The 7 Best Small Business Loans of 2020 – Investopedia

What Is a Business Loan?

A business loan is a type of loan business owners take out in order to access funds for inventory, payroll, and other business expenses. Business loans come in many different forms, although traditional small business loans tend to be offered in one lump sum and with a fixed monthly payment and interest rate.

However, there are other types of funding available for small businesses. Lines of credit are a popular option since they let business owners borrow only what they need. Further, invoice factoring can be helpful for some business owners who are short on cash but have plenty of unpaid invoices to use as collateral.

Small business owners can also apply for an SBA loan, which is a type of loan that is backed by the Small Business Administration. While the SBA does not loan money themselves, they connect borrowers with SBA-approved lenders that offer SBA-backed loans with competitive rates and terms. 

Are You Personally Liable for an SBA Loan?

When you apply for an SBA loan, you must provide an unlimited personal guarantee if you own 20% or more of the business. This means that, if you fail to repay the loan because the business fails, you are still on the hook for repaying the entire loan amount. Also note that, in the case of a borrower defaulting, the lender can recover 50% to 85% of the outstanding loan balance from the SBA. 

What Can I Use a Small Business Loan For?

Approved applicants can use their small business loan funds to pay for any ongoing expenses as well as payroll or investments in equipment or inventory. Small business loans are also frequently used as a means to manage or smooth out cash flow in times when expenses exceed income. If you’re a small business owner who needs to buy some equipment but you’re waiting to be paid by a few major clients, for example, it could help you keep up with your expenses and buy equipment while you wait for your invoices to be paid.

Other popular uses of small business loans include raising capital to hire new staff or to launch a new marketing or ad campaign that could help boost revenue. 

How We Chose the Best Small Business Loans

We looked at more than 20 lenders who offer small business loans, small business lines of credit, and unique funding options like invoice factoring. We looked for lenders who offer transparency when it comes to their loan products and eligibility requirements, and we also looked for lenders who post fees and ongoing costs prominently on their websites. 

To find the best small business loans of 2020, we compared loan options and lenders to find companies with excellent ratings and user reviews on websites like Trustpilot. We also looked for lenders who offer high loan amounts and flexible repayment options, as well as the ability to apply and set up loan funding online.