A small business loan can provide the financing your company needs to cover daily expenses, purchase inventory, invest in equipment or expand with a franchise. You can apply for small business financing via a traditional bank, credit union or online lender.
Here’s a step-by-step guide on how to get a business loan, as well as alternative ways to get financing.
Finding the right small business loan for your company depends on multiple factors, such as whether you need one-time or ongoing funding, how quickly you need funds and your business’s credit profile. Common types of small business loans to consider include:
| Loan type | Ideal for… | Loan amounts | Term length | Time to funding |
|---|---|---|---|---|
| SBA loans | General business finances, such as hiring staff or purchasing inventory, equipment and real estate | $500 to $5.5 million | Up to 300 months | 1 to 3 months, or 14 days if working with an SBA-preferred lender |
| Short-term loans | Low-cost expenses like supplies, marketing and payroll, or emergency expenses | $2,000 to $1.5 million+ | 3 to 24 months | Same day to 3 business days |
| Long-term loans | Larger projects and fixed assets, like renovations and expansions | $25,000 to $3 million+ | 6 to 300 months | 2 business days to three months |
| Lines of credit | Flexible access to cash on an as-needed basis | $1,000 to $1 million+ | 3 to 60 months | Same day to 2 weeks |
| Working capital loans | Short-term expenses like payroll, inventory and rent, or keeping your business afloat during seasonal lulls | $5,000 to $1.5 million+ | 3 to 84 months | Same day to 3 business days |
| Equipment financing | Purchasing or upgrading necessary equipment for your business | $25,000 to $2 million+ | 4 to 84 months | Same day to 3 business days |
| Commercial loans | Buying, building or renovating property for your business | $100,000 to $5 million+ | 60 to 360 months | 3 to 4 months |
| Microloans | Business owners who need small loan amounts and can’t qualify for traditional financing | $500 to $50,000 | 6 to 300 months | Same day to 3 months |
If you’re considering a first-time business loan, aiming for a lower amount can help you keep up with payments while building your business credit.
An online, alternative lender could be a better option for emergency business expenses since some offer same- or next-day funding. However, these fast-turnaround business loans usually have higher rates than traditional banks or SBA lenders.
Each lender has specific business loan requirements, often outlined on their website. In general, you can expect lenders to review the following criteria when applying for small business financing:
Banks, credit unions and online lenders offer various types of small business financing. Here are some types of lenders to consider, including details on how each type works.
Traditional banks offer a range of small business products, including term loans, commercial real estate loans, lines of credit, business credit cards, SBA loans and more.
While traditional banks tend to offer the most competitive business loan interest rates, they usually have stricter criteria and a longer application process than alternative lenders. Criteria typically include at least two years in operation, collateral and consistent revenue.
The U.S. Small Business Administration (SBA) partners with lenders nationwide to offer affordable financing options for small business owners. Interest rates are capped based on loan amount and whether you pick a fixed or variable rate.
The most popular SBA loan is the SBA 7(a) loan, which funds up to $5 million for general expenses. If you want to finance major assets, like real estate or large equipment, the SBA 504 loan can provide up to $5.5 million — the amount guaranteed by the SBA. However, some lenders offer amounts of $20 million or higher.
Low-income, women, veteran and minority entrepreneurs might be eligible for up to $50,000 with an SBA microloan.
The federal government works with lenders to provide low-cost funding solutions for small business owners. In addition to SBA loans mentioned above, you can explore other government business loan options.
For example, the USDA’s Rural Microentrepreneur Assistance Program offers business loans up to $50,000 with a fixed interest rate and a term of up to 20 years. To qualify, your business must have 10 or fewer full-time employees and operate in a rural area.
Online business lenders, also called nonbank or alternative lenders, can be a great choice for fast business loans. They utilize digital underwriting technology to make funding decisions within minutes, with funds typically hitting your bank account within one to three business days.
If you can’t gain approval from a traditional bank, you might have better luck with an alternative lender since they usually look at your company’s overall potential instead of relying solely on credit scores. However, you will likely pay a higher rate for the flexibility.
A microloan can help startups, low-income businesses or those with a damaged credit history launch or expand their business. Nonprofit organizations and government agencies typically fund microloans, providing up to $50,000 with flexible terms, low interest rates and minimal fees.
