to the lender is known as the factor rate. The higher your factor rate (i.e., the greater risk the lender determines you to be), the more fees you're on the hook for.

Where can I apply for an SBA loan?

You can DIY by searching for lenders who are approved by the SBA. Armed with that list, you can comparison shop and apply directly on the lenders' websites or through their mobile apps.

Another, easier, option is to use the SBA's Lender Match tool, which connects borrowers with SBA lenders. You answer a series of questions, which the SBA says takes five minutes, and two days later you'll receive an email with offers from lenders. It is up to you to pick the lender, but once you've settled on one, you apply directly with them. (The SBA's Lender Match tool is not for its disaster relief loans and assistance.)

Can you still get a COVID-19 EIDL loan through the SBA? 

The pandemic EIDL loans expired at the end of 2021. While small business owners can no longer apply, they can request an appeal or reconsideration if they were turned down. The SBA is also accepting applications for loan increases.  

What loan can you get through the SBA  now that the COVID-19 SBA loan program is over? 

You can still get a Economic Injury Disaster Loan if your business was impacted by a fire, hurricane, or other natural disaster.

What is a business installment loan, and why would I need one?

An installment loan is financing that you use to pay for equipment or property over a set period of time. Unlike a credit card, where you have a revolving line of credit, your payments are fixed over the term of the loan. Once you pay it off, the debt is settled. Interest rates on installment loans are typically lower than credit card interest rates, but there's more risk. If you can't pay back the loan, the lender claims your collateral.

Installment loans are common for purchasing property, expensive equipment, business vehicles or other high-priced items. You can also use an installment loan for funding your startup. If you want it for this purpose, you'll need good credit, collateral, a sound business plan and a willingness to sign a personal guarantee.

What is a business line of credit, and how does it work?

A business line of credit is a revolving loan that business owners tap as they need funds to grow and/or fill cash-flow gaps.

Instead of getting a lump sum and paying interest on the full amount, you pay interest on the money you draw from the line of credit. Typically, a line of credit ranges from $1,000 to $250,000, though some lenders may issue higher amounts. Most lines of credit have a variable interest rate, which means the amount you pay changes depending on the prevailing interest rate.

A business line of credit can be secured or unsecured. With a secured line of credit, you need to provide collateral.

With an unsecured line of credit, you don't have to provide collateral, but you may need to sign a personal guarantee. [Read related article: Should You Get an Unsecured Business Loan for Your Small Business?]

Which bank is best for small business loans?

For small business owners with a strong credit score, a well-established and growing business, and valuable collateral, a bank loan is often the best option. Interest rates tend to be lower with a bank. Sure, it may take longer to get the cash, but it's cheaper than using an alternative lender. If you are applying through a bank, the best first place to try is your local bank. They already know you and your business and will be more inclined to offer favorable terms to an existing customer than a stranger.

Online lenders vs. traditional banks: Which one is better?

We recommend that you assess how much money you need to borrow and for how long. You don't want to take out a long-term loan for a short-term cash-flow problem. Nor do you want to wait weeks for funding that you needed yesterday. If fast funding is your priority, an online lender is the better option. The same goes for your credit profile. If you have less-than-perfect credit, you'll do better with an online lender versus a bank. If you care about the cost of borrowing above all other considerations and are in good financial standing, choose a bank. 

Hopefully, small businesses have turned the corner from a pandemic that forced companies to pivot into new markets and adopt online business models. Government aid, widespread vaccinations and no more shutdown restrictions will ideally point to increased sales for small business owners in 2022. However, a down economy and rising inflation may leave many small business owners looking for additional funding. Alternative lenders and the SBA are ready to meet that demand.

The good news for businesses in need is that there appears to be an increase in both banks' and alternative lenders' willingness to lend money to businesses in 2022. Data from Biz2Credit in April revealed that large and small banks, as well as alternative lenders, all have increased loan approval rates from a year ago. This is good news for businesses in need of financing.

Additionally, it appears that the SBA will have more money to lend in 2022. The Biden administration is proposing a $5 billion increase to the amount of money the SBA can lend to small businesses via the 7(a) loan program. That will bring the total amount available to $35 billion.

Additionally, artificial intelligence and machine learning are reducing loan approval wait times and increasing the speed with which funds are deposited into business owners' bank accounts. Credit scores still matter, but lenders are increasingly scrutinizing other aspects of a business owner's finances to ascertain their creditworthiness. Altogether, these changes are designed to make it easier and faster to get a small business loan in 2022.

The number of online and mobile lending companies is expected to grow. Since digital options provide extensive financing opportunities and faster approval, they are expected to be increasingly popular choices compared to traditional banks and credit unions.

Another key trend for business loans in 2022 is rising interest rates. The Federal Reserve has repeatedly raised rates in order to combat rising inflation, and analysts widely expect that they will continue hiking rates for the foreseeable future.

In June, the central bank voted to raise its benchmark rate by 0.75 percentage points; Fed officials expect rates to end the year at about 3.4%. Business owners can prepare by locking in loans at a fixed rate. Loans with variable interest rates are at risk of becoming more expensive when rates eventually rise, so business owners should carefully evaluate the drawbacks before signing. 

To help you find the right business loan, we researched and analyzed dozens of options. Here is a roundup of our 2021 best picks, followed by an explanation of how we chose them.

Locating the Best Services

We asked small business owners which lenders they have used and would recommend to others. To this list, we added lenders on our current vendor list, those who had reached out to us asking to be reviewed, plus others we learned about as we researched this topic.

Choosing the Best Services

After preliminary investigation, including a look at other best-pick lists, Better Business Bureau ratings, and initial research into each lender, we whittled the list down. After several rounds of research and other considerations, we arrived at a shortlist of companies to research further.

Researching Each Service

Next, we researched each lender, investigating the types of loans it offers, the amount of money that can be borrowed, the loan term, the application and approval process, and repayment process. We contacted each lender by phone and live chat (if this option was possible) and posed as business owners to gauge the support each company offers.

Our Best Picks

Ultimately, we settled on 10 best picks: SBG Funding, Fora Financial, Biz2Credit, Rapid Finance, Noble Funding, Balboa Capital, Crest Capital, Fundbox, Accion and Truist.