What are SMB Loans?: Guide to Loans for Small & Mid-sized Businesses

What are SMB Loans?: Guide to Loans for Small & Mid-sized Businesses

Reading Time: 5 minutes(Last Updated On: August 24, 2020)


SMB loans. What are those?

Save-Me-Bucks loans? Stack-More-Bills loans?

We’ll give you one more guess…

If you’re still uncertain, get all of the answers right here! Find out what SMB loans are and how you can obtain them more easily, below.


What are SMB loans?

SMB loans are business loans that are specifically designed to meet the financial needs of small and medium-sized businesses. Simple enough, right? Actually, while it’s one of the more common business loan terms, SMB loans can get a bit complicated.


Thanks to the power of #technology, today #SMB loans can be obtained by #smallbusiness owners at rates exceeding 80%. Click To Tweet


‘SMB loans’ is an umbrella term that refers to a wide variety of funding solutions ranging from unsecured loans to lines of credit, to invoice factoring and beyond. In the Become online business lending marketplace alone, there are 10+ main types of business loans offered with varying rates and terms by 50+ lenders – covering virtually any situation your business may find itself in.

While the picture looks great for today’s small business owners, for most of the history of SMB loans the situation wasn’t always so sweet. In fact, just a few short years ago during the Great Recession, “the decline in bank lending was far more severe for small businesses than for larger firms…[SMB loans] declined by almost 18 percent” (source: SBA).

Thanks to the power of technology, today SMB loans can be obtained by small business owners at rates exceeding 80% – when they apply through online lenders, that is. Curious what makes online lenders and alternative business loans stand apart from more ‘traditional’ routes to financing like banks and private lenders?

Just scroll down and find out.


Types of SMB loans?

SMB loans come in different shapes and sizes depending on where you go looking for them. Below are the three main ways that small business owners seek out additional funding.


Traditional bank loans

It’s remarkable that nearly half of all SMB loans applicants still apply through a big or small bank. Why? Because more than 80% of small business loan applicants (and especially startups) are denied financing by their bank.

With that said, traditional bank loans do offer pretty low interest rates. Depending on the specific type of loan, banks can offer rates that range from 4% to 13%. Not bad! But, it’s important to note that interest rates aren’t the only factor that you should consider when applying for SMB loans.

For instance, traditional bank SMB loans often require that business owners put down collateral in the form of valuable assets in order to secure the loan. That presents some real risks for small business owners, especially if you secure SMB loans with your home or other vital assets. If your business were to not succeed, you could lose your home as a result of a foreclosure. Definitely something to avoid, to say the least.

When they want SMB loans with higher approval odds and more flexible conditions, small business owners frequently turn to online lenders.


Loans from online lenders

Believe it or not, the internet has more to offer than cat videos and dating apps. More specifically, over recent years financial technology has born an entirely new way for small business owners to reach the funding solutions they need (or want): online lenders.

There are plenty of ways that online lenders have improved the lending process.


Competitive Pricing Strategies


First and foremost, thanks to higher approval rates, SMB loans are more accessible through online lenders than through traditional bank loans.

Second, online applications allow small business owners to check if they qualify for funding from the comfort of their home or even on the move!

Third, online lenders virtually eliminate the effect of human bias on the lending process. Since the application and approval processes are conducted almost entirely online, there’s no room for conscious or subconscious biases to enter the equation. In fact, the requirements for SMB loans through online lenders don’t include mentioning your gender, race, age, etc.

The list of strengths that online lenders have over their traditional counterparts goes on. If you’re looking for SMB loans, you have every reason to check with online lenders!


Private lenders

Do you have a less than impressive credit score? If so, it may surprise you to hear that you may still be able to qualify for certain SMB loans. Private lenders tend to evaluate business loan applications more flexibility than traditional banks and take many factors into consideration.

Those other factors can include your business’s monthly revenue, average daily bank balance, existing debt, and so on. If your business has been around long enough and generates a strong and consistent revenue, you may find that qualifying for SMB loans with private lenders isn’t so hard. That said, private lenders do balance their higher approval rates with comparably higher interest rates.

The bottom line: There are pros and cons to each route to SMB loans. Weigh your options carefully before proceeding in any given direction.


SMB lending: An overview

Small and medium-sized businesses have, for too long, been underserved by traditional lending institutions like banks. Alternative SMB lenders have filled the gaps left by banks by providing SMBs with viable funding solutions. This has obviously put pressure on conventional lenders and has placed them in a spot where they need to actively compete with these up-and-coming alternative lending solutions.

A recent survey found that 81% of banking executives believe that the best solution to the ‘alt lender’ question is to partner up with them. Compare that to a mere 8% who said they should build their own new operating layer, 6% who believe outsourcing is the right solution, and just 5% who said that creating a new bank was the best answer. Clearly, alternative lenders have become a real threat to the more well-established lending institutions that offer SMB loans.

What are the top reasons that push small and medium-sized business owners to apply for SMB loans with online lenders?

  1. Faster speed of decision or funding
  2. Higher chance of being funded
  3. No need to provide collateral


In short: If you want faster access to SMB loans, better chances of getting approved, and more flexible requirements – your best bet is to apply for SMB loans through online lenders.



Wrapping it up

SMB loans are there to help you keep your small or medium-sized business in ship-shape. If you weren’t sure where to search for business funding before you read this article, then your problem should be resolved!

Do you still have questions? Be sure to browse through the tons of free small business wisdom resources available courtesy of Become.

Disclaimer: The information contained in this article is provided for informational purposes only, should not be construed as legal advice on any subject matter and should not be relied upon as such. The author accepts no responsibility for any consequences whatsoever arising from the use of such information.