Some popular microloan lenders include Accion Opportunity Fund, Grameen America, Kiva and LiftFund.
While every lender will have its own list of required documents, you can help speed up the application process by having the following paperwork ready to go:
An executive summary is a three- to five-page document outlining your business’s needs and the project’s relevance to your company’s success, anticipated costs and timeline. You should also include recent revenue and profit numbers, current market dynamics and your overall growth plan for the next one to three years.The more details you can include in your executive summary, the better. You want lenders to see your business as well organized and stable, with the potential to grow.
Applying for online business loans is often quick and automated — you may even receive immediate approval if you meet the requirements. However, traditional banks may require you to visit a physical branch to apply for a small business loan.
Consider asking a business colleague or your local Small Business Development Center (SBDC) to review your business loan application before submitting it. Having a polished loan application can help avoid delays in the financing process.
Your lender may also need additional information, such as:
You can apply to multiple small business lenders within a 14-day window without further impact to your credit score, often called rate-shopping. Once approved, thoroughly review each lender’s business loan agreement and pay attention to the following factors to help find the best deal for your business.
Interest can be charged as fixed or variable. While variable rates may be lower, fixed rates can make it easier to stick to a budget. Some lenders charge a factor rate, which can make it hard to compare against other options.
If possible, convert interest or factor rates to the annual percentage rate (APR) to better compare options. The APR includes all interest and fees, showing you what you’ll pay in total over the life of the loan.
Some lenders include additional fees for business financing, such as origination fees, maintenance fees, late charges and prepayment penalties. Add these to the loan amount to ensure the total cost is worth it.
Note that some lenders, like Fora Financial, offer a prepayment discount when you repay your debt early.
Consider whether your repayments start immediately and how long you have to repay the debt. While a longer loan term typically means lower payments, you can save interest by opting for a shorter term.
For businesses needing immediate access to capital, a same-day business loan could get you funds within 24 hours — although the rates will likely run high. Traditional bank and SBA loans tend to have the lowest rates but the longest wait times, with some options taking up to 90 days to approve and fund.
You can also trim the SBA turnaround time to approximately two weeks by working with an SBA Preferred lender or 36 hours with an SBA Express Loan.
Some lenders offer no-credit-check business loans or guarantee approval before submitting any documentation. Such loans often come with high fees and unfavorable terms. Look for signs of predatory lending and read small business lender reviews before proceeding.
It’s crucial to dispute any errors on your credit report before submitting a loan application. While the disputing process varies by credit agency, most investigations finish within 30 days.
Consider working with a credit repair company if you need additional assistance repairing your credit.
Building a relationship with a financial institution can improve your chances of getting a small business loan. Consider applying for small business financing at your current bank or open a business checking account with a desired lender. Some lenders even offer rate discounts or rewards when banking members get a business loan.
Collateral reduces lender risk since your lender can seize your collateral to recoup its losses if you default on your loan. If your company is new and you don’t have business assets yet, you could pledge personal assets, such as home equity or a retirement account.
While small business loans can help take your business to the next level, not everyone meets the eligibility criteria. Here are some alternative ways to get the funding your business needs.
Most lenders require some form of business revenue before they take a risk on you. However, some lenders offer “no-doc” business loans, requiring less documentation than traditional business loans. For example, you might not need to provide proof of revenue if you have a credit score of 680 or higher.
There are startup business loans with no collateral where certain lenders prioritize credit scores, expected cash flow and a personal guarantee.
Although no-collateral business loans can help in a pinch, they tend to come with less attractive rates and terms. You will likely find more competitive business loan offers if you can wait until your business is more established with a steady cash flow.
Credit score requirements vary greatly based on the lender and loan type. Some lenders disclose minimum credit score requirements on their website, helping you determine your eligibility before completing the application process.
Here are some typical personal credit score requirements for a small business loan:
Your lender may also consider your business credit score, generally measured on a 100-point scale. Scores below 50 are considered high risk, whereas scores of 80 or higher are more favorable.
Business owners with a good credit score (670 or higher) are more likely to qualify for the most competitive interest rates on business loans. If you have a limited credit history, consider a bad credit business loan — with minimum credit score requirements as low as 500.
Some lenders place less emphasis on creditworthiness if your business has steady revenue and collateral, such as equipment or real estate. However, be prepared to pay a higher interest rate as a tradeoff when getting a loan with poor credit.