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What is a business loan?

Small business loans help entrepreneurs build, maintain or expand their companies. Getting a business loan for your company doesn’t always require walking into a bank and securing funds — there are a variety of online small business lenders to consider, which may have easier qualifications and faster applications.

Small businesses make up much of the American economy. The U.S. Small Business Administration (SBA) estimates there are nearly 32 million small businesses across the country. While the nature of each one varies, many hold one major thing in common: the need for business financing.

Seeking COVID-19 relief for your small business? Find resources here.

Types of small business loans and lenders

There’s a business loan to suit nearly every need. Small business loans may be short term or long term, unsecured or secured by collateral like equipment or invoices. They also include financing products like lines of credit or merchant cash advances. The best type for you will depend on how much funding you need and how quickly, credit history and time in business.
  • SBA Loans

    These popular government-backed loans are available up to 25 years for most business uses at moderate interest rates. SBA loans are widely available through banks, but the application process can take anywhere from five days to two months or longer.

    SmartBiz SBA 7(a) loanRates between 4.75% and 7.00%

    Read SmartBiz Reviews

     Online marketplace matches borrowers with SBA lenders

     Streamlines SBA application process

     Fair or better credit required

     Businesses must show at least 2 years of operating history

  • Short Term Business Loans

    Short-term loans last anywhere from a few months to a year or more, good for when you expect a quick return. Higher rates are the tradeoff for speed and accessibility, as loan approval can be fast as a few days, even for business owners with poor credit.

    Fora Financial
    Short-Term Loan

    Factor rates between 1.10 and 1.40

    Read Fora Financial Reviews

    Loans available between $5,000 and $500,000

    Terms from 4 to 16 months

    Six months to one year in business required

    Time to funding could take 72 hours after approval

  • Long-term loan

    These traditional small business loans finance lasting business investments such as machinery or the acquisition of another company for relatively low rates. Repayment terms can last up to 20 years. Approval may take weeks and require strong credit.

    Funding Circle Long-Term Loan

    APRs from 11.29% to 30.12%

    Read Funding Circle Reviews

    Repayment terms from 6 to 60 months

    Loans available from $25,000 to $500,000

    May require collateral

    Average Funding Circle borrower makes about $1.4 million in annual sales

  • Business Line of Credit

    Though not technically a loan, this is capital that businesses may draw upon as needed, and they would only have to pay interest on what they borrow. Business lines of credit may be used for short-term or long-term needs and can be secured or unsecured. They could be funded as soon as the next day or within weeks.

    Wells Fargo BusinessLine

    Rates as low as 5.00%

    Read Wells Fargo Reviews

    Amounts between $10,000 and $100,000

    Competitive interest rates

    Annual fee

    Established business credit and at least two years in operation required

  • Working Capital Loans

    These are short-term loans received within 24 hours to a week and designed to fund a company’s day-to-day operations during a time of reduced activity. When the lull ends and business booms again, the company can repay the working capital loan.

    Credibly Working Capital Loan

    Factor rates starting at 1.15

    Read Credibly Reviews

    Working capital up to $400,000

    Minimum credit requirement of 500

    Six months in business required to qualify

    Average of $15,000 in monthly bank deposits required

  • Equipment Financing

    Equipment financing allows businesses to pay for commercial trucks, a restaurant oven or an office copier a little at a time for relatively low rates, since the equipment is used as collateral. Equipment financing is ideal for borrowers who need hard assets quickly, but can’t afford to purchase them outright.

    Currency Equipment Financing

    Rates starting at 0% for first 90 days, 19.99% thereafter

    Read Currency Reviews

    Financing up to $500,000

    Fast funding

    Few details online

    $100,000 in annual revenue required

  • Accounts Receivable Financing

    Exchange unpaid invoices for immediate cash, minus a fee. AR financing, or invoice factoring, may be right for risk-averse or poor-credit borrowers, or those without a lengthy business history.

    BlueVine Invoice Factoring

    Factoring fee starting at 0.25% per week

    Read BlueVine Reviews

    BlueVine advances up to 90% of unpaid invoices, up to $5,000,000

    Lenient personal credit score and time in business requirements

    Eligible businesses must be B2B

    Weekly interest rates could be expensive


The amount of time it takes to fund loans for small businesses depends on many factors. Each business lender may have its own approval processes, which could differ greatly and result in different funding timelines. Lenders may have to wait for third parties to submit documentation, or your application may require clarification, both of which could delay funding. If your small business finances are well organized, you should be able to quickly respond to any questions and keep the timeline as short as possible.

