Best Small Business Loans of January 2025

Best Small Business Loans of January 2025

What is a business loan?

A business loan is a loan designed specifically for business purposes. With a small business loan, you borrow money from a lender and pay it back over time, with interest.

Business loans can be used to cover startup costs, purchase inventory or equipment, manage cash flow and expand your operations, among other uses.

Types of small business loans

Small business loan options can include SBA loans, bank loans, term loans, business lines of credit and equipment financing. The best business loan for you will depend on a variety of factors such as:

  • Why you need funding.

  • How fast you need access to capital.

  • How much capital you need.

  • Your business’s qualifications.

  • Total cost of debt.

SBA loans

SBA loans are small business loans partially guaranteed by the U.S. Small Business Administration, a government agency, and issued by participating lenders, such as banks and credit unions. SBA loans offer low interest rates and long repayment terms.

Although there are multiple types of business funding within the SBA loan program, the SBA 7(a) loan is the most popular
  • Loan amounts: $30,000 to $5 million.

  • Approximate APR range:

    10.5

    % to

    14

    %.

  • Best for: Large one-time and longer-term investments, purchasing real estate or equipment, buying existing businesses and refinancing debt.

Business term loans

A business term loan is a lump sum of capital that’s repaid over a specific period of time, with interest. For short-term loans, the repayment period tends to range from three to 24 months, while repayment for long-term loans can extend up to 10 years or longer in some cases.
  • Loan amounts: Up to $1 million.

  • Approximate APR range: 6% to 99%.

  • Best for: Working capital, large one-time investments, expanding your business.

Business lines of credit

A business line of credit provides access to flexible cash. Similar to a credit card, lenders give you access to a specific amount of credit (say, $100,000), but you don’t make payments or get charged interest until you tap into the funds.

  • Credit line range: $1,000 to $250,000.

  • Approximate APR range: 10% to 99%.

  • Best for: Managing cash flow, handling unexpected expenses and financing short-term business needs.

Compare financing and apply

We’ll start with a brief questionnaire to better understand the unique needs of your business. Once we uncover your personalized matches, our team will consult you on the process moving forward.

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See Your Loan Options

Equipment financing

Equipment financing is a form of asset-based financing where the equipment itself serves as collateral for the loan. You can get an equipment loan equal to up to 100% of the value of the equipment you’re looking to purchase — depending on the lender and your business’s qualifications — which you then pay back over time, with interest.
  • Loan amounts: Up to 100% of the value of the equipment, plus soft costs (e.g. installation, delivery, warranties).

  • Approximate APR range: 4% to 45%.

  • Best for: Purchasing machinery and equipment.

Microloans

Microloans are small-dollar loans that typically offer up to $50,000 in business funding. These loans are designed for traditionally underserved entrepreneurs, such as startup founders, people with limited credit histories, minority groups and those located in low-income communities.
  • Loan amounts: Up to $50,000.

  • Approximate APR range: 8% to 30%.

  • Best for: Smaller business investments, covering day-to-day expenses, working capital needs.

Additional business funding options

If you don’t think you can qualify for a traditional loan — or simply want to explore all of your options — you might consider one of these products to finance your business. Many of these business funding options have flexible requirements and can be a good choice for newer companies.

Invoice factoring and invoice financing

  • Invoice factoring turns business owners’ unpaid invoices into immediate cash. You sell the invoices to a factoring company, which is paid when it collects from your customers.
  • If you prefer to maintain control over your invoices, invoice financing is an alternative to factoring.

Personal loans

  • A personal loan for business allows you to get funding based on your personal credit score and income instead of your business history.
  • These loans are usually available in smaller amounts, but they can be used for a variety of purposes and fund within days.

Business credit cards

  • Although credit card limits tend to be smaller than a line of credit, a business credit card may offer rewards, such as cash back or travel points.

Small-business grants

  • Small-business grants provide a free alternative to debt funding — offering access to capital that doesn’t need to be repaid. 
  • Business grants are available from a variety of sources, including federal, state and local governments, private companies and nonprofit organizations.

Friends and family loans

  • These loans are typically informal; they don’t require an application process or credit check. Creating a written loan agreement, however, can help preserve your personal relationship — just in case things don’t go as planned.

How do I qualify for a business loan?

Lenders have different underwriting guidelines, but they generally consider similar factors, including your personal credit score, time in business and business finances.

Some bills and a red card.

Personal credit scoreBusiness lenders use your personal credit score to assess your ability to manage and pay your debts. You can get your credit score online or check your credit score on NerdWallet for free. In general, the higher your personal credit score, the more likely you are to qualify for business funding. A strong personal credit score can also help you qualify for lower interest rates and longer repayment terms.

