How to Apply for and Get a Business Loan in 7 Steps

1. Understand your small business’s needs.

The first step in getting a small business loan is planning the funds you will receive. You should determine how much money you need, what that loan amount will purchase, and how you’ll pay it back. 

How you plan to use your loan and the loan amount you’re seeking will often dictate which type of loan you qualify for. Different loan types will also have different payback periods, ranging from months to years. Doing your research and identifying the best business loan for your situation will improve your chances of qualifying for a loan.

Common use cases for a business loan include:

• Purchasing equipment
• Working capital
• Purchasing property
• Refinancing a current loan
• Business expansion

2. Determine how much you can borrow.

Once you’ve figured out how much money you’ll need to bring your business to the next level, you also want to ensure that you’re comfortable repaying that amount throughout the term.

To better grasp your loan options and what your business can afford, you can use a business loan calculator to see how much your payments will be, depending on variables like interest rate, loan terms, and more. 

It’s important to borrow an amount that will help you achieve your goals, while also not stretching your business too thin with repayment.

3. Look into eligibility requirements.

Business loan requirements will vary by lender and loan type. Some of the most common factors lenders look at include the following.

• Credit score – As part of the process, the lender will pull your credit report to see your overall financial health. Depending on the type of loan, minimum credit requirements start in the 500s or 600s. If you’ve been in business for some time, a lender may also look at your business’ credit report. If you haven’t checked your business credit score before, check out this guide to learn more.
• Time in business – While some lenders work with brand-new businesses, many will want to see a track record of a healthy business before providing a loan.
• Annual revenue – Again, the minimum annual revenue a lender will look for will vary considerably. Visit this guide to compare requirements across loan types and lenders.
• Collateral/personal guarantee – Many lenders will ask for collateral and/or a personal guarantee to help secure the loan. This could be something of value the business owns (Ex: equipment) or a personal item (Ex: your home).

4. Research the types of business loans available.

There are many types of business loans to help small businesses in need. Many serve different purposes, so it’s critical to understand what type of loan would be best for your company. There are both secured and unsecured loans available for businesses. (Note: a secured loan is one backed by business collateral.)

Some of the loan options that you can explore include:

• Term loans – Loans that provide a lump sum repaid in monthly payments over a set term
• Equipment loans – A loan specifically for the purchasing or leasing of new equipment
• Startup loans – Loans provided to help a new company get started 
• Small Business Administration loans – Loans that are partially guaranteed by the U.S. Small Business Administration (SBA)
• Cash advances – An advance based on projected future income.
• Invoice financing – An advance on the money due from customers with outstanding invoices.
• Line of credit – Similar to a credit card, borrowers can draw up to a certain credit limit that replensishes as the debt is repaid.

It’s essential to take into account that different types of loans will have varying processing times. Traditional bank loans, for example, can take several weeks to months due to their comprehensive review and approval process.

On the other hand, alternative lenders offering options like business cash advances or invoice financing often have quicker processing times, sometimes within a few business days, due to their focus on specific business aspects like future sales predictions or outstanding invoices.

SBA loans, while offering attractive interest rates and repayment terms, often have lengthy processing times due to the involvement of government agencies. Understanding these time frames will help you make a more informed decision, based on your immediate cash flow needs.

5. Explore available lenders.

Now that you’ve figured out how you will use the funds and the amount you need to complete your new strategy, you can look for a lender that will work best for your situation. You’ll want to find a lender that offers the type of loan you are seeking. There are different lenders with varying requirements for approval—if you’re looking for a loan that’s approved by the SBA, you’ll want to make sure that your lender complies.

Banks and credit unions

One convenient lending option is through a bank or credit union that you’re already using. Banks and credit unions have stricter guidelines for approval, and the process can take a bit longer to get approved and to gain access to your funds. More traditional lenders like banks and credit unions will want you to have at least two years of financial data from your business. If a bank loan doesn’t seem like the right option, never fear: there are other more flexible options out there.

Online lenders

If you need more flexibility than a traditional bank loan, online lenders are a great solution. These lenders will have different approval standards, which may increase your chances of approval. Online lenders can also approve your business loan application faster and get you your money faster than a traditional lender. 

Microlenders

If you’re worried about your odds of approval because of your credit or if your business is new, a microlender may be a good option for you. These loans often have shorter terms and can provide funds up to $50,000. 