How to get a business loan

Calculate a desired business loan payment

One of the most important things to determine before applying for a small business loan is how much you can afford to pay back on a monthly basis. Defaulting on a loan can cause irrevocable damage to a business and its credit history, which will impact its ability to get funding in the future. Risk can be a good thing in business, but committing to a loan repayment schedule that’s too aggressive could ruin your company.

Use a business loan calculator

You should determine exactly how much your business needs to borrow to achieve its goals. This should be a precise figure, not a range. Small business lending companies want to see that you’ve done your research and that you’ll spend their money in a way that will help your business thrive. Our business loan calculator can help.

Estimate how much you can borrow

Check your creditworthiness

Lenders may analyze your personal and business credit history when reviewing your company’s loan application. If your business is new, your personal credit profile would carry more weight.

Borrowers should expect to have good credit to qualify for traditional business loans.

  • 680 or higher: Minimum required by most traditional bank and credit union business loans.
  • 670 or lower: Accepted by online lenders — they may even consider scores as low as 500. The trade-off might be higher fees, however.
it's free, and won't affect your credit score

Funding for underserved small businesses

There are several financing options aimed at historically disadvantaged businesses, including those owned by women and veterans as well as Black, Asian, Latino and Native American entrepreneurs.

Business funding for women

Women entrepreneurs can apply for business grants or debt financing reserved for women-owned businesses. Women are more likely than men to use personal funds to grow their businesses. When women are approved for business loans, they often receive lower average loan amounts than men.
See business loans for women
See business grants for women

Business funding for minorities

Capital is available for business owners of color in the form of business grants or loans. Compared to their counterparts, those in historically marginalized communities face more entrepreneurial hurdles related to funding. Organizations and lenders across the U.S. allocate funds to support minority-owned businesses.
See minority business loans
See minority business grants

Business funding for veterans

There are a number of resources and funding options for veteran business owners. After leaving the military, many veterans often have trouble transitioning their military training to civilian careers and instead choose to start their own ventures. Business loans for military veterans are among the keys to success.
See business loans for veterans

Make sure you have the capacity to cover the business loan

Capacity reflects your earning potential to cover expenses and repay the loan. In evaluating capacity, lenders examine:
  • Debt-to-equity ratio (D/E)

    The D/E ratio measures the proportion of the borrower’s debt divided by the business’ equity on a balance sheet.

  • Equity investment

    Lenders prefer to assist owners who invest their own resources into the enterprise. Borrowers starting a new business should compile cash flow projections for their application, reflecting assets and cash, while existing business owners will need to provide past financial statements.

  • Resource management

    How does your business handle customer debt recovery on products or services, its own debt repayment history and the rate for delivering products or services to customers?

  • Working capital

    Calculate your working capital to ensure there are sufficient assets to cover the debt in emergencies. Do this by subtracting debt liabilities due within a year from current assets that can be converted to cash.

  • Cash flow

    A cash flow projection shows when money is collected, when cash goes out and what’s left. Lenders typically like to see that the borrower has a thorough understanding of the financial operating cycle of the business.

  • Collateral

    Collateral is an asset that lenders can legally seize if the borrower is unable to make payments including company buildings, equipment and accounts receivable. Some business owners choose to use their personal assets — including their homes — as collateral on a business loan.

  • Personal character

    Lenders may assess management aptitude and character, including current or past criminal activity.

    A half-hearted business plan or inconsistent financial statements can say as much about an applicant’s creditworthiness as their credit history. Expect both types of criteria to factor heavily in the funding partner’s evaluation of your business loan application.

View Your Loan Options

Fill out a small business loan application

The application process differs depending on the type of business loan you’re seeking. Short-term loans typically have less paperwork than long-term loans, while equipment financing usually doesn’t require as much documentation as a business line of credit. However, it’s still a good idea to have certain documents ready in case they’re requested to improve your chances of approval:

Summarizes revenue and costs and resulting profit or loss over a specified time, such as a quarter or fiscal year. Also known as a P&L or income statement.

