Guide to the Best Small Business Loans (Up to $300,000) in 2020
Every year, thousands of small business owners around the country shop for a small business loan ranging anywhere from a few thousand dollars all the way up to three hundred thousand dollars. If you are the owner of up-and-coming small business, chances are you will need to take out a small business loan sometime in the near future. Although it may seem daunting at first, taking out a small business loan becomes much less scary if you do your research and take heed of the following advice.
With the FOMC keeping interest rates low to end 2019, small business owners can take advantage of great financing opportunities in 2020. With an election right around the corner, it would make sense for small business owners searching for financing options to take advantage of the current favorable lending conditions. Many small business loans have variable interest rates, some of which may be based on the Fed Funds rate. We will continue to monitor this part of the market for 2020, you can read additional money saving tips for small business financing throughout this article.
One of the most basic things to consider before taking out a small business loan is how much money your small business actually requires. The more accurate your approximation is, the better off you and your small business will be. If you take out more money than you actually need, you may be unnecessarily hindered by interest on money that you never actually needed. On the flip side, taking out too little money will require you to take out yet another small business loan down the road. This can also lead to extra money wasted, as many small business loans have unwanted fees attached to them.
Does Your Credit Score Matter When Applying For New Financing or a Small Business Loan
Another important thing to research before taking out a small business loan is your credit score. The better your credit score is at the time you take out a small business loan, the smaller your interest rate will be on that loan. Try to improve your credit score as much as possible before taking out a small business loan. This is especially important if your loan is over $100,000, as every tenth of a percent you can save on your interest rate can result in hundreds of dollars saved on interest payments in the future.
Tips For Finding The Best Rates and Terms for Your Small Business Loan
One extremely important, but often overlooked, aspect of taking out a small business loan is to read the fine print of the loan agreement. Many small business loans may have hidden fees that are not immediately apparent. Do not trust a lender’s word when taking out a small business loan. Read every single word of the agreement for your small business loan. This becomes especially important as the amount of the loan rises because fees become more common as the amount of money on loan increases. By taking the time necessary to read the fine print on your small business loan agreement now, you can potentially save yourself hundreds of dollars on the overall price of the loan.
Although there are several ways that a small business can get funded such as through a credit card, venture capitalist, or simple crowdfunding, the most common sources of funding are taking out a small business loan from either a bank or an online lender. Both of these popular ways to take out a small business loan have advantages and disadvantages. One of the many reasons a small business owner may prefer an online loan is because they are usually much more available. While banks are a little more hesitant to take on even slightly risky small business loans these days, online lenders are still much more likely to take on riskier loans. Online small business loans also have an indisputable advantage in terms of convenience. First of all, online lenders are available 24/7 every day of the year. You can search for a small business loan anytime of day that is convenient for you. Also, online lenders rarely run in-depth credit checks. This means that your loan application will be completed much faster with an online lender than at a bank. However, banks also have some key advantages when compared to online small business loans. Although most online lenders offer fewer fees, traditional bank loans are much more likely to offer you a lower interest rate. For small business owners that are confident they can pay their small business loan payments on time, this can save them hundreds and possibly even thousands of dollars in interest. Also, since banks usually run very extensive credit checks, small business owners who have good or excellent credit can have their interest rate reduced even further. This can add to further savings for customers who have a history of making their loan and credit card payments on time.
Who Regulates Loans and Financing For Small Businesses
When considering taking out a small business loan, it is important to understand if the lender is regulated by a government entity, whether federal or state. Unlike with personal loan lenders, most commercial lenders are regulated much more loosely by both federal and state regulations. However, many small business owners may opt to take out a personal loan to aid their small business if the amount is relatively low. Before taking out a loan, make sure to understand whether it makes more sense to take out a personal loan or a traditional commercial loan for your small business. Although commercial lenders are regulated more loosely at both the federal and state levels, many regulations still apply. Most regulations on the books about lenders break them up into two distinct categories: business lenders and consumer lenders. Business lenders are those lenders that deal with both large and small business loans, while consumer lenders generally deal with personal loans. Although there are hundreds of rules that regulate loan transactions, understanding the difference between a business loan and a personal loan will make it much easier to research the specific lending regulations that apply to your small business.
Popular Reasons Why A Business Owner May Seek A Business Loan
- Working Capital To Continue Business Operations
- Investing in New Equipment or Inventory
- Covering Cash Flow Shortages
- Purchasing a New Building
- Investing in New Technology, Software and Networks
- Tax Obligations or Refinancing Existing Loans
Anytime you feel that a small business loan is required to aid the growth of your small business, it is important to understand the difference between a secured and unsecured loan. Secured loans require some form of collateral if you fail to make the required payments. Collateral can take many forms in a small business loan. Most commonly, small business loans will ask for your home to be tied to your small business loan. If you default on your payments for your small business loan, the lender can foreclose on your house and sell it to make up the money lost from the loan. Secured loans may also take other forms. One of the next most common forms of a secured small business loan is a blanket UCC Lien. This loan agreement states that if the loan payments are not made on time, the lender has the right to take assets from the small business to recover the money owed on the loan.
List of The Best Lenders For Small Business Loans
- Huntington National Bank
- Wells Fargo
- JP Morgage Chase
- US Bank
- TD Bank
- Manufacturers and Traders Trust Company
- First Home Bank
- Celtic Bank
- United Midwest Savings
When searching for a small business loan, it may be most financially responsible for you to take out an unsecured loan. Since unsecured loans do not require any form of collateral, you do not have to worry about losing your home or small business if you fail to make your loan payments. Small business unsecured loans come in a variety of forms. One very popular way to take out an unsecured small business loan is through an SBA (Small Business Administration) loan. These loans require no collateral from you, but will offer lower interest rates than most unsecured loans because they are backed by the SBA. This way, if you fail to make the required payments on the loan, the SBA will step in and pay off the loan while they work with you to reach a financial resolution. Online small business loans are another way to get a hold of an unsecured loan for your small business. Although online small business loans may have higher interest rates, they are easy to find if you require a small business loan in a hurry.
Updated February 4, 2020 – author for this article is Don