Government lenders

The United States Department of Agriculture (USDA) offers loan programs specially tailored for businesses operating in rural areas. The USDA provides these loans to develop and expand rural businesses, especially those that are pivotal in promoting local economies and fostering growth in these regions. These loans come with favorable terms, including competitive interest rates and longer repayment periods. However, eligibility hinges upon a business’ location and its contribution to the rural community. This type of loan could be an excellent option if your venture aligns with these requirements.

SBA lenders

SBA lenders provide loans that are partially guaranteed by the U.S. Small Business Administration, reducing the risk for the lenders and thereby increasing the likelihood of loan approval for small businesses. SBA loans often come with competitive terms and lower down payments, making them an attractive option for businesses. The most well-known SBA loan programs include 7(a) loans for working capital and 504 loans for real estate and equipment.

6. Gather documentation

Lenders will look at your credit report to see your payment history. Next, they’ll consider your company’s revenue and other financial indicators to determine if you can afford to repay the loan. 

Important documents that lenders will want to see include: 

• Three months of business bank statements 
• A copy of your driver’s license or state ID
• Voided check from your business account
• Proof of business ownership
• Month-to-date transactions
• Tax returns
• Business bank statements
• Business plan
• Profit and loss statement
• Business license

You’ll also be asked to provide:

• The amount of money you want to borrow
• When your business started and some general information about your business
• Your birthday and your Social Security number

7. Apply for a business loan.

So you’ve prepared all your information, and you know how to get a business loan—now it’s time to apply. Whether you’re applying with a bank or an online lender, the process will be similar. Head to the website of your preferred lender and follow the instructions on how to apply for small business loans. Complete the application process and wait to find out if you’re approved. Once approved, you can work with the lender to get your funds deposited and use the money to help grow your business.

Tips to increase your chances of getting approved for a business loan.

When looking to secure a business loan, there are several proactive steps you can take to improve your chances of approval. Here are some tips to keep in mind:

Improve your credit score.

A high credit score greatly increases your chances of loan approval. Make sure to pay bills and debts on time, maintain low balances on your credit cards and avoid taking on unnecessary debt. Regularly check your credit report to ensure all details are accurate.

Prepare a solid business plan.

A well-thought-out business plan can impress lenders by demonstrating your commitment and understanding of your business. Include detailed financial projections to show that you can repay the loan.

Build strong cash flow.

Lenders look for businesses that have a consistent and strong cash flow. If your business generates regular income and maintains good cash reserves, it demonstrates to lenders that you have the capacity to pay back the loan.

Offer collateral

Loans that are backed by collateral are less risky from the lender’s perspective. If it’s possible for your business, offering collateral may improve your chances of approval.

Maintain a healthy debt-to-income ratio.

A low debt-to-income ratio indicates that your business earns enough to manage current debts and take on additional debt. Paying off existing debts before applying for a new loan can help improve this ratio.

Build a relationship with your lender.

Establishing a relationship with your lender before applying for a loan can be beneficial. Regular communication and understanding their loan products, terms, and conditions can give you an edge during the application process.

Alternatives to small business loans.

While small business loans can be a great way to secure funding for your business, they’re not the only option out there. If you’re unable to secure a loan—or if you’re looking for alternative financing methods—consider the following avenues:

• Crowdfunding – Platforms such as Kickstarter and Indiegogo allow you to raise money from a large number of people. This can be a good option if you have a unique product or service that can capture public interest.
• Venture capitalists (VCs) – VCs are individuals or firms that provide capital to startups in exchange for equity. This can be a major source of funding, especially for high-growth potential businesses.
• Angel investors – Similar to VCs, angel investors provide capital in return for equity. However, angels are typically individuals, and they may be more willing to invest in early-stage businesses.
• Grants – Several government and private organizations offer grants to small businesses. These are essentially free money that you don’t have to pay back, but competition for them can be quite intense.

Timing is everything.

Depending on the type of loan that works best for you, it could take days or weeks for the loan to be approved and for you to get the funds. This uncertain time window for processing a small business loan means that it’s essential to be prepared: understand the process and know the timeline within which you need the money. 

Getting a loan for your small business doesn’t need to be complicated—and having sufficient time to complete the application process is vital. 

Small business loans are a fantastic resource for business owners, as they work to grow revenue and improve their business. With this guide, you know how to get a business loan and you can help streamline the process to improve your chances of approval and to make the process more efficient. 

Remember: with small business financing, it’s important to be timely with your payments and to ensure that you meet the loan terms. When you need a new loan to grow your business again and boost cash flow, your on-time payment history will help improve your personal and business credit.

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