How to Get a Business Loan in 6 Steps
Find the ideal business loan for your qualifications and company’s needs by comparing offers before applying.
1. Decide what type of business loan you need
Whether you want to buy commercial real estate or just need working capital loan to keep your business afloat during a seasonal lull, there are many types of business loans to consider. Answer the following questions to nail down the business loan that best suits your company’s unique needs.
How often do you need funds?
Consider your current business needs and how often you anticipate needing extra capital.
- One-time funding: Short-term business loans provide an upfront lump sum of cash, helping you tackle bigger purchases, expansions or renovations.
- Ongoing funding: A business line of credit offers flexible financing, allowing you to withdraw what you need when you need it for day-to-day expenses.
How much do you need to borrow?
The amount you want to borrow will help narrow down your business loan options. You could find a microloan for as little as $500, while SBA loans offer up to $5.5 million.
If you need to buy business equipment, such as computers, vehicles or large machinery, an equipment loan might be able to finance the entire cost.
How quickly do you need the funds?
The timeline to process your business loan application and disburse funds will vary by lender and loan type. For example, SBA loans come with comparatively lower interest rates, but funding may take two months or longer.
If you an emergency business loan, an SBA loan is probably not the best choice. An online, alternative lender could be a better option for more immediate needs since some offer same- or next-day funding. However, these fast turnaround business loans usually come with higher rates than traditional banks or SBA lenders.
2. Determine your eligibility
Each lender will have specific business loan requirements, often outlined on their website. Here are the most common eligibility criteria for small business financing:
- Credit score: To qualify for the best rates, you typically need a FICO Score of 670 or higher and a business credit score above 80. Check your personal credit score before applying to know where you stand. You can build your business credit by responsibly opening accounts with vendors and paying off invoices promptly.
- Time in business: You typically need to be in business for six months to one year to qualify for an online business loan, and at least two years with traditional banks. If you don’t qualify yet, you could wait until you become eligible or look at startup business loans.
- Annual revenue: Many lenders require a reliable income stream for small business financing, with annual minimums as low as $36,000 up to $480,000. If your revenue is on the lower side, consider applying for business credit cards or microloans.
- Collateral and/or personal guarantee: Collateral, such as real estate, equipment or cash, reduces a lender’s risk with secured business loans. If you default, the lender can repossess your collateral as a form of payment. A personal guarantee allows a lender to go after your personal assets if you fail to repay your debt.
- Repayment terms: Most lenders limit your loan to 30% of your annual revenue to ensure you can manage repayments. LendingTree’s business loan calculator can help estimate your business loan payments with added interest, keeping in mind that some lenders require weekly or even daily repayments. Whatever the payment schedule, review your budget in advance to make sure you can keep up.
3. Compare small business lenders
Some lenders might be a better fit for your business than others. Our catalog of small business lender reviews is a great place to start comparing business loan options.
You can apply for a range of small business loans with a traditional bank, including term loans, commercial real estate loans, lines of credit and SBA loans.
While traditional banks tend to offer the lowest business loan interest rates, they usually have stricter criteria and a longer application process than online lenders. You will likely need to be in business for at least two years, plus have collateral and consistent revenue to gain approval for a small business loan.
The Small Business Administration (SBA) partners with lenders nationwide to offer various loans for small businesses. The most popular option for general business expenses is the SBA 7(a) loan, with funds going up to $5 million and an interest rate that is capped based upon loan amount, repayment term and whether you opt for a fixed or variable rate.
If you want to finance major fixed assets, an SBA 504 loan can provide up to $5.5 million with repayment terms of up to 25 years. SBA microloans offer up to $50,000 and focus on underserved business owners and offer less-strict credit requirements than other lenders for women-owned business loans, veteran business loans and minority business loans.
Online lenders, also called nonbank or alternative lenders, utilize digital underwriting technology to approve or deny business loan applications with record speed. For example, Fundbox claims to make a funding decision in as little as three minutes. If you can’t gain approval from a traditional bank, you might have a better shot with an alternative lender since they tend to look beyond credit scores.
However, online lenders rarely offer rates as low as traditional banks, with APRs ranging from 4.66% to 48.9% or higher. Your final business loan rate will be based on the loan type and size, repayment term, credit score and whether you can provide collateral.
A business microloan can help startups, low-income businesses or those with a damaged credit history access the cash they need to launch, grow 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.
4. Gather required documents
Before you apply for a business loan, your lender will likely request some of the following documents. By having these common documents at the ready, you’ll help speed the process along.
- Business plan. A business plan outlines your company’s mission and goals, including financing and marketing strategies. This can help lenders see how you plan to utilize the business loan.
- Business licenses. Each state has different requirements for business licensure. Make sure everything is in order before submitting your business loan application.
- Financial documents for the business. Your lender may use your bank and income statements and balance sheets to confirm your company’s annual revenue.
- Personal financial statements. It’s common for lenders to request your and your business partners’ personal financial information to determine your overall creditworthiness for a business loan.
- Personal and business tax returns. Your personal and business tax returns are needed to show your overall net profit. Eligible business partners will likely need to provide their personal tax returns as well.
- Articles of Incorporation, Bylaws or Operating Agreement. Depending on your business entity, you may need to provide these legal documents.
- Building lease. If applicable, have any building leases on hand, including your monthly payment.
5. Apply for a business loan
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.
It’s worth having someone review your business loan application before submitting it to ensure you haven’t overlooked any errors. Consider asking a colleague or contacting your local Small Business Development Center (SBDC). Having a polished loan application can help avoid any delays in the financing process.
Your lender may also need additional information, such as:
- Personal details for all business owners, such as name, date of birth, Social Security number
- Business name or DBA name
- Business street address
- Phone number
- Type of business
- Date the business was established
- Business tax ID
- Annual net profit
- Number of employees (if applicable)
6. How to pick the best business loan
If you get multiple business loan offers, you’ve got the advantage and can choose the best small business loan. Here’s what to consider before signing the dotted line:
- Interest rates. Is the rate variable or fixed? How much interest will you pay over the life of the loan?
- Fees. Are there additional fees, such as origination, prepayment and late penalties? Add these to the loan amount to ensure the loan is worth the total cost.
- Terms. How long do you have to repay the loan? Do repayments start immediately?
- Funding speed. How quickly will the funds hit your bank account? Can you wait if the funding time is exceptionally long?