Tracks how much cash your business has on hand at a certain point in time. A P&L takes into account non-cash costs like depreciation, but a cash flow statement allows you to understand how much cash is available for monthly bills.

Shows what the company owns and owes at a specific point in time. There is no set format for balance sheets, as the information reported varies by industry.

Describes the nature and scope of your operation, including projected income and expenses. A business plan is a guide for making business decisions and to help potential lenders, partners and investors evaluate your potential.

The most recent two years of business and personal tax returns, which help lenders verify income, documenting your ability to repay the loan. Your business accountant can prepare the business and tax documents needed to support your small business loan application and guide you in accounting and tax matters related to your business.

Small business loan application checklist

Once you determine that your business can handle taking on a loan, you should begin the process of rounding up the necessary documentation needed for your loan application. The exact paperwork differs across business funding partners, but will most likely include the following documents:

  • Two years of personal and business tax returns
  • Recent profit and loss statement
  • Past bank statements
  • Recent balance sheet
  • Legal Filings related to ownership
  • Information on existing debts
  • Business license
  • Business plan


Failed applicants commonly make the mistake of submitting inadequate or poorly-planned financial documents and business plans. It’s imperative that you gather as much well-prepared information as you can when applying for a business loan.

Close your loan

After approval, the closing process involves reviewing documentation that will dictate the terms of your selected loan. It’s important to know what to expect when closing on your small business loan to help the process go smoothly.

Review the small business loan contract

A business loan contract is a legally binding agreement that will dictate your interest rate and repayment schedule. When you sign the contract, you’re agreeing to all of the lending company’s terms. Although reading the whole contract may take a significant amount of time, make sure you understand everything before signing to avoid getting a bad deal.

Make sure you’re comfortable with your business loan contract

When you’re reviewing the contract, make sure you have a thorough understanding of what they’re asking of you and the implications these terms have on your business’s financial future. Pay close attention to the following:

Is the monthly payment what you expected? This is where calculating your desired monthly payment before applying would be helpful. If the payment doesn’t match your calculations, ask the lender to review how it came to that number. Make sure that there aren’t any hidden fees within the payment. In addition, determine whether the payment will remain the same throughout the loan’s term or if it may change. If it’s likely to change, make sure you understand why.

Understand how long you’ll have to repay the loan. Longer term business loans usually have lower monthly payments and lower interest costs over the life of the loan, while the opposite is usually true of shorter term loans. Make sure your business would have no issues repaying the funds during the entire term of the loan.

Make sure you know the interest rate. Find out whether it’s a promotional rate, a fixed rate or a variable rate. If the rate is variable, ask how much it will change, how quickly it can change and if there’s an interest rate cap. It’s important to know what an increase in the rate could do to your monthly payments.

Be aware of how much you’ll owe the lending company throughout the duration of the small business loan. The lender may give you the amount of money you requested, but the amount you’ll owe will likely exceed the amount you receive. This could be because of fees such as origination charges, which can be a percentage of the cash you receive. Again, ask the lender to review how they arrived at the total loan amount.

Late payments could result in consequences such as late fees, penalty interest rates or even repossession of collateral. The specific penalties would be detailed in your closing paperwork, so make sure you closely read this section prior to signing. The contract will also detail what happens if you default on your business loan. If your business survives the loan default, your business’s credit score could be damaged. If the lender required you to personally guarantee the business loan, your personal assets and credit score may be affected as well.

If any questions arise, or you don’t agree with a fee or penalty, the closing process is the time to stop and look for another lender. After you sign, you have agreed to everything in the contract — including what happens when you make late payments or default. Do your research before the closing process and compare business lenders to ensure that you’re getting the most cost-efficient terms.

