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Finding the Best Small Business Loans: Our Methodology

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Finding the Best Small Business Loans: Our Methodology

We began our research with a list of 23 lenders. From this list, we eliminated companies that don’t offer SBA 7(a) loans, bringing our list to 14. We then eliminated companies that lend only to specific industries and regional lenders, bringing our list to 10. We researched each company online and then contacted each lender via email and phone to gather and verify information about its rates and terms.

We evaluated small business loans using the following criteria:

  • Availability of smaller loan amounts
  • Interest rate range
  • Transparency of fees
  • Down payment
  • Application process
  • Length of time for loan funding

Loan Sizes

Although the SBA doesn’t set a minimum amount on loans and caps them at $5 million, the minimum and maximum amounts vary by lender. Because of the paperwork required with an SBA 7(a) loan, most lenders prefer to offer larger loans. However, the SBA reports that the average loan amount in 2015 was $371,628. Because many small business owners need smaller loans, a more beneficial benchmark is the minimum amount each lender provides. Below are the lenders with the smallest loan minimums, which make them a more likely fit for your business’s financing needs.

Lenders Funding Smaller Loans

  • Chase & Wells Fargo: No set minimum for loans
  • U.S. Bank: Loans starting at $5,000
  • SmartBiz: Loans starting at $30,000
  • CRF & Newtek: Loans starting at $50,000

Interest Rate Range

The interest rate is the percentage of the loan that you repay the lender. For SBA loans, lenders must base the interest rate they charge off one of three base rates. All the lenders in our review use the prime rate, which is the interest rate that the nation’s largest banks charge their best customers. As of the time of this review, the prime rate is 4%.

Lenders charge the prime rate plus a profit margin that the SBA caps at 2.25% if the term of the loan is less than seven years, or 2.75% if the loan’s term is seven years or longer. However, different interest rate spreads may apply if you receive a different type of SBA loan, such as an SBA Express loan.

Although the SBA regulates the maximum interest rates that the lender can charge you above the prime rate, the rate you receive may be lower, as it’s influenced by a variety of factors, including your business’s industry, the amount of time you’ve been in business, your business and personal credit history, and the overall health of your business.

Lenders With Lower Interest Rates

  • PMC: Prime plus 1% to 2.75%
  • Chase: Prime plus 1% to 2.25%

Loan Fees

Even though SBA 7(a) loans are highly regulated, there’s some variance in the fees and costs that lenders charge. All loans greater than $150,000 come with a guarantee fee that is paid to the SBA. However, some lenders charge additional fees as well. You may pay packaging fees for the lender to help you gather and prepare the information it needs to review; these fees vary the most, as some lenders don’t charge them at all, while others may charge several thousand dollars. Almost all lenders charge closing costs, which typically bundle due-diligence expenses, such as those for appraisals and lawyers’ fees. Because closing costs vary from loan to loan, you should verify with your lender what your closing costs cover and the exact amount you can expect to pay.

Lenders Charging No Additional Fees

Time to Receive Funding

SBA 7(a) loans are notorious for taking a long time to obtain, but some lenders are faster than others. The time it takes for you to receive funding varies greatly and is influenced by several factors, including the amount of money you’re applying for, the underwriting required, and how long it takes you to gather all appropriate documentation. Most lenders agree that the process is faster if you’re a motivated borrower and you respond quickly when they request additional information from you.


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