How to Get a Small Business Loan: Insider Tips Revealed

how to get a small business loan

If you’re a small business owner, chances are you’ve considered taking out a loan to help finance your operations. But how do you know if you’re eligible for a small business loan? And what’s the process like? In this comprehensive guide about how to get a small businesses loan, we’ll discuss everything you need to know, including some handy tips from some insiders. Let’s get started with successfully securing that loan for your venture!

How to Get a Loan for a Small Business

how to get a small business loan - man writing collateral on clear board with marker

So you have your business plan and you’re ready to get a business loan. Before you apply to get a business loan, check out these tips…

1. Business plan

Having a business plan is essential when applying for a small business loan. Your business plan will show lenders how you plan to use the loan and how you will repay it. A good business plan will also include financial projections for your business.

2. Have a good credit score

With a good credit score, you will be more likely to get a lower interest rate on your loan because you are a less risky borrower. If you have a bad credit score, you may still be able to get a loan, but the interest rate will be higher and you’ll have fewer options for lenders.

3. Having collateral

Collateral is an asset that you pledge to the lender in case you can’t repay the loan. Collateral can be your home, your car, or other personal assets like stocks, bonds, or jewelry. Having collateral will give you a better chance of getting a loan, but it’s not always required.

4. Strong repayment history

If you have a strong history of repaying loans, you will be more likely to get approved for a small business loan. Lenders will want to see that you have a track record of repaying your debts on time.

5. Apply for the right loan

There are many different loan options for small businesses. Make sure you apply for one that’s best suited to your business’s specific needs. For example, if you need money for equipment, you may want to apply for an equipment loan.

6. Find the right lender

There are many different lenders out there, so it’s important to find the right one for you. Consider things like interest rates, repayment terms, and fees before making a decision. You’ll also want to consider whether you want to work with a bank or another type of lender.

7. Provide financial statements

Financial statements show lenders how much revenue your business generates and how much debt it has. These statements will help the lender determine if you can repay the loan. Financial statements include things like balance sheets, income statements, business bank statements, and cash flow statements.

8. Complete the application process

The application process for a small company loan can be time-consuming. Make sure you have all the required documents and information before you start. You’ll also want to make sure you understand the terms of the loan and what will be expected of you before you sign.

9. Be prepared for the underwriting process

Underwriting is the process by which lenders evaluate your loan application. They will look at things like your credit score, business history, and financial statements. Be prepared for this process by having all the required documentation such as your business license and tax returns.

10. Work with a professional

There are many different types of loans, and the process of applying for one can be complicated. If you’re not sure where to start, or if you need help with the application process, consider working with a professional loan advisor. They can help you find the best loan for your business and guide you through the application process.

Comparison of Factors for Small Business Loan Applications

This comprehensive comparison table outlines essential factors to consider when applying for a business loan. Use it as a checklist as you navigate the loan application process, helping you make well-informed decisions to secure the right financing for your business:

1. Business Plan- Essential for demonstrating your loan purpose and repayment plan. Should include financial projections.
2. Credit Score- A good credit score can secure a lower interest rate. Bad credit may lead to higher rates and fewer lender options.
3. Collateral- Pledging assets (e.g., home, car) can enhance loan approval chances. Not always mandatory, depending on the loan type.
4. Repayment History- A strong history of timely loan repayments improves approval odds.
5. Loan Type- Choose the loan type that aligns with your business needs (e.g., equipment loan for equipment purchase).
6. Lender Selection- Consider factors such as interest rates, terms, and fees when choosing a lender. Decide between banks and alternative lenders.
7. Financial Statements- Present financial statements (balance sheets, income statements, bank statements, cash flow statements) to showcase your business's financial health.
8. Application Process- Gather all necessary documents and information before initiating the application process. Understand loan terms and obligations before signing.
9. Underwriting Process- Be prepared for the lender's evaluation, including credit score assessment and reviewing your business history. Ensure you have all required documentation, such as business licenses and tax returns.
10. Professional Assistance- Consider working with a loan advisor if you're unsure or need help with the loan application process. They can offer guidance and find suitable loan options.