Business applications spike again — and by 200%+ in Louisiana, Mississippi

Rank State July 2019 Business Applications July 2020 Business Applications Change
1 Louisiana 3,860 13,100 239.4%
2 Mississippi 2,220 7,290 228.4%
3 Illinois 8,100 22,980 183.7%
4 Georgia 12,900 35,160 172.6%
5 Michigan 6,790 17,000 150.4%
6 Alabama 3,030 7,460 146.2%
7 Nevada 2,460 5,650 129.7%
8 Tennessee 4,250 9,420 121.6%
9 South Carolina 3,840 8,220 114.1%
10 Indiana 3,790 7,900 108.4%
11 Ohio 6,860 14,210 107.1%
12 Arkansas 1,760 3,580 103.4%
13 Maryland 5,640 11,080 96.5%
14 Texas 22,840 43,510 90.5%
15 Florida 28,310 52,390 85.1%
16 Wisconsin 3,040 5,480 80.3%
17 Pennsylvania 7,520 13,080 73.9%
18 District of Columbia 960 1,640 70.8%
19 Delaware 1,800 3,070 70.6%
20 North Carolina 8,170 13,720 67.9%
21 New Jersey 8,310 13,790 65.9%
22 Virginia 6,600 10,930 65.6%
23 California 26,480 43,470 64.2%
24 Rhode Island 570 920 61.4%
25 Missouri 4,560 7,250 59.0%
26 Wyoming 1,330 2,110 58.6%
27 Connecticut 2,240 3,550 58.5%
28 Minnesota 3,320 5,140 54.8%
29 New York 16,720 25,440 52.2%
30 Kentucky 2,310 3,500 51.5%
31 Arizona 5,920 8,830 49.2%
32 Massachusetts 3,880 5,430 39.9%
33 Nebraska 1,030 1,400 35.9%
34 Kansas 1,560 2,120 35.9%
35 Vermont 370 500 35.1%
36 Iowa 1,520 2,030 33.6%
37 Maine 660 880 33.3%
38 Colorado 6,240 8,210 31.6%
39 Oklahoma 3,070 3,970 29.3%
40 Hawaii 1,010 1,300 28.7%
41 New Hampshire 740 950 28.4%
42 Idaho 1,380 1,770 28.3%
43 Montana 950 1,210 27.4%
44 Alaska 540 670 24.1%
45 Washington 5,420 6,610 22.0%
46 New Mexico 1,290 1,550 20.2%
47 South Dakota 510 610 19.6%
48 West Virginia 740 880 18.9%
49 Oregon 2,700 3,180 17.8%
50 Utah 3,570 3,870 8.4%
51 North Dakota 480 500 4.2%

Key findings

  • For the second straight month, business applications are up year over year in every state. Nationwide, the number of business applications rose 84.3% in July 2020, compared to July 2019.
  • Louisiana saw the most growth, with the number of business applications up almost 240% — from 3,860 in July 2019 to 13,100 in July 2020.
  • Five other Southern states — Mississippi, Georgia, Alabama, Tennessee and South Carolina — were in the top 10, with each seeing year-over-year business application growth of greater than 110%.
  • Midwest states are also well-represented at the top of the list. Illinois, Michigan and Indiana ranked in the top 10, with Ohio right behind at No. 11. These states saw the number of business applications double year over year from July 2019 to July 2020.
  • In Utah and North Dakota, July was more like business as usual, similar to June. While there was minor growth — less than 10% — year over year, the number of business applications remained relatively flat in the two states.
  • This growth in business applications is occurring as coronavirus cases tick back up in many parts of the country. One potential reason is that numerous states have now reopened certain businesses. States giving businesses the OK to reopen may have been the green light that entrepreneurs needed to start their own ventures.
  • Another potential explanation is that some workers are trying to make ends meet as entrepreneurs with available jobs limited and persistently high unemployment. In all but six states, the percentage of business applications by high-propensity businesses — ones with high likelihoods of turning into businesses with payroll — is down.


We looked at the number of new business applications and the percentage of business applications by high-propensity businesses filed in each state in July 2020, as compared to July 2019. To rank the states, we found the percentage change between the two periods. Business applications — per 2019-20 data from the U.S. Census Bureau — are defined as all applications for an Employer Identification Number (EIN), except for applications for tax liens, estates and trusts.

Compare business loans

Getting a business loan is something that should be done with intention. Compare financing options so that you feel comfortable knowing that you’re getting the right rate, term and payment for your business. Follow your instincts — if you’re uncomfortable with any aspect of the process, get clarification from the lender you’re working with, or find another one.

Finally, don’t be afraid to negotiate. You may not be able to negotiate every aspect of the business loan contract, but there are certain areas where lenders can be flexible. Make sure that you’re getting the best funding solution for your business.

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