Sign with a "we are open" text.

Time in businessLenders use your time in business as a quick measure of success. The longer you’ve been operating, the more likely you are to have money to repay your debts. Most traditional lenders will want you to have at least two years in business. Online lenders, on the other hand, may only require a minimum of six months in operation.

Green circle with upward chart.

Business financesLenders want to see evidence of stable cash flow to ensure that you can repay a loan. When applying for a loan, you’ll likely need to provide business bank statements, tax returns and financial statements. If you haven’t been operating for very long, it can be helpful to provide sales forecasts that illustrate the potential revenue your business will generate.

How do I get a loan for my small business?

Getting approved for a business loan doesn’t have to be a painful process. You can increase your chances of success by understanding your business’s qualifications and then finding the financing option that fits your needs. Here are the steps you can follow:

Decide which loan option is right for your needs. If you want to finance a large purchase or business expansion, for example, you might consider a traditional term loan, whereas if you need funds for day-to-day expenses, you might prefer a business line of credit.

Check your qualifications. Consider factors such as your personal credit score, time in business and annual revenue. Bank and SBA lenders likely have the strictest eligibility criteria. Online lenders, on the other hand, may be more flexible.

Estimate what payments you can afford. Look carefully at your business’s financials — especially cash flow — and evaluate how much you can afford to apply toward loan repayments each month. Your total income should be at least 1.25 times your total expenses, including your new repayment amount.

Determine whether and how you want to collateralize the loan. Business loans can be secured or unsecured. A secured business loan requires collateral, such as property or equipment, that the lender can seize if you fail to repay the loan. Putting up collateral is risky, but it can increase the amount lenders let you borrow and get you a lower interest rate. Keep in mind, however, that although some lenders don’t require physical collateral, they may still take out a UCC filing on your business assets. This official document allows a lender to claim your assets in the case of default.

Compare small-business lenders. The best loan for your small business is typically the one that offers you the best terms. But other factors, like funding speed or customer service, may matter to your business and different financing sources may be better in certain instances than others.

Apply for a business loan. Of the loans you qualify for, choose the one with the lowest APR and best terms for you — as long as you’re able to handle the loan’s regular payments — and submit your business loan application.

đź“‹ Business loan application checklist

The documentation that you need to provide for your loan application can vary from lender to lender. Banks and SBA lenders often require more paperwork compared to online lenders. In any case, you may need to submit:

âś… Personal and business bank statements.

âś… Personal and business income tax returns.

âś… Business financial documents, such as profit and loss statements, balance sheets and cash flow statements.

✅ A photo of your driver’s license (or other official identification).

âś… Business licenses.

âś… Legal business formation document (e.g. articles of incorporation, articles of organization).

âś… Description of collateral.

âś… Legal contracts and agreements.

As you complete your application, double check all requirements and ensure everything is accurate. Providing incorrect or outdated information can slow down the underwriting process. It may be helpful, therefore, to have a business advisor or mentor review your application before submitting.

đź’¬ From our experts: Is this the right time to get a business loan?

“At its last three meetings, the Federal Reserve lowered interest rates (the first such rate cuts since March 2020). At the January 2025 meeting, rates are widely expected to remain the same.

When these rate cuts occur, rates on business loans tend to decrease as well. As a result, business owners may be in a better position to consider financing than they have been in the last year. To get the best rate on a business loan, you can build your credit, offer collateral, improve your cash flow and compare multiple financing options.”

Where to get a small business loan

Business loans are available from banks, credit unions, online lenders, nonprofit organizations and community lenders.

Banks, sometimes called “traditional lenders,” can provide a variety of loan types — and are often a source for SBA loans. These lenders tend to offer the most competitive interest rates and repayment terms on business loans. Currently, the average interest rates on business bank loans range from 6.43% to 12.45%

To qualify for a bank loan, you’ll need to meet strict eligibility criteria. You’ll likely need multiple years in business, good credit and strong revenue. You may also need to provide collateral.

Banks that offer small business loans:

  • Bank of America.

  • Wells Fargo.

  • Chase.

  • U.S. Bank.

  • PNC Bank.

You may also be able to get a business loan from a regional or local bank. These smaller banks tend to have higher approval rates compared to big banks — as well as greater overall borrower satisfaction — according to the Federal Reserve’s 2024 Small Business Credit Survey

🤓 Nerdy Tip: Protect your business from predatory lenders and loan scams

Predatory lenders may target small-business owners looking for funding, especially those who are having trouble qualifying for traditional loan options. You can protect yourself by watching out for red flags, such as promises of guaranteed approval, aggressive sales tactics and loan features that seem “too good to be true.”

Frequently asked questions about small business loans

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