- With the threat of recession on the horizon, it’s a good time to look into business financing like small business loans to keep your company afloat and growing.
- Finding the right small business loan for your business can be daunting, but Nav can help you cut through the noise to find the right option for you.
- Read on to find out more about the top small business loans of January 2023.
Table of contents
- How to Choose the Right Small Business Loan
- How to Qualify for a Small Business Loan
- How to Know if You’re Ready to Apply for a Small Business Loan
- Types of Small Business Loans
- How to Manage Small Business Loans
- January 2023 Business Loan Interest Rates
- Next Steps
- Nav’s Verdict
How to Get a Small Business Loan in January 2023
It’s likely going to be more of a challenge for many small businesses to get funding than it was even a year ago — but it’s still possible. The current state of the economy brought about by the pandemic and other global challenges means lenders are less willing to hand out working capital. Businesses that are women-owned or run by members of underserved communities tend to be the hardest hit. And borrowing is more expensive than it was at the beginning of this year due to the rising interest rates from the federal government. However, it’s important to remember that interest rates were historically low, so they are still relatively low.
If getting a small business loan in January 2023 is a priority for your business, it’s still the right time, even if rates are higher. Your best small business loan may be from an alternative lender if you can’t qualify for a traditional bank loan or funding from the Small Business Administration (SBA).
How to Choose the Right Small Business Loan
Choosing the right small business loan for your company comes down to a number of factors. Small business owners have different reasons for needing loans, and there are dozens of loan options available.
Ask yourself the following questions:
- How much money do you need? There’s a difference between applying for a loan for $25,000 and one for $2 million, clearly, but there’s also a chance you could ask for less financing than you could actually use. Knowing the ideal loan amount before you apply can help you narrow down the options and give you a better idea of what kind of qualifications you’ll have to meet.
- What do you need the money for? Businesses use financing for a number of reasons, from covering everyday operating expenses to expanding the business by hiring new employees or growing marketing programs. A small business loan can help you get commercial real estate to set up a brick-and-mortar store or get equipment and machinery to operate. Knowing what you need the loan for will help you figure out which loan to apply for. Some small business loans have restrictions on what you can and can’t use the funds for, while others just give you the cash and let you figure it out — as long as you make your monthly payments.
- What kind of monthly payment can you afford? You may qualify for a bigger loan amount than you can actually afford to pay, so make sure you take a good hard look at your business finances to determine exactly how much you’ll be willing to part with each month to get this financing.
- How long will it take to repay the loan? Repayment terms can vary greatly based on the type of loan you get. A short-term loan will typically have higher interest rates, but can be good for new businesses who may not have a credit history yet, or those with less than stellar credit scores.
- How fast do you need the money? Some traditional bank loans can take longer in the application process and nearly as long for the money to hit your account. If you need cash quickly to pay for startup fees, equipment, or emergencies, you may want to go with alternative lenders who have online applications and are able to get the money into your account in a few business days.
- Does the lender understand your industry? There are specific financing options available for different industries, such as farming, construction, trucking, technology startups, retail, and more. Choosing a lender whose loans are geared toward helping you get the equipment, commercial real estate, or machinery you need to operate can make the process a lot easier.
Nav takes all of these questions into consideration when we build your profile. The more you tell us about your business and the more information you give us on your operations, the better we can tailor the financing suggestions to receive to match what you need.
How to Qualify for a Small Business Loan
Qualifying for a small business loan is similar to qualifying for personal loans or other types of financing, although there are other considerations that lenders take into account. Small business lenders typically have certain requirements before they’ll lend to a borrower, and depending on your answers to the questions above, you’ll also need to ask yourself the following about your ability to qualify:
- What is your credit score? This is the number one factor in determining your qualification for a loan. Lenders may look at both your personal credit scores and your business credit scores to help them determine your creditworthiness — or how likely you are to be able to pay them back.
- What is your business’s current financial situation? A lender will want to know your annual revenue, what your cash flow looks like, and any outstanding debts to help determine if you can pay back the loan. There’s a good chance they’ll need your recent tax returns and other financial documentation.
- What kind of collateral or down payment do you have? Just like with a home loan or car loan, business loans may require a down payment. Some loans may be easier to qualify for if you have collateral or a personal guarantee to offer. This could include equipment or vehicles, personal property, or even the business itself.
Qualifying for a small business loan or other business financing options will be a big part of your decision to pursue them. Nav can help you narrow down your options with customized recommendations based on your qualifications. See your tailored recommendations with Nav today.
How to Know if You’re Ready to Apply for a Small Business Loan
You may think that the best time to apply for a small business loan is when you need it the most. But the fact is, you shouldn’t wait until you’re on the brink of bankruptcy to find financing. The right time to apply for a small business loan is when your credit score is good and you don’t need the money too badly.
Getting a small business loan should be a planned, well-thought-out choice that you make with a cool head, and not out of desperation. You’ll know you’re ready to apply for a small business loan when you have a business plan that calls for more money. You may need a lump sum for equipment, machinery, or a fleet of vehicles, or perhaps a commercial real estate loan to expand your business. Hopefully you’ll have been planning for it for long enough to know that you can afford the monthly repayments.
