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How to Apply for a Small-Business Loan in 4 Steps
Choose lenders that meet your needs and seem likely to approve you when applying for a small-business loan.
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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 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 get approved — and 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 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 the 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’re looking for an SBA loan, you might start your search with a lender that you have a preexisting relationship with. SBA lenders include national banks like Chase and Wells Fargo, as well as regional and community banks.
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.
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.
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.
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.
Any small business can apply for 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.
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.