The US economy faces several challenges in 2023. Top of the list: inflation is at an all-time high, the GDP is shrinking, and some trade supply chains have been severely disrupted. Two years down the line and vital economic sectors, including consumer spending, labor markets, business investments, and the financial market, are still recovering from the COVID-19 pandemic. There’s even talk of a looming recession, although analysts argue that all economic indicators dismiss the possibility of a recession.
One can’t help but wonder whether business financing is still accessible given the prevailing economic atmosphere. While the Federal Reserve continues to tighten fiscal policies to offset economic imbalance, enterprises can still get favorable debt-based funding. In fact, you might be spoilt for choice when it comes to business financing.
If you’re in the market for funding, let’s explore the best small business loans available in 2023.
What makes a good small business loan?
A loan is a simple financing solution whereby the lender extends cash to the borrower, who must then pay it back (with interest) in regular installments within a given period. Business loans are incredibly versatile and can be used for just about anything from stocking supplies and bridging capital gaps to expanding a business.
Before we talk about the best SMB loans in 2023, it’s important to understand what makes a good loan in the first place. Although all loans share the same basic structure, lending terms and policies vary between different products and lenders. Here are the main qualities you should consider when choosing a small business loan:
- Cost – How much interest and fees are charged on the loan? The cost lets you calculate the loan’s ROI to determine its economic worth.
- Amount – Is the amount offered enough to meet your financial needs?
- Requirements – Does your business qualify for the loan?
- Loan term and repayment schedule – How long is the loan term, and how is repayment structured (installment amount, intervals, due date, etc.)?
- Wait time – How long does it take for the loan to get approved and disbursed?
To summarize, a good loan is one that's proportional and reasonably priced for its purpose, and whose terms, requirements, timeline, and repayment structure make sense to the borrower.
Top loans for SMBs
There are plenty of loan options designed for specific businesses and purposes. In no particular order, here is a selection of seven loan types suitable for start-ups and SMBs:
Long-term loans, or simply term loans, run between 3 and 25 years. These are the most common types of business loans and what most people generally picture at the mention of business financing. Such loans are disbursed in lump sum and paid back in regular monthly or quarterly installments. The markup on the loan can be either a fixed or variable interest expressed as an annual percentage rate (APR).
The loan amount can range from thousands to millions of dollars, depending on the product. Term loans are usually meant for large one-off purchases of fixed assets such as equipment, vehicles, machinery, or real estate.
Most long-term business loans must be secured with high-value assets. So, they’re only available to businesses that can pledge the required collateral. However, some lenders also accept personal guarantees from business owners as supplemental collateral.
Short-term business loans are similar to long-term loans, except they have a much shorter repayment period. They typically have a term of between 3 and 12 months, although some can run for up to 18 months. Payments are made daily, weekly, or monthly, often through automatic bank withdrawals.
The short repayment period limits how much money one can borrow. The maximum limit on most short-term loans is around $500,000.
The beauty of short-term loans is that they’re quite lenient with qualifying requirements, making them more accessible to small businesses. Most notably, a majority of them are unsecured. They’re also processed and disbursed quickly, usually within 1 to 3 business days. But due to all these conveniences, short-term loans can sometimes cost more than their long-term counterparts.
This type of business financing is ideal for bridging cash flow gaps and settling cash emergencies.
The US Small Business Administration (SBA) was established in 1953 as an independent federal government agency to advocate for small businesses. One of the main ways it does this is through financial support — loans, grants, and cash reliefs. The SBA offers several types of small business loans designed for various purposes and business models. These include:
- 7 (a) Loans
- DDC/504 Loans
- Express Loans
- International Trade Loans
- Export Working Loans
- Community Advantage Loans
- Disaster Loans
- Veterans Advantage Loans
Your business must be registered, based, and operating in the US to qualify for an SBA loan. It must also match the SBA’s description of a small for-profit business.
Working capital loans
A working capital loan is a type of short-term business financing used to cover day-to-day and recurring expenses such as petty cash, payroll, utility bills, rent, and consumables. These are usually quick-approval loans with short repayment periods and relatively low limits. They can take the form of merchant cash advances, invoice financing, or specified short-term loans.
Working capital loans essentially provide a financial lifeline during high spending or low sales seasons. It's also a handy way for a new business to keep the light on in their infancy stages when sales are few and far between. Like other short-term funding products, it doesn’t take much to qualify for a working capital loan.
Microloans sit somewhere between long-term and short-term loans. They have relatively low limits, typically around $50,000, although that depends on what the lender considers “micro.” Despite the low amount, the repayment period can stretch up to 10 years, sometimes longer. Although most microloans are reasonably priced, watch out for lenders who take advantage of the lengthy loan term to charge double-figure APRs.
Microloans are a mixed breed of secured and unsecured products. Collateral and other eligibility requirements, such as business credit, finances, and business history, depend solely on the lender offering the loan.
Commercial mortgage loan
Also known as commercial real estate (CRE) loans, these are loans secured by liens on commercial property, such as business-owned land, buildings, and natural resources. A CRE loan works much like a personal mortgage. You can use it to purchase or develop a property. Alternatively, if your business already owns a property (even partially), you can use that property to secure a new mortgage loan.
CREs have a shorter term than personal mortgages (5 to 20 years), and the amortization period is usually longer than the mortgage term. For instance, you can have a 10-year term with a 15-year amortization, meaning that the loan must be settled with a final balloon payment at the end of the 10 years.
The lender sets the interest rate, which can be fixed or variable. Also, you might have to place a 20% to 30% down payment on the property you want to purchase in order to get a CRE.
Business acquisition loans
These are generally any loans that entrepreneurs or investors can use to launch, expand, or purchase a business. Such loans offer a diverse financing structure; some lenders can even customize acquisition loans on a case-by-case basis. Qualifying for this type of loan largely comes down to the nature and qualities of the business in question, particularly its historical or projected financial performance.
How to find the best business loan in 2023
The SMB financing market is obviously much larger than the options on this list. It’s easy to make the wrong choices if you’re unaware of what’s out there. So, the trick to finding the best small business loan is knowing where to look. And there’s no better way to hunt for financing deals than with Lendzero.
Lendzero lets you compare dozens of funding offers from different alternative lenders, banks, and other financial institutions. Moreover, every offer is handpicked and pre-negotiated for your business. It’s the fast haggle-free way to get small business financing in 2023. Sign up for free to get started.