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A Comprehensive Guide to Business Loans in the U.S.

Christine Tan | April 12, 2024

Edited by Hannah Locklear

Summary: Small business term loans offer a crucial lifeline to keep businesses buoyant and forward-moving. Check out this guide to the best business loans. Whether it’s traditional bank loans, such as the small business term loans from leading banks, or government-backed SBA loans, there are multiple avenues for SMEs to explore based on their requirements and eligibility.

There are various reasons why a business may need a short-term loan, ranging from urgent cash flow shortages to strategic growth initiatives. A recent survey conducted by Forbes Advisor aimed to shed light on the specific purposes for which business owners sought out and utilized their most recent loans. Notably, respondents could pinpoint up to three main reasons for the financial backing.

The results were enlightening: a considerable 42.4% of business owners used their loans primarily for business expansion. This was followed by equipment purchases and marketing & advertising, which were the preference for 29.4% and 28.6% of respondents respectively. Moreover, the versatility of business loans is further demonstrated by other prominent uses highlighted in the survey.

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As the business landscape continues to evolve, understanding the trends in business loans can guide companies in making informed financial decisions tailored to their unique needs.

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You have many options for small business term loans

In the dynamic landscape of small business financing, finding the right funding solution can be pivotal to your company's growth and success. Small business term loans stand out as versatile tools that can provide the capital you need to expand, invest, or navigate unexpected challenges.

Below, we'll delve into some options for small business term loans, including government loans, traditional business term loans, and the best online business loans. Whether you're a seasoned entrepreneur or just starting on your business journey, understanding these options can make all the difference in securing the financial support your business needs.

Government loans

In the competitive and often challenging landscape of the U.S. economy, small and medium-sized enterprises (SMEs) face significant financial strains. According to the Federal Reserve Banks’ Small Business Credit Survey, 59% of these businesses reported being in either fair or poor financial condition. Even more telling is that only 42% of SMEs have their financing needs fully addressed, highlighting a substantial disparity in the financial services available to them.

While a majority turn to large or small banks for their financial requirements, the persistent gap underscores the pressing need for alternative support systems. Recognizing this challenge, the U.S. government steps in, offering a variety of financial assistance programs aimed at bolstering the growth and stability of SMEs, ensuring they remain a vibrant part of the nation's economic fabric.

Take a look at the U.S Small Business Administration's most common loan program, the 7(a) Loan Program. It provides financial help for small businesses that meet the special requirements.

7(a) Loan Program

SBA 7(a) loan type Maximum loan amount Maximum SBA guarantee Application turnaround time from SBA Purpose
Standard 7(a) loan $5 million. 85% for loans up to $150,000 and 75% for loans greater than $150,000. Five to 10 business days. Funding working capital, equipment and supplies purchases, and real estate and business expansion.
7(a) small loan $500,000. 85% for loans up to $150,000 and 75% for loans greater than $150,000. Five to 10 business days. Funding smaller financing needs.
Express loan $500,000. 50%. Within 36 hours. Expedited funding for smaller loan amounts.
Export express loan $500,000. 90% for loans of $350,000 or less and 75% for loans of more than $350,000. 24 hours. Expedited funding to enhance a business’s export development.
Export working capital loan $5 million. 90%. Five to 10 business days. Funding working capital to support export sales.
International trade loan $5 million. 90%. Five to 10 business days. Long-term funding to expand export sales or modernize to contend with foreign competitors.
CAPLines of credit $5 million. 85% for lines up to $150,000 and 75% for lines greater than $150,000. Five to 10 business days. Finance short-term and seasonal working capital needs.
Source: Nerdwallet

Business term loans

As banks and financial institutions strive to offer competitive products, businesses must navigate their way through terms, interest rates, and repayment periods. This guide dives deep into business term loans provided by some of the leading banks, breaking down the essential components to help businesses make informed choices.

