Need Better Financing? How-to Choose Best Small Business Loans in U.S. in 2022

The covid-19 pandemic response wreaked havoc and devastation across the United States and around the world in 2020. The immediate closing of small and large businesses was both unprecedented and devastating. Here is a look at how to choose the best small business loans to help businesses recover.

According to the Journal of Economics and Management Strategy the statistics showed the number of active small business owners in the U.S., plummeted by 3.3 million or 22 percent over the crucial two-month window between February and April 2020. For instance, the study indicated that African American businesses suffered the most; with a 41 percent drop in business while Latino/Mexican businesses dropped to 32 percent, and, Asian businesses fell around 26 percent.

Despite the terrible impact upon businesses inflicted by the coronovarius response there’s a brighter side these days as the year 2022 ushered in; small businesses(larger ones as well) will feel the relief of a financial burden lifted as the government issued additional Paycheck Protection Program(PPP) loans and lenders are willing to start loaning capital for start-up Small Businesses and those that already exist.

A recent survey conducted through Capital One Bank showed 67 percent of small business owners expressed a modicum of confidence that their businesses would return to the same robust operations and revenue in 2022, prior to the shutdown of businesses during the coronavirus pandemic. Approximately 60 percent of small business owners believe the future of the U.S. economy will propel them to an upswing.

“Folks are feeling a lot more optimistic in 2022,” Sameer Gulati, Chief Operating Officer of Plastique said. “Things should start growing again in the third or fourth quarter.”

Still, for some small business owners, returning to normal is a daunting task because their businesses were excessively impacted due to the pandemic. Many small business entrepreneurs were forced to shut down for good. Yet, the ones that managed to survive will have more financing opportunities available than there were in 2020. Which now brings us to what are the best available loans for businesses.

Should entrepreneurs apply for loans from banks, credit unions or use alternative lending to keep operating?

Traditional Banks vs. Alternative Lenders

Which Lenders Are Better For Small Business Owners?

wells fargo loan balance.
Wells Fargo loan balance example.

The World Wide Web has changed the world we live in today. And in the business world of financing, the internet remarkably changed how small business owners get loans to operate their businesses.

Banks and credit unions, also better known in the finance arena as traditional lenders, aren’t the only financing options for entrepreneurs. There are many alternative lenders which include online lenders that are willing to provide loans to those unqualified for traditional loans at a bank or credit union.

But what makes traditional loans and alternative loans different? And how can those seeking loans determine which is better for their needs?

Banks and credit unions, as stated, fall into the traditional category. For decades, these two institutions were the only sources for business loans and lines of credit. Of course, there has always been underworld money like the infamous loan sharks or unregulated hard money lenders. Again, how can an entrepreneur seeking a loan determine which lender fits their needs.

For example, a traditional lender may look for the following information in an applicant:

  • A business more than five years old
  • Good credit score(700 or above)
  • Annual revenue of at least $250,000

Traditional bank lenders can be lenient on one or more of the above requirements. Bank of America business loans usually require only $100,000 in annual revenues. Yet overall, a borrower needs a well-established business and a good credit score to qualify for traditional lending.

So the question to answer is, what are the valuable benefits a small business owner gets from obtaining a bank loan? Answer: a lower annual percentage rate(APR). Most traditional loans and lines of credit offer APR in the range of 3 percent to 8 percent which are better than what alternative lenders charge.

Traditional loans help small business owners to save a substantial amount of money on a particular loan and the duration of the loan term. Moreover, banks and credit unions often have additional offerings for businesses like bank accounts, merchant services and business credit cards.

best small business loans
Best Small Business Loans. Image from youtube screenshot

Alternative Lenders

Alternative (online lenders) are the new players in the game of financing. Non-traditional lenders have only been around for maybe 15-20 years. Some are much less than that. Alternative lending provides a decent option for small business owners unqualified for traditional bank loans. Online lenders usually have less stringent application requirements while there are some that do have higher requirements.

A lender called BlueVine sets the following requirements:

  • A business at least six months old
  • Credit score averaging 530 or above
  • Annual revenue minimum $100,000

The requirements listed above don’t reflect the requirements for all online lenders. And even if potential borrowers fulfill the requirements, that doesn’t always guarantee a loan, and since the rules vary it doesn’t mean you’ll get the best deal on a loan. But the general rule is a borrower with low credit score but an established business earning revenue, it is more likely the borrower can get a loan from an alternative lending service as opposed to a traditional bank.

Another benefit of alternative online lending is that the approval process is faster than banks. A bank approval can take up to two or three months, depending on the process. Take “Kabbage” online lending, Kabbage uses an automated application process to approve a loan within an hour, and if you qualify, Kabbage can fund a loan just as quickly as the approval process.

The difference between alternative lending and bank loans is the interest rate. Alternative loans have higher interest rates while a bank or credit union’s loan rates are typically much lower. Don’t be surprised if you are granted an online loan and the interest starts as high as 11-15 percent.

kabbage
kabbage logo

Best Small Business Loans

The bottom line boils down to whether a traditional or alternative loan provides the immediate needs for a business depends on the situation. Small business loans can cover real estate, equipment, payroll or nearly any need. For this guide, LendingTree selected the best small business loans that offer transparent rates and repayment terms, maximum loan amounts of at least $150,000, funding within two weeks or less and lenient requirements for personal credit scores and time in business. Learn more about the methodology behind these picks here.

