Shop around for small-business lenders.

Online lenders, banks, and nonprofit microlenders are the three main providers of small-business loans. Each usually has several goods, but one may be superior to the others under particular situations.

When to use internet lenders for a business loan:

You're short on cash.

In business, you're short on time.

You require financing right away.

Small-business loans and lines of credit ranging from $1,000 to $5 million are available from online lenders. Depending on the lender, the kind and size of the loan, the length of the repayment term, the borrower's credit history, and if collateral is necessary, the average annual percentage rate on these loans ranges from 6% to 99 percent.

These lenders rarely offer lower APRs than traditional banks, but approval rates are greater and funding is faster — as fast as 12 hours — than with banks.

When to approach a bank for a business loan: You've been in business for at least two years.

You have excellent credit.

You don't require immediate cash.

Term loans, lines of credit, and business mortgages are all traditional bank choices for purchasing or refinancing properties.

The US Small Business Administration, under its 7(a) lending program, provides general small-business loans, short-term microloans, and disaster loans to banks. According to the Congressional Research Service, the SBA offers loans up to $5.5 million, with 7(a) loans average $533,075 in fiscal year 2020. SBA microloans cost an average of $13,000.

The SBA also has a 504 loan program that helps encourage community economic development by providing long-term, fixed-rate financing for businesses' fixed asset purchases, such as land, buildings, or equipment.

Due to considerations such as reduced sales volume and cash reserves, obtaining a small-business loan from a bank might be difficult. When you add in low personal credit or a lack of collateral, many small-business owners are left holding the bag.

Although being funded takes longer than alternative choices, banks normally provide the lowest APR.

When to approach microlenders for a business loan:

You have a poor credit history or none at all.

You're a brand-new company.

You won't be able to obtain a typical loan.

Microlenders are non-profit organizations that specialize in making small loans of less than $50,000. The annual percentage rate (APR) on these loans is usually greater than on bank loans. The application process can be lengthy if it requires a detailed business plan, financial statements, and a description of how the loan will be used.

Furthermore, the loans are "micro" by definition. These loans, on the other hand, might be a good fit for smaller businesses or startups that can't get typical bank loans owing to a lack of collateral, a lack of operating history, or a lack of personal credit.

Gather all of your paperwork

Make sure you have all of the necessary documents before applying. The process of obtaining a small-business loan will be streamlined if these files can be located and made easily accessible now.

You'll need to provide a mix of the following, depending on the lender:

Tax returns for both businesses and individuals.

Bank statements for both your business and personal accounts.

Financial statements for a business.

Documents pertaining to business law (e.g., articles of incorporation, commercial lease, franchise agreement).

Your business plan.

Make an application for business financing.

You've done it! It's time to apply now that you've decided on the type of loan and lender that's best for you.

Begin by comparing two or three comparable loan possibilities based on loan conditions and annual percentage rate, or APR. APR is the easiest way to comprehend the overall cost of a company loan for the year because it includes all loan expenses in addition to the interest rate.