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How to Apply for and Get a Business Loan in 5 Steps
Choose the right type of loan for your qualifications and business needs, compare lenders and then apply.
Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
If you’re wondering how to get a small-business loan, you’ll want to devote the necessary time to do your research and find the right fit. It can take months to access funding, especially when it’s backed by the U.S. Small Business Administration.
By understanding all your business loan options and not rushing the process, you’ll be in the best position to apply and get approved — as well as avoid wasting time or money.
How much do you need?
We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
Here are five steps to apply and get a small-business loan.
1. Decide what type of loan you need to fund your business
If you want to finance a large purchase or business expansion: Traditional term loans are lump sums that you pay back over time with interest and often have high borrowing maximums — SBA loans can reach $5.5 million, for example. Many lenders also offer specific products to fit a growing company's needs, such as loans for equipment or vehicle purchases.
If you need funds for day-to-day expenses:Business lines of credit are a flexible kind of funding that lets you tap into financing as you need it to cover expenses such as payroll or unexpected repairs, offering a useful safety net.
If you’re looking to fund a startup: It can be tougher for entrepreneurs to get a traditional business loan, but business credit cards and personal business loans can be good options if you haven’t been in business long enough to qualify for a line of credit or term loan.
2. Determine if you qualify to get a business loan
A number of places offer business loans, including banks, online lenders and microlenders. Answer these questions to help determine at which type of lender you’ll meet the eligibility requirements to qualify for a small-business loan:
What's your credit score?
You can get your credit report for free from each of the three major credit bureaus: Equifax, Experian and TransUnion. You can also get your credit score for free from several credit card issuers and personal finance websites, including NerdWallet.
Banks prefer to offer their low-rate business loans to borrowers with credit scores in the good and excellent ranges, or 690 and above.
While looking at your annual revenue, you should also consider your cash flow — and evaluate how much you can afford to apply toward loan repayments each month.
As a general rule of thumb, your total income should be at least 1.25 times your total expenses, including your new repayment amount.
For example, say your business’s income is $10,000 per month. That’s 1.25 times $8,000 of expenses. If you already pay $7,000 in rent, payroll and other costs, you should be able to afford a $1,000 monthly loan payment.
Some online lenders require daily or weekly repayments, so make sure to factor that in — you’ll need enough cash flow to make payments at the time they’re due.
Estimate the cost of getting a business loan
Calculate estimated payments, then see if you qualify for a business loan
Over the course of the loan, expect to pay
Total principal & interest
Get personalized small-business loan rates to compare
You’ll typically want to get the business loan that offers you the best terms. But other factors, like funding speed, may matter to your business and different funding sources may be better in certain instances than others.
When to get a business loan from online lenders:
Online lenders generally provide small-business loans and lines of credit of up to $500,000. The average annual percentage rate on these loans ranges from 6% to 99%, depending on the lender, the type and size of the loan, the length of the repayment term, the borrower’s credit history and whether collateral is required.
These lenders rarely have APRs as low as what traditional banks offer, but approval rates are higher and funding is faster than with banks — as fast as the same day in some instances.
Through banks, the U.S. Small Business Administration guarantees general small-business loans with its 7(a) loan program, microloans and disaster loans. The SBA also has a 504 loan program that helps fund the purchase of land, buildings or equipment through long-term, fixed-rate financing.
Taking out a small-business loan from a bank can be difficult if you’ve been in business less than two years or don’t have consistent revenue. Add bad personal credit or no collateral to that, and many small-business owners come up empty-handed.
Getting funded by a bank tends to take longer than getting a loan from an online lender, but banks tend to offer the lowest APRs.
Microlenders are nonprofits that typically make short-term loans of less than $50,000. The application may require a detailed business plan, financial statements and a description of what the loan will be used for, making it a lengthy process.
Also, the size of the loans is, by definition, “micro.” But these loans may work well for smaller companies or startups that can’t qualify for traditional bank loans due to a limited operating history, poor personal credit or a lack of collateral.
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.
Information about your collateral. Some lenders may require you to put up collateral, such as real estate or equipment, to secure your loan. You should provide information about the type of collateral you’re offering and how much it’s worth. It can be helpful to get an independent auditor to value your collateral before applying for a business loan. Bank and SBA lenders are more likely to require collateral than online lenders.
Personal guarantee. Most lenders will require you to sign a personal guarantee when you apply for a small-business loan. A personal guarantee is an agreement that states you, the borrower, are responsible for paying back the loan with your personal assets if your business defaults. Other business owners may be required to sign personal guarantees as well.
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.
Before submitting your business loan application, consider having someone else look over it, such as a professional from your local Small Business Development Center, or SBDC.
These business professionals can help you double-check that your 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.
Any small business can apply for a loan, but not all companies will qualify. To qualify for a business loan with the most competitive interest rates and repayment terms, you’ll want to have a few years in business, good credit and strong finances.
Businesses that can’t meet those requirements, including startups and those with bad credit, may still have loan options — but they’ll likely face higher interest rates.
It can be difficult to get a small-business loan if you don’t have good credit and strong finances. It may also be difficult to get a loan if you are a new business.
Although there are funding options available for startups and businesses with bad credit, these products typically have higher interest rates.
You can apply for a small-business loan through banks, credit unions, SBA lenders, online lenders, as well as through some nonprofit organizations. The right option for you will depend on a variety of factors, including your funding needs and qualifications.
Depending on the lender you choose, you may be able to apply for your business loan online or over the phone, while others will require you to apply in person.
Although requirements vary by lender, you’ll need to provide basic information about yourself and your business when applying for a startup loan. You’ll need to include financial documentation, like bank statements and tax returns, as well.
Because lenders consider startups risky investments, it’s also helpful to provide additional security, such as a business plan, financial projections and/or collateral.