Lender Best for Loan Terms Amount Rates Min. credit Score
SmartBiz SBA loans 120 to 300 months $30,000 to $5,000,000 7.50% to 10.29% 640 to 675
OnDeck Short-term loans Up to 24 months $5,000 to $250,000 Starting at 29.90% APR 600
Funding Circle Long-term loans 6 to 84 months $25,000 to $500,000 11.29% to 30.12% interest rates on loans issued directly by Funding Circle 660
Bluevine Line of credit 6 to 12 months Up to $250,000 Simple interest rates starting at 4.80% for 26-week repayment 625
Credibly Working capital 6 to 18 months Up to $400,000 Factor rates starting at 1.15 500
National Funding Equipment financing 24 to 60 months Up to $150,000 Beginning at 4.99% simple interest 575
Elevation Capital Accounts receivable financing 6-month avg. repayment $5,000 to $10,000,000 Factor rates starting at 1.12 550
Reliant Funding Merchant cash advances 3 to 15 months $5,000 to $400,000 Factor rates starting at 1.10 525
QuickBridge Bad credit 4 to 24 months $5,000 to $500,000 Factor rates starting at 1.10 500

Seeking COVID-19 relief for your small business? Find resources here.

Credit Cards Reduced Lending in 2020

When the pandemic restrictions struck, U.S.-based credit card companies and lenders reduced credit limits which stifled lending. This course of action left many small businesses needing credit to keep operations afloat.

“Sometime in March, traditional credit providers had a massive knee-jerk reaction and pulled back hard. Loans became extremely hard to get, increasing the rate of business failures,” said Gulati. “It was the first time in the credit card industry that line reductions happened in a matter of days and weeks.”

A Business News Daily reporter wrote, “During the recession of 2008 and 2009, it took banks and credit card companies months to react, but advances in technology and integration with business bank accounts make it much easier to see the red flags in 2020 and react.”

“We’re starting to see more progressive card issuers increase lines again,” Gulati continued.

The downside to post-covid-19 is that increased credit may not exist for everyone; it is primarily for businesses that remained in operation during the pandemic including healthcare, construction, e-commerce, and professional services.

Lenders Ready to Make Loans

“The economy is steadily returning to normal following the coronavirus hysteria. Banks, online lenders, credit unions and Fintechs are ready to loan cash to small business owners,” said Lendio CEO Brock Blake. Blake told Business News Daily that despite certain restrictions and tighter underwriting for small business lending, lenders have an appetite to lend. Blake further explained that loans performing well on Lendio are cash flow, asset-backed, and Small Business Administration loans(SBA).

“We expect the SBA to increase the guarantee from around 85 % to 90 %,” said Blake. “That will increase confidence on the part of lenders to issue an SBA loan.”

As a high volume of liquidity supercharges the economy more lenders are motivated to make loans for small businesses which means loans can be had at a lower rate for business owners with good credit scores. Credit unions and banks will play a vital role in lending cash to business owners, but the alternative lenders and Fintech are poised to become the “big fish” making loans in 2022.

On another note, investors aren’t raking in much yield outside the stock market and with the ravages of the coronavirus taking a steady downturn institutions can lend money without the anxiety of an unstable stock market.

“A lot of money is flooding the non-bank lending market because bond yields are low,” says Matthew Gillman, CEO of SMB Compass. “The new year is exciting for alternative lenders. There will be a lot of liquidity but not in the form of banking financing.”

So there you have it. Go get some money.

For more information about SBA Loans, Click the link below

Types of 7(a) loans (sba.gov)

Need more information concerning the difference between traditional loans and online lending? Click here: Online or In-Person Loans: What’s Better? – NerdWallet

NewsBlaze Senior Business Reporter Clarence Walker can be reached at [email protected]

Clarence Walker

As an analyst and researcher for the PI industry and a business consultant, Clarence Walker is a veteran writer, crime reporter and investigative journalist. He began his writing career with New York-based True Crime Magazines in Houston Texas in 1983, publishing more than 300 feature stories. He wrote for the Houston Chronicle (This Week Neighborhood News and Op-Eds) including freelancing for Houston Forward Times.

Working as a paralegal for a reputable law firm, he wrote for National Law Journal, a publication devoted to legal issues and major court decisions. As a journalist writing for internet publishers, Walker’s work can be found at American Mafia.com, Gangster Inc., Drug War Chronicle, Drug War101 and Alternet.

His latest expansion is to News Break.

Six of Walker’s crime articles were re-published into a paperback series published by Pinnacle Books. One book titled: Crimes Of The Rich And Famous, edited by Rose Mandelsburg, garnered considerable favorable ratings. Gale Publisher also re-published a story into its paperback series that he wrote about the Mob: Is the Mafia Still a Force in America?

Meanwhile this dedicated journalist wrote criminal justice issues and crime pieces for John Walsh’s America’s Most Wanted Crime Magazine, a companion to Walsh blockbuster AMW show. If not working PI cases and providing business intelligence to business owners, Walker operates a writing service for clients, then serves as a crime historian guest for the Houston-based Channel 11TV show called the “Cold Case Murder Series” hosted by reporter Jeff McShan.

At NewsBlaze, Clarence Walker expands his writing abilities to include politics, human interest and world events.

Clarence Walker can be reached at: [email protected]