Personal Finance
Advertiser Disclosure

How to Get a Business Loan in 5 Steps

how to get a business loan
iStock

Our evaluations and opinions are not influenced by our advertising relationships, but we may earn a commission from our partners’ links. This content is created independently from TIME’s editorial staff. Learn more about it.

updated: July 18, 2024
edited by Daniel Rathburn
 | 

Owning a business can be a rewarding and lucrative experience, but even the best businesses may need to borrow money from time to time to keep their business afloat. Whether you’re looking to start a new business or steer your company through an economic downturn, a business loan can help. But how do you go about getting a business loan?

There are several steps you should follow when looking for a business loan, though the exact process will depend on the type of loan you apply for and the lender you choose. Learn more about how to get the best business loan option for your needs.

How to get a business loan in 5 steps

The process of getting a business loan will vary between lenders. However, you can generally expect to follow five main steps, as outlined below.

1. Research different types of business loans

The first step toward getting a business loan is to familiarize yourself with your options. There are several different types of business loans to consider:

Term business loan

A term loan is considered a traditional business loan. The lender will approve a loan amount, and you’ll receive a lump sum of cash. You’ll then have a predetermined amount of time to repay the loan in regular installments. Note that term loans can be harder to qualify for if you don’t have a good or excellent credit score.

SBA loan

SBA loans are offered by certain third-party lenders but are partly guaranteed by the U.S. Small Business Administration (SBA). There are several different types of SBA loans designed for different business needs, including working capital, business expansion, equipment purchases, and commercial real estate purchases. Like term loans, SBA loans can be difficult to qualify for if you have a poor credit score.

Business line of credit

A business line of credit is similar to a credit card in that it provides a revolving line of credit that you can borrow from to pay for business expenses. You’ll be charged interest on any money you borrow, but once it’s paid back you can borrow up to the credit limit again.

Equipment loan

If you want to purchase equipment for your business, an equipment loan can help. Equipment loans provide funding to business owners who want to own their equipment rather than lease it. The equipment becomes collateral for the loan, so if you fail to make payments as agreed, the lender can seize the equipment.

Business personal loan

A business personal loan is best suited to startups rather than established businesses. Lenders will typically not approve term business loans for startups since there’s no history of successful business, making it riskier for the lender. If you’re starting a business and have a strong credit history, a business personal loan can help you get off the ground.

Microloan

A microloan is exactly what it sounds like—a business loan for a relatively small amount, usually between $500 and $50,000. Microloans are often a better option for business owners who may have trouble qualifying for a business loan due to a low credit score. Microloans are offered by traditional lenders, the SBA, and alternative lenders.

2. Compare business loan lenders

Once you’ve determined the type of business loan that best suits your needs, it’s time to choose a lender. Not all lenders will offer every type of business loan, and different lenders will have different qualification requirements. Consider a variety of options such as banks, credit unions, online lenders, and even nonprofit lenders, to see which one best fits your needs.

After you’ve narrowed down a list of lenders that might work, compare them to find the best one. You can read reviews online, make a list of pros and cons, and ask fellow business owners for advice on lenders they’ve worked with. It’s important to do your due diligence and find the best lender for your specific needs.

LendingClub Personal Loan Credible
LendingPoint Personal Loans Credible
Upstart Personal Loan Credible
Loan amount
$1,000 to $40,000
$2,000 to $36,500
$1,000 to $50,000
APR
8.98% to 35.99%
7.99% to 35.99%
7.8% to 35.99%
Term
36 or 84 months
24 to 72 months
36, 60 or 84 months
View OfferView OfferView Offer

3. Check your credit score

It’s important to know your credit score before you apply for a loan. As part of the application process, lenders will review your credit report and score to determine if you’re a trustworthy borrower. Being aware of issues in your credit report can help you get ahead of them, either by addressing inaccuracies before applying for a loan or by being upfront with the lender about any negative credit history and offering a full explanation of the situation. You can request a free credit report from AnnualCreditReport.com.

4. Gather important documents

The exact documents required to apply for a business loan will differ between lenders and the type of loan you’re applying for. However, most lenders will ask for some or all of the following:

  • Personal and business tax returns.
  • Personal and business bank statements.
  • Business licenses.
  • Articles of incorporation.
  • Financial statements.
  • Profit and loss statements.
  • Business plans.
  • Building leases.