You’ll also know you’re ready to apply when your business credit is high enough to qualify for lower interest rates and longer-term repayment plans. It can take time to do it, but Nav’s experts can show you how to establish business credit and improve it over time.
Lenders also look at your time in business when they consider your loan application, and the more time you have under your belt as a business owner, the better your chances of qualifying. Your financial history will be a major factor that financial institutions look at to determine whether or not you’re a good candidate.
You may also need to have a down payment or collateral available to secure the loan. If you know that you have something to put up to qualify for the loan, you’re one step closer to ready to apply.
Types of Small Business Loans
There are a number of types of small business loans to choose from. You’ll want to know their credit score requirements to determine your eligibility, as well as whether or not they will meet your business needs.
Traditional bank loan
Traditional bank loans are a common way for small businesses to get financing. Traditional lenders like banks and credit unions offer competitive rates and repayment terms, which can be great for small businesses.
Equipment loans are specifically designed to help small business owners get the money they need to buy equipment. They can include vehicle loans for fleets or semi trucks, too. In general, these loans offer repayment terms that sync up with how long the equipment is supposed to function, and the equipment itself acts as collateral on the loan. Often these types of loans require a down payment or prepayment plan, but you will own your equipment outright (as opposed to leasing it).
Working capital loan
If you have short-term expenses but don’t have much cash on hand, a working capital loan may be able to help you. These loans offer short-term funding for everyday business expenses during emergency situations and tend to have better interest rates than business credit cards. Typically they offer flexible terms, quick funding, and a fast application process, although they may come with high interest rates and require collateral.
Business line of credit
A business line of credit is another alternative to a traditional loan that gives small businesses a revolving line of credit — much like business credit cards — so they can access funds from the credit line and pay it back to open the funding back up. As with a credit card, a line of credit can be paid off all at once or in installments, and you only pay interest on what you’ve used. This can be a good option for businesses that are looking to expand and don’t necessarily need a lump sum at one time.
Invoice factoring, a type of invoice financing or accounts receivable financing, is a short-term financing option where your unpaid invoices serve as collateral. An invoice factoring company buys you outstanding invoices at a discount and collects payment on them, earning a 3% to 5% fee and getting you somewhere between 50% to 85% of the invoice value depending on the factor rate. Because the application and approval processes are much shorter than a traditional bank loan, invoice factoring can be an easy way to get cash fast for your business, sometimes with one-day funding. You also may not need the best credit score to qualify. Invoice factoring can be expensive due to fees, and it’s usually only available to B2B businesses.
The U.S. Small Business Administration (SBA) offers a loan program for small business owners through banks and other financial institutions. SBA loans are backed by federal guarantees, offer low interest rates, and have generally long repayment terms, which means they’re very reliable and popular, but they can also be more difficult to qualify for than other types of business financing. Their application process also tends to be longer and more difficult, so if you’re looking for quick funding options, this may not be the best choice. Find more information at SBA.gov.
The SBA offers four types of small business loans right now:
- SBA 7(a) loans
- SBA microloans
- CDC/504 loans for real estate and equipment
- Disaster loans
How to Find the Right Loan for Your Needs
Finding the right financing for your business will depend on how much money you need, what you need to use it for, and your qualifications — like your business and personal credit scores, time in business, and annual revenue. Nav can help you by matching your qualifications to the loans you’re most likely to qualify for.
Below are a few examples of small business loans that you may want to consider for different purposes.
Best Loans for or Business-to-Business (B2B) Acquisitions
If you’re looking to acquire another business, you’ll need a loan that provides a lot of capital up front. This may include private funding (either through investors, your own money, or friends and family), as well as bank loans or lines of credit. Some examples of good loans for B2B acquisitions include:
Best Loans for Large Capital Equipment Purchase
When you’re buying expensive machinery such as manufacturing equipment, vehicle fleets, or farm equipment for your business, there are many small business loans that can help. As with all loans, the type of funding you qualify for will depend on your credit scores, time in business, and revenue.
Equipment loans for high credit
Equipment loans for mid-range to high credit
Best Loans for Debt Refinance
Sometimes small businesses need to refinance debt. Maybe your credit scores have improved and you can qualify for better rates, you’re having trouble paying off existing debt, or you want to consolidate debt into a single payment. Whatever the reason, there are several financing options available to help a business refinance your debt.
Debt refinancing loans for mid-range to high credit
Best Loans for Short-Term Needs
When your business needs to pay for inventory, materials, marketing needs, or to cover payroll, you may need short-term financing. These loans must be repaid in a shorter amount of time than other term loans, and may come with higher interest rates. However, they tend to require less paperwork and can fund more quickly — some as fast as a few days. The type of financing you qualify for will depend on your credit scores and other factors.
Short-term loans for high-mid credit
Short-term loans for mid-low credit
Best Loans for Future Capital Needs
A future capital need is another way to describe maintenance you have to pay for to keep equipment in working order. This maintenance can mean repairing, refreshing, or even replacing equipment like manufacturing equipment, vehicles, or other heavy machinery. Usually these will be lines of credit, which function similarly to credit cards, but with higher credit limits and a broader range of what you can use them for.