What Is a Small Business Loan?

how to get a small business loan - small business owner discussing getting a business loan

A small business loan is a financial tool that aids small businesses in accessing the necessary capital to operate, expand, or kick-start their ventures. These loans are generally offered by a variety of financial institutions, with diverse terms and interest rates. Here’s a closer look at the aspects of a small business loan:

  • Definition and Purpose:

    • Startup Costs: Assisting new businesses in covering the initial costs necessary for launching.
    • Working Capital: Providing funds to maintain daily operations and manage cash flow efficiently.
    • Inventory Purchases: Enabling businesses to stock up on inventory, which is especially important for seasonal sales spikes.
    • Equipment Acquisition: Assisting in the purchase of necessary machinery, technology or equipment to improve the business operations.
  • Lender Options:

    • Banks: Traditional lenders that offer loans with a variety of terms and conditions, generally with lower interest rates but stricter eligibility criteria.
    • Credit Unions: Not-for-profit organizations that generally offer favorable interest rates and more personalized service.
    • Online Lenders: Modern platforms that offer a quick application process and faster approval times, though they might have higher interest rates.
  • Loan Types:

    • Term Loans: Loans that are repaid over a set period with a fixed or variable interest rate.
    • Line of Credit: A revolving credit option that allows businesses to borrow up to a certain limit and only pay interest on the amount borrowed.
    • Equipment Financing: Loans specifically for purchasing equipment, where the equipment serves as collateral.
    • SBA Loans: Loans guaranteed by the Small Business Administration, which usually come with favorable terms but have a thorough approval process.
  • Application Process:

    • Documentation: Gathering necessary documents such as business plans, financial statements, and tax returns.
    • Credit Score: Understanding the importance of having a good business or personal credit score to increase the chances of approval.
    • Proposal: Crafting a solid business proposal to illustrate the viability and potential success of the business.
    • Consultation: Seeking advice from financial advisors or consultants to choose the best loan option.


Here’s an interview with Chris Hurn about Using SBA Loans to Buy a Business:

What Are the Types of Small Business Loans?

how to get a small business loan - pic of SBA loan on letterhead

There are many different types of small business loans offered by lenders. Many lenders even work with the Small Business Administration (SBA) to offer loans backed by the government. Here is a list of the primary types of small business loans:

  • SBA loans. These loans are backed by the Small Business Administration and can be used for many different purposes, including start-up costs, equipment, working capital, and even real estate. SBA loan programs include the 7(a) loan program, the 504 loan program, and the disaster assistance loan program.
  • Term loans. A term loan is a type of loan that has a specific repayment schedule and a fixed interest rate. Term loans are typically used to finance short-term needs, such as working capital or inventory.
  • Business lines of credit. A business line of credit (LOC) is a loan that a business can draw on as needed. A LOC can be used for working capital, to finance inventory, or to cover other expenses. It’s similar to a credit card, but with a lower interest rate.
  • Invoice factoring. Invoice factoring is when a business sells its invoices to a third party for less money than the invoices are worth. The third party then collects the payments from the people who owe the money. This way, the business can use the money it gets from selling the invoices to pay its current expenses.
  • Merchant cash advances. Merchant cash advances are short-term, unsecured loans that give business owners the flexibility they need to cover their expenses. These advances are paid back using a portion of the business’s future credit card sales.

Do You Qualify for a Small Business Loan?

how to get a small business loan - person's credit score on a smartphone lain on top of a credit application

To qualify for a small business loan, you’ll need business assets, among other things. Here are some general qualifications lenders look at for small business loans:

  • Business credit score. This is a number that lenders use to assess your creditworthiness. You’ll need a good business credit score to qualify for a loan.
  • Business history. Lenders will want to see that you have a strong history of running a successful business.
  • Personal credit score. Your personal credit score is another factor that lenders will consider when evaluating your loan application.
  • Collateral. Many lenders will require that you put up collateral, such as your house or another asset, to secure the loan. Lenders may also require a personal guarantee.
  • Cash flow. Lenders will want to see that your business has a strong cash flow in order to repay the loan.


