If you’re wondering how to apply for a small-business loan, take the time to do your research and find the right fit. It can take months to get a business loan, especially one backed by the Small Business Administration. By understanding all your options and not rushing the process, you’ll be in the best position to get approved — and avoid wasting time or money.
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Once we uncover your personalized matches, our team will consult you on the process moving forward.
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Here are four steps to apply for a small-business loan.
1. Decide where to apply for a small-business loan
Banks, alternative online lenders and other sources offer business loans. The best place to apply for a small-business loan will usually be wherever you qualify for the lowest interest rate. But the following questions should also influence your decision:
- How good are your finances? Bank and SBA loans typically offer the most competitive interest rates. Those low rates come with strict qualifications though: You’ll likely need at least two years in business, strong annual revenue and good credit (many small-business lenders require a FICO score of at least 650) to qualify for funding. If you have bad credit or can’t otherwise hit those marks, your best bet may be to apply for a small-business loan from an online lender.
An SBA loan is a small-business loan that's issued by private lenders but backed by the federal government. You apply for an SBA loan through a lending institution like a bank or credit union. Then, that lender asks the SBA for a loan guarantee, which means if you default on an SBA loan, the government pays the lender the guaranteed amount. The SBA requires an unconditional personal guarantee from everyone with at least 20% ownership in a company, which puts them and their personal assets on the hook for payments. The SBA has several loan programs, including 7(a) loans, 504 loans and microloans.
- What type of funding do you need? Multiple types of business loans are available, but not from every lender. If you’re buying heavy-duty machinery, for example, a lender with dedicated equipment financing may make sense. For ongoing working capital, consider a business line of credit you can draw from as needed. If you want to apply for an SBA loan, which can range up to $5 million, you can find participating lenders using the agency’s lender match tool.
- When do you need the loan? If you need financing in a hurry, you may want to prioritize online lenders. These lenders may have automated processes that let them review applications quickly and offer fast business loans. If you can wait for more than a few days, SBA Express loans may offer quicker turnaround times than other federal options but similar benefits, like competitive rates and flexible terms.
If multiple lenders meet your needs, see if any let you pre-qualify for an estimated interest rate. This option will likely be more common with online lenders. For traditional lenders like banks, consider speaking with a loan officer before applying to ensure you meet the qualifications.
2. Get your application materials
Each lender may require different documentation for its small-business loan application. Most will likely want some form of the following:
- Information about your business. These items will range from the basic — like your business’s name, address and tax ID — to more detailed documentation. For example, a lender may want a business plan or proposal outlining how you’ll use the loan.
- Financial statements for you and your business. These may include documentation of your annual revenue, such as profit and loss statements, plus tax returns and bank account statements for business owners and the business itself.
- Details about the business’s owners. You may need information like the names, Social Security numbers and addresses for anyone who owns more than a certain percentage of your company, typically 20% or 25% depending on the lender or loan.
The SBA’s loan application checklist is a great place to start if you’re not sure what you might need. Government small-business loans typically require more paperwork than other options, so if you have everything the SBA wants, you should be well-prepared for whatever a lender asks for.
3. Review your small-business loan application
Before applying for a small-business loan, consider having someone else look over your application, especially if it includes information that could be open to interpretation, such as a business plan. One resource is a Small Business Development Center, or SBDC.
SBDCs are local organizations partially supported by the federal government. Each branch includes qualified business professionals who can provide assistance on topics such as running a business and obtaining financing. You can locate SBDCs in your state using the SBA’s finder tool.
Make sure to double-check that your business loan application includes everything the lender asked for and in the appropriate format. The lender may have questions as it evaluates your application, but by reducing unnecessary back and forth, you’ll get a decision as quickly as possible.
4. Follow the lender’s instructions to apply
Once everything is in order, how you’ll actually apply for the small-business loan will depend on the lender. For example, online lender Fundbox lets you link your business accounts through its website to qualify for financing.
More traditional financial institutions, such as banks and credit unions, may make you apply at a branch or over the phone. For example, Bank of America accepts online applications for some of its products — like its business auto loans — but requires an in-person or phone appointment for others.
No matter how you submit your application, find out the lender’s typical turnaround time. That way, you’ll know when to expect a decision about whether you’ve been approved.