Future capital loans for mid-high credit
Future capital loans for mid-low credit
Best Loans for Fast and Simple Funding
If you need funding quickly and don’t have the time or energy to spend on a lengthy application process, there are loans and lines of credit available quickly.
Fast and simple funding for high credit
Fast and simple funding for mid-high credit
Fast and simple funding for mid-low credit
Best High Revenue Business Loans
If your business makes high revenue, you may be able to qualify for different types of loans, even if your credit isn’t perfect.
High revenue business loans for high credit
High revenue business loans for mid-high credit
Best Loans for Commercial Real Estate
Commercial real estate loans can help you acquire property for your business, such as office space or warehouse space. They may also help you pay to renovate an existing building or invest in commercial property.
What Is the Easiest Loan to Get to Start a Small Business?
The easiest loan to get for launching a business depends on your qualifications and your needs. If you don’t need much capital, there are funding options that don’t require credit checks or rely on credit score less than other factors like revenue — which may be especially useful if your credit is holding you back from qualifying for other loans.
What Are the Best Small Business Loans for Same-Day Funding in January 2023?
You will likely find quick small business loans from alternative lenders rather than banks. You can get funding as quickly as the same day or a few days after approval with some of these lenders. Just make sure you understand the fees and interest rates charged for any of the options you apply for beforehand — you may pay for the speed with higher rates.
Which Banks Are Easiest to Get Small Business Loans From in January 2023?
Online banks and lenders typically have an easier application process than traditional banks or credit unions. Usually you’ll be able to apply using an online application in a few minutes and may be able to submit less documentation than a traditional loan application would require. But keep in mind that whether or not you are able to qualify depends on your business details.
Will There Be More PPP Funding in 2023?
The Paycheck Protection Program (PPP) was a small business assistance program the federal government offered to businesses and nonprofit organizations at the start of the coronavirus. At this time, the government doesn’t plan to offer another round of financial assistance in this relief program.
How to Manage Small Business Loans
Once you are approved for a loan and your funding has gone through, how will you manage your small business loans?
The best first step is to make sure that you have a business bank account to keep your personal and business finances separate. This will help immensely at tax time, but will also help you keep a better eye on how your business is doing financially. Having a business checking account allows you to accept payments and make payments easily, and a business savings account can help you with long-term planning.
After this, make sure you pay your monthly minimums on time. This is the best way to help you build business credit through your small business loan, and missing a payment can wreak havoc on your credit scores. If you can, set up automatic payments from your business checking account. If you have a financing option with a high interest rate, try to pay more every month to lower the overall cost of the loan. However, be aware of any terms that may charge you a fee for early payoff.
Finally, keep track of where you spend the money for your loan. Some loans — like SBA loans and equipment financing — can only be used for specific purposes. While they may open up cash flow for you to pay for other day-to-day expenses at your business, you should make sure you can prove that the funds were used for their intended purpose. Basic bookkeeping and accounting should help you ensure you’re following the rules.
January 2023 Business Loan Interest Rates
Determining the current rates for business loans is not necessarily a straightforward task. Business loan interest rates vary based on:
- Type of loan
- The borrower’s financial situation and credit scores
- Available collateral
Some loans may have variable or fixed interest rates, as well. Plus, there are fees to consider, such as origination fees, underwriting fees, and closing costs.
It’s best to use a tool like Nav to compare your options and see what rates will look like for you based on your individual needs and qualifications.
Current average rates for business financing are as follows:
|Financing type||Average interest rates|
|Traditional bank loans||3% to 7% APR|
|SBA Loans||4% to 13%|
|Online term loans||7% to 99%|
|Business line of credit||7% to 25% APR|
|MCAs||40% to 150%|
|Invoice financing||10% to 60% APR|
|Equipment financing||4% to 40% APR|
Always check with your financial institution to determine your loan rate.
If you’re ready to apply for a small business loan or other financing, here’s what to do next:
Here’s what to do next:
Know your personal and business credit score
Find out what your personal and business credit scores are. This will help you know whether you’re ready to apply and give you a better idea of what you can qualify for. You can use Nav to check your credit without dinging it. Nav can also help you find out which financing options are available to you.
Gather loan application materials
Make sure you have all the documentation you need to apply for your loan. This may vary based on the loan, but in general you’re going to want to have:
- Your business plan
- Your financial statements
- Three months of banking statements
- Your business license
- Articles of incorporation or other legal documents
- Tax returns
- Info on your business bank account
Apply for the small business loan that fits your needs best
Once you’ve got all your ducks in a row and are ready to apply, choose the loan that best suits your business needs. The best way to do this is to compare your options using Nav — by giving us details about your business, we can help you determine which financing options will help you the most and that you’re most likely to qualify for.
A small business loan or other small business financing can be a great idea to open up your cash flow and help you start or expand a business. Finding the right financing for your business will depend on what you need it for, how much you need, and your qualifications. Nav can show you the small business loan and financing options you’re most likely to qualify for — see your best options with Nav today.