{"id":2302,"title":"How to Apply for and Get a Business Loan in 6 Steps","slug":"how-to-apply-for-and-get-a-business-loan-in-6-steps","lang":null,"description":"If you’re wondering how to get a small-business loan, you’ll want to devote the necessary time to do your research and find the best fit. It can take months to receive funding, particularly for loans guaranteed by the U.S. Small Business Administration, which often involve a longer application process.\n\nCarefully exploring your business loan options can help ensure you apply for the right product, increase your chances of approval and avoid unnecessary delays or expenses.\n\nHere are six steps to apply and get a small-business loan.","content":"

Key takeaways

To qualify for the most competitive business loans, you’ll typically need a credit score of 670+, at least two years in business and $100,000+ in annual revenue.
If your profile is weaker, online lenders and microloans can be good options, but may have higher rates.
The application process can take anywhere from one day (online lenders) to several months (SBA loans), so factor timing into your decision.

1. Decide what type of loan you need to fund your business

Before you start shopping for financing, decide exactly what you need the money for. The right type of business loan depends on your specific goals.

If you want to finance a large purchase or business expansion

Consider a term loan.

You receive a lump sum and pay it back over time with interest.
These loans can have high borrowing limits — SBA loans can reach $5 million, for example.
Lenders may also offer tailored loans for equipment, vehicles or other big investments.

If you need funds for day-to-day expenses

A business line of credit can be a good fit.

Business lines of credit allow you to draw funds as needed, for things like payroll or repairs.
You only pay interest on the funds you use.

You can also consider a working capital loan for short-term expenses.

If you’re looking to fund a startup

Traditional loans can be harder to get, so look into:

Business credit cards.
Personal loans for business use.

SBA microloans can also be a good option, especially for those that aren’t bringing in significant revenue yet. These loans offer funding up to $50,000 and have more flexible qualification requirements.

2. Determine if you qualify to get a business loan

Before you start comparing lenders, it helps to understand your eligibility. Most lenders evaluate similar factors when reviewing your business loan application. To get a sense of where you stand and which options are realistic for you, answer these questions:

What's your credit score?

You can get your personal credit report for free from each of the three major credit bureaus: Equifax, Experian and TransUnion. You can also get your credit score for free from several credit card issuers and personal finance websites.

Most lenders use your credit score as a primary qualifier, especially if your business is new and doesn’t have established history. In general,

670 and above is considered good to exceptional and will open the doors to the most options with the best rates.
580 to 669 is considered fair. You’ll still have options, but rates will likely be higher.
579 and below is considered very poor and will narrow your options significantly.

How long have you been in business?

Your time in business shows lenders that you have staying power and are more likely to repay your loan. Lenders often want to see one to two years in business. Newer businesses may still have options, but they’ll be more limited.

What’s your annual revenue?

Many lenders require a minimum annual revenue. Your annual revenue shows a lender that you make enough money to handle a loan payment. Requirements can vary widely, with some lenders requiring only $50,000 per year, while others require $250,000.

Can you afford loan payments?

While looking at your annual revenue, you should also consider your cash flow — and evaluate how much you can afford to apply toward loan repayments each month.

As a general rule of thumb, your total income should be at least 1.25 times your total expenses, including your new repayment amount.

For example, say your business’s income is $10,000 per month. That’s 1.25 times $8,000 of expenses. If you already pay $7,000 in rent, payroll and other costs, you should be able to afford a $1,000 monthly loan payment.

Some online lenders require daily or weekly repayments, so make sure to factor that in — you’ll need enough cash flow to make payments at the time they’re due.

3. Compare small-business lenders

You’ll typically want to get the business loan that offers you the best terms. But other factors, like funding speed, may matter to your business and different funding sources may be better in certain instances than others.

Based on your qualifications, here’s a summary of where you should start your search:

Your profile	Credit score	Time in business	Annual revenue	Start here
Strong	670+.	Two or more years.	$100,000+.	Bank or SBA lender.
Moderate	580 to 669.	One to two years in business.	$50,000 to $100,000.	Online lender.
Limited	Below 580.	Under one year.	Under $50,000.	Microlender or business credit card.

Banks and credit unions

Best for: Established businesses with strong finances who aren’t in a rush.

Traditional bank options include term loans, lines of credit and commercial real estate loans to buy properties or refinance.