How Do You Choose the Right Lender for a Small Business Loan?

how to get a small business loan - choosing the right lender -lender and borrower shaking hands

When looking for a small business loan, it is important to choose the right lender. Traditional lenders, such as banks, offer loans to businesses that have been in operation for a certain amount of time and meet other criteria.

Online lenders are a good option for businesses that do not meet the requirements of traditional lenders or those who need money quickly. It is important to research the different small business lenders and compare interest rates, terms, and other factors before making a decision.

What Are Alternative Options to a Small Business Loan?

There are numerous alternative funding options available for small businesses that may not qualify for traditional loans, particularly for those with unique needs or less-than-perfect credit histories. These alternatives offer a variety of benefits, catering to different business models and financial situations:

  • Credit Unions: Often more flexible than large banks, credit unions can provide loans with lower interest rates and personalized service. They’re community-focused and may have more interest in supporting local businesses.
  • Crowdfunding: Platforms like Kickstarter and Indiegogo allow businesses to raise funds directly from customers and supporters. This method not only secures funding but also validates the business idea in the market.
  • Invoice Financing: This allows businesses to borrow against the amounts due from customers, providing immediate cash flow relief. It’s ideal for businesses with long invoice cycles.
  • Microloans: Organizations, including some non-profits and the SBA, offer microloans, which are small loans designed to help startups and small businesses grow. These are especially useful for businesses not requiring large amounts of capital.
  • Peer-to-peer Lending: Online platforms connect businesses with individual investors willing to lend money directly, bypassing traditional financial institutions. This can be a quicker, more accessible option for funding.

Also consider:

  • Bad Credit Business Loans: Some lenders specialize in loans for businesses with poor credit histories. While interest rates may be higher, these loans provide an opportunity to build credit and obtain necessary funding.
  • Borrowing from Friends or Family: A common strategy for many startups, borrowing from friends or family can offer flexible repayment terms, but it’s important to treat the agreement professionally to avoid personal conflicts.
  • Using Business Credit Cards: For short-term financing needs, business credit cards can be a quick and easy source of capital. They also offer rewards and can help build a credit profile for the business.
  • Applying for a Government Grant: Various government grants are available to small businesses in specific industries or regions. These grants do not need to be repaid, making them an attractive option for eligible businesses.

Are Small Business Loans Hard to Get?

There is no definitive answer to this question, as it depends on the lender and the specifics of the loan application. However, business credit scores are often a factor that lenders consider when approving or denying a loan. High credit scores indicate that a business is reliable and has a good credit history, while a low score may suggest that the business is risky and may not be able to repay the amount borrowed.

What Is the Easiest SBA Loan to Get?

The easiest SBA loan to get is the 7(a) loan. This loan is for small businesses that are starting up or expanding. Use the amount for a variety of purposes, including working capital, buying equipment, and marketing. The process for getting this loan is relatively simple, and the requirements aren’t as strict as other types of loans.

Can You Get a Loan for Your First Business?

Yes, as a new business owner, you can secure a loan for your first company. The SBA provides loans to entrepreneurs starting or expanding a small business. However, navigating the loan acquisition process can prove complex. You must present a strong business plan and maintain a solid credit history. To qualify for an SBA loan, you need to base your business in the United States and satisfy specific criteria. You might also want to explore some of the alternative financing options mentioned earlier in this article.

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Kevin Ocasio Kevin Ocasio is a staff writer for Small Business Trends and has been with the team for 2 years. He holds certifications in SEO, digital marketing, and content marketing. Kevin is also certified in Information Technology Technical Support Fundamentals.