Business Term Loans

Bank of America
Secured Business Loans
JPMorgan Chase
Business Term Loans
Wells Fargo
Business Loans
Business Installment Loans
Maximum Loan Amount Starts at S$25,000 $5,000 to $500,000 $5,000 to $6.5 million $5,000 - $5,000,000
Maximum Repayment Period Up to 4 years Up to 84 months Up to 25 years Up to 7 years
Interest Rate As low as 6.75% Not disclosed Starting at 8.75% (Prime + 0.50%) Competitive fixed-rates

Best online business loans

Online business loans offer SMEs the opportunity to secure funds for operational needs, equipment purchases, and other essential expenses. Compared to traditional banks and credit unions, online lenders typically have a more simplified application procedure and frequently adopt alternative lending criteria that don't solely focus on traditional metrics.

As a result, online business loans present a more accessible and user-friendly option, particularly for newer businesses and those owners who might not meet traditional lending standards.

Best Online Business Loans

OnDeck Lendio BlueVine
Maximum Loan Amount $5,000 to $250,000 $500 to $5 million $6,000 to $250,000
Maximum Repayment Period Up to 24 months 2-10 years 6-12 months
Interest Rate Not disclosed As low as 6% Starts at 6.2%

Choose a business loan with a licensed money lender

Now that we’ve broken down government, business, and online loan options, you should note that working with a licensed money lender will always be in your best interest when considering a small business loan or short-term loan. Here’s why:

  • Faster Approval: Licensed moneylenders typically have a shorter and simpler application process, which can result in quicker loan disbursements.
  • Flexibility: These lenders might offer more flexible terms, especially for businesses that might not have a lengthy credit history or substantial collateral.
  • Short-Term Solutions: Moneylenders can be a suitable option for short-term financing needs, such as bridging gaps in cash flow or addressing urgent financial demands.
  • Personalized Service: Given that they often operate on a smaller scale than banks, licensed moneylenders might offer a more personalized service, working closely with borrowers to understand their unique needs.

Compare business loan options

Comparing business loans is essential to ensure that you secure the most advantageous terms for your company's needs and financial health. Here are some tips to help you effectively compare business loans:

  • Understand your needs. Before diving into comparisons, clearly define what you need the loan for, how much you need, and how long you anticipate needing to repay it.
  • Determine the loan amount. Ensure the lender can provide the amount you need. Some institutions might have caps on what they can lend, especially if you're a newer business or have a limited credit history.
  • Check eligibility requirements. Before applying, check the lender's eligibility criteria, such as minimum annual revenue, years in business, and credit score requirements.
  • Compare interest rates. Look at both the nominal interest rate and the effective interest rate. While the nominal rate gives you the base rate, the effective rate will account for compounding and other fees, giving a more accurate reflection of the true cost.
  • Evaluate the loan terms. Some loans might have longer repayment terms than others. Ensure the time suits your business's projected cash flow.
  • Check for fees. Beyond interest rates, lenders might charge application fees, service fees, early repayment fees, or late payment fees. Make sure to factor in all these costs when calculating the total cost of the loan.
  • Check the speed of disbursement. If you need funds quickly, check how long the approval process typically takes and how soon funds are disbursed after approval.
  • Research the lender's reputation. Look for reviews or testimonials from other businesses, and check if they have any regulatory actions against them.

In conclusion

From traditional bank loans to innovative solutions offered by non-traditional financial institutions, there are plenty of options that are tailored to a business's unique circumstances and needs. SMEs and startups must be strategic and discerning in their loan choices, ensuring they align with their long-term goals and financial health.

Key Takeaways:

  • Whether it’s traditional bank loans, such as the small business term loans from leading banks, or government-backed SBA loans, there are multiple avenues for SMEs to explore based on their requirements and eligibility.
  • As the need for more flexible and quick funding grows, online business loans providers like OnDeck, Lendio, and BlueVine offer an alternative to traditional financial institutions. Their simplified application processes and alternative lending criteria make them a go-to for newer businesses and those that may not meet stringent traditional lending standards.
  • Businesses must undertake a thorough comparison of available loans. This involves understanding their own financial needs, checking eligibility criteria, comparing interest rates, evaluating loan terms, and factoring in any additional fees. By doing so, they can ensure the best fit for their financial status and requirements, promoting sustainable growth and stability.

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