Banks typically offer competitive interest rates, long repayment terms and large loan amounts. Taking out a small-business loan from a bank can be difficult, however, if you’ve been in business less than two years, don’t have consistent revenue or have fair, poor or no credit.

For those who can qualify, it’s important to keep in mind that banks often require a detailed and lengthy application process and funding times can be slow.

SBA lenders

Best for: Established businesses that can’t get a bank loan.

Through participating lenders (like banks and credit unions), the U.S. Small Business Administration guarantees general small-business loans with its 7(a) loan program. The SBA also has a 504 loan program that helps fund the purchase of land, buildings or equipment through long-term, fixed-rate financing.

These options offer low interest rates and long repayment terms. SBA loans have strict requirements, but may be slightly easier to qualify for than loans from banks and credit unions.

Other government business loans can be well suited for specific types of companies. The U.S. Department of Agriculture, for example, administers a variety of loan programs designed for small businesses in rural areas.

Online lenders

Best for: Businesses that need fast funding — or those that don’t qualify for traditional options.

Online lenders generally provide small-business loans and lines of credit of up to $500,000. The average annual percentage rate on these loans ranges from 14% to 99%, depending on the lender, the type and size of the loan, the length of the repayment term, the borrower’s credit history and whether collateral is required.

These lenders rarely have APRs as low as what traditional banks offer, but approval rates are higher and funding is faster than with banks — as fast as the same day in some instances.

Microlenders

Best for: Startups and borrowers with limited credit.

Microlenders are nonprofits that typically make small loans of less than $50,000. The application may require a detailed business plan, financial statements and a description of what the loan will be used for — meaning they can take longer to fund than some online options.

These loans may work well for smaller companies or startups that can’t qualify for traditional bank loans due to a limited operating history, poor personal credit or a lack of collateral.

Accion Opportunity Fund, Kiva and Accompany Capital are just a few examples of nonprofit microlenders.

4. Gather your application materials

Each lender may require different documentation for its small-business loan application. Most will likely want some form of the following:

✅ Information about your business.

✅ Financial statements for you and your business.

✅ Details about the business’s owners.

✅ Information about your collateral.

✅ Personal guarantee.

5. Apply for a business loan

Once everything is in order, how you’ll actually apply for the small-business loan will depend on the lender. For example, online lender Fundbox lets you link your business accounts to its platform, which it uses to evaluate your eligibility for financing.

More traditional financial institutions, such as banks and credit unions, may make you apply at a branch or over the phone.

Before submitting your business loan application, consider having someone else look over it, such as a professional from your local Small Business Development Center, or SBDC. These business professionals can help you double-check that your application includes everything the lender asked for and in the appropriate format.

6. Review your loan agreement and get funds

Once your business loan application is approved, you’ll receive a loan agreement from your lender. This business loan agreement will lay out all of the terms and conditions of your lending arrangement, including the loan amount, repayment terms and schedule, interest rates and fees, among other items.

You should review your loan agreement thoroughly and reach out to your lender to get answers to any questions you have before signing. It can also be helpful to have a business attorney review the agreement. Organizations like SCORE can provide low- or no-cost access to small-business legal services.

Next, you’ll sign the loan agreement and return it to your lender. The lender will disburse your funds, usually by transferring them directly to your business bank account.

Frequently asked questions

How hard is it to get a business loan?

It can be hard to get a business loan if you don’t have good credit and strong finances. To qualify for the most competitive business loans, you’ll likely need multiple years in business, a minimum credit score in the mid-600s and an annual revenue of $100,000 or higher.

Although there are easy business loans available for startups and businesses with bad credit, these products typically have higher interest rates.

Where can I apply for a small-business loan?

You can apply for a small-business loan through banks, credit unions, SBA lenders, online lenders, as well as through some nonprofit organizations. The right option for you will depend on a variety of factors, including your funding needs and qualifications.

Depending on the business lender you choose, you may be able to apply for your loan online or over the phone, while others will require you to apply in person.

What is needed to get a loan to start a business?

Although requirements vary by lender, you’ll need to provide basic information about yourself and your business when applying for a startup loan. You’ll need to include financial documentation, like bank statements and tax returns, as well.

Because lenders consider startups risky investments, it’s also helpful to provide additional security, such as a business plan, financial projections and/or collateral.

How long does it take to get approved for a business loan?

It can take anywhere from a few hours to a few months to get approved for a business loan. Online lenders tend to offer the fastest approvals, whereas banks and SBA lenders are much slower.

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