Before starting your application, make sure you have all the required documentation so you can present it to the lender when you apply. This can help save time and show the lender that you are organized and serious about your business needs.

5. Apply for a business loan

After you’ve chosen the loan and lender, checked your credit report, and gathered the necessary documents, it’s time to submit your application.

The application process will vary among lenders, but you can usually apply online or in person. Either way, there are several key pieces of information you’ll need to provide:

  • Your name and the name of your business.
  • Your Social Security number.
  • Your Employer Identification Number (EIN) or other tax ID.
  • The amount you would like to borrow.
  • The purpose of the loan.
  • Your business’s annual revenue.

Submit the application along with the necessary documents and wait to hear a decision.

How to select the right business loan for you

Knowing how to get a business loan is one thing, but how do you know which type of loan is right for you? The table below lists the characteristics of different types of business loans to help you make an informed decision.

Loan TypeProsCons
Term business loan
  • Receive cash upfront;
  • Fixed monthly payments; Relatively high loan amounts
  • Qualification can be difficult;
  • Collateral may be required;
  • Relatively high costs
SBA loan
  • Relatively low rates;
  • Long repayment terms; Large loan amounts available
  • Qualification can be difficult;
  • The application process can be drawn out
Business line of credit
  • Flexible borrowing;
  • Revolving credit limit; No collateral requirement
  • Can have additional fees;
  • Qualification can be difficult
Equipment loan
  • The equipment serves as collateral
  • A down payment may be required;
  • Equipment depreciation rate can exceed loan length
Business personal loan
  • Easier qualification for startups;
  • Relatively quick funding
  • Relatively high borrowing costs;
  • Relatively small borrowing amounts;
  • Potential impact on borrower credit
Microloan
  • Relatively easy qualification for borrowers with poor credit;
  • Lenders may offer additional services such as consulting
  • Relatively high rates compared to traditional loans;
  • Lenders can be hard to find

TIME Stamped: A business loan can help start or grow a successful business

Business loans have many uses, from funding startups to facilitating the growth of established businesses. As such, it’s important to learn how to get a business loan and to understand the pros and cons of the many types of loans that are available.

Frequently asked questions (FAQs)

What credit score do you need for a business loan?

The exact credit score required to be approved for a business loan will depend on the type of loan and the lender’s requirements. However, most lenders want applicants to have a “good” or “excellent” credit score in order to qualify for a business loan.

According to Experian, a credit score of 700 - 800 is generally considered “good,” while a score of 800 and above is considered “excellent”. Check with your lender to find out their specific requirements.

Experian

Experian CreditWorks℠

Experian CreditWorks℠

Monthly fee
Free
Credit scoring model used
FICO
Identity insurance
N/A
Experian CreditWorks provides everyday access to your Experian Credit Report & FICO® Score, updated Score Factors that show what’s positively or negatively impacting your FICO® Score, daily monitoring of your Experian Credit Report, and personal support from our dedicated team of credit and Fraud Resolution Agents.

How can I get a business loan with no money?

If you have a good credit score, you may want to look into a personal business loan. This can help you get your business off the ground, but if your credit score is on the lower end this may not be an option. Alternatively, you can look into microloans, which are offered in smaller amounts and are often approved for borrowers with less-than-desirable credit histories.

What do you need for a first-time business loan?

Requirements vary between lenders, but in general, you’ll need to check the following boxes to qualify for a first-time business loan:

  • A personal credit score of at least 690.
  • At least six months in business.
  • A minimum annual revenue of at least $50,000.
  • A well-thought-out business plan and loan proposal.

How big of a business loan can I get to start a business?

The exact amount you can get from a business loan to start a business will depend on the lender, the type of loan, and your specific business.

Do banks give startup business loans?

Yes, many national and regional banks give startup business loans as long as the borrower can prove they have the means to repay the loan.

How can I get approved for a business loan without collateral?

To get approved for a business loan without collateral, you may need to look to online banks or alternative lenders. In general, you’ll need to prove to the lender that you have the means to repay the loan, which might mean sharing your personal banking information with the lender. You can also expect a higher interest rate for a loan without collateral.

The information presented here is created independently from the TIME editorial staff. To learn more, see our About page.

1.2594.0+1.69.4