The process of getting a business loan is generally the same if you want to start a business or grow your business — and the loan application is only one part of it.
First, you’ll need find the right type of loan for your small business based on factors like your business needs, credit score, time in business and revenue. Comparing lenders is also key to finding the lowest interest rate and most favorable terms available to your small business.
The type of business loan and lender you choose depends on your business needs and requirements.
Female entrepreneurs and business owners from a marginalized group may want to consider working with a Community Development Financial Institution or local business development center to guide them through these steps. These typically offer support with the needs of women- and minority-owned businesses to help find the right option.
The second step to getting a small business loan is to take a look at your small business from the perspective of a lender. Knowing the following information about yourself and your company is key to understanding how much you can borrow in business loans and choosing which type of loan to apply for.
Almost all lenders look at your personal credit score, and some will consider your business credit score as well.
Bad credit or no credit history won’t disqualify you from getting a business loan. But it will limit your options and business financing may be expensive.
Lenders also prefer to work with a small business owner who has at least three years of personal credit history. Check your credit history by requesting a free credit report through AnnualCreditReport.com. If you notice any mistakes, contact the creditor responsible for the error before you apply for a loan.
Most lenders have a minimum revenue requirement, even if they don’t advertise it.
Most small business loans are available to businesses that have been around for at least two or three years. But the best business loans to firms that have at least five years of business history. That’s because businesses are more likely to fail within the first five years, according to the US Bureau of Labor Statistics.
It’s possible to find financing for businesses that have been around for less than a year — or finance a new business you’re starting from scratch. But only a handful of lenders offer startup loans with bad credit.
Not all business loans require collateral, but having business assets to back the loan can help your chances of getting approved for a low rate. Common types of collateral that lenders accept include:
In some cases, lenders require a blanket lien on your business assets, rather than specific collateral. In addition to collateral, almost all require a personal guarantee from all business owners with a 20% stake in the company or higher. This means that you’re responsible for paying the loan if your business defaults on the loan.
Other factors, like your industry or business structure can affect your ability to qualify for a loan. For example, corporations and LLCs can find financing almost anywhere but partnerships and sole proprietors may have fewer options.
The type of lender you choose to borrow from depends on your eligibility, financing needs, preferred loan repayment terms and the type of loan you’re looking for. Here are your main options.
If you’re not sure where to start or don’t have the time, use a connection service like Lendio to help you find the right provider.
Fill out the form to compare business loan providers your company may be eligible to borrow from.
After you pick a lender, the next step is to gather the documentation you’ll need before you complete the full application. You’ll often need to refer to them as you’re filling out the form. Ask your lender what you’ll need. Typically, it includes some or all of the following documents.
At this point, you might also need to get your collateral appraised by a third party if you’re applying for a secured loan. Unsecured loans or loans secured with a lien on business assets can usually skip this step.
It’s possible to find a business loan with few or no document requirements. But these loans are often more expensive than business loans that require documents.
Now that you’ve found the right lender and gathered your documents, you’re ready to start the application.
Here’s how to apply for a business loan:
Not every lender requires an interview, but if you’re shooting for a bank loan, you may have to do one. To help you sail through with flying colors, here are seven business loan interview questions to prepare for.
After you’ve submitted your loan application and documents — you don’t have much else to do but wait while your eligibility and documents are verified by a loan officer and or the lender’s algorithm. This process is called loan underwriting.
Typically, underwriters look at the following factors when determining the rates, fees and terms your business qualifies for:
If you’re worried about presenting a complete picture of your past, consider going with a lender that uses manual underwriting instead of an algorithm. Automated and electronic approvals typically require your information to fit in specific fields and boxes, squeezing out the ability to explain financial gaps or clarify information.
It was tougher to get a business loan in 2021 compared to previous years, according to the Federal Reserve. Some 68% of business loan applicants were approved for at least partial financing — down from 76% in 2020.
So, if your application was rejected on the first try, you’re not alone. However, you may have better luck if you resubmit your application or simply choose another lender or type of financing.
Here are six steps for handling a rejected application:
Getting the most out of your business loan can give your business a leg up when money is tight. After getting a loan, consider paying off your debt early if there’s no prepayment penalty, and if you need to miss a payment, take corrective action.
If you think you might miss a payment, see if your lender will push back your payment’s due date. You could also try renegotiating your business’s loan terms to avoid missing any more repayments — but you’ll likely need to provide documentation proving that you can’t repay.
If you miss a payment, stay in contact with your lender throughout the collections process. No matter what stage you’re in, keeping communication open with your lender is key to making the best of the situation and help prevent your lender or the government from taking more drastic measures.
Sometimes a business loan isn’t the right financing option for your company. If your business is still in the startup phase or you have a low personal credit score, you may want to consider these alternatives.
Assessing your eligibility and considering all financing options is key to getting competitive interest rates on business loans and terms for your business. Ready to apply for a business loan? Read about our picks for the best loans for small business or compare more business loan providers.
Think sole proprietors can’t get loans? Think again — see how to fund your business today.
A review of Giggle Finance, a fintech offering revenue-based financing for self-employed individuals, gig workers and small businesses.
Get the capital your business needs to grow with repayments that adapt to your revenue.
Compare business cash advances from a variety of lenders and the pros and cons of each option.
Compare alternative business lenders and loan types, including business lines of credit, invoice factoring and equipment loans.
Learn how to secure a $75,000 business loan, even with bad credit. Explore your options now.
Find a $40,000 business loan for your business and calculate the cost before you apply.
Think you need a cosigner for your business loan? Learn when they help — and when they don’t.
Get funding of up to $500,000 with the benefit of early repayment discounts for qualifying borrowers.
Getting a business loan can be hard when banks and other traditional lenders have strict requirements. See what startup loan options are available.