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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 youโre 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.
The process of getting a business loan will vary between lenders. However, you can generally expect to follow five main steps, as outlined below.
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:
A term loan is considered a traditional business loan. The lender will approve a loan amount, and youโll receive a lump sum of cash. Youโll 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 donโt have a good or excellent credit score.
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.
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. Youโll be charged interest on any money you borrow, but once itโs paid back you can borrow up to the credit limit again.
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.
A business personal loan is best suited to startups rather than established businesses. Lenders will typically not approve term business loans for startups since thereโs no history of successful business, making it riskier for the lender. If youโre starting a business and have a strong credit history, a business personal loan can help you get off the ground.
A microloan is exactly what it sounds likeโa 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.
Once youโve determined the type of business loan that best suits your needs, itโs 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 youโve 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 theyโve worked with. Itโs important to do your due diligence and find the best lender for your specific needs.
Loan amount | $1,000 to $40,000 | $2,000 to $36,500 | $1,000 to $50,000 |
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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 Offer | View Offer | View Offer |
Itโs 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 youโre 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.
The exact documents required to apply for a business loan will differ between lenders and the type of loan youโre applying for. However, most lenders will ask for some or all of the following:
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.
After youโve chosen the loan and lender, checked your credit report, and gathered the necessary documents, itโs 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 youโll need to provide:
Submit the application along with the necessary documents and wait to hear a decision.
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 Type | Pros | Cons |
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Term business loan |
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SBA loan |
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Business line of credit |
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Equipment loan |
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Business personal loan |
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Microloan |
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Business loans have many uses, from funding startups to facilitating the growth of established businesses. As such, itโs 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.
The exact credit score required to be approved for a business loan will depend on the type of loan and the lenderโs requirements. However, most lenders want applicants to have a โgoodโ or โexcellentโ credit score in order to qualify for a business loan.
According to Experian, a credit score of 700 - 800 is generally considered โgood,โ while a score of 800 and above is considered โexcellentโ. Check with your lender to find out their specific requirements.
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.
Requirements vary between lenders, but in general, youโll need to check the following boxes to qualify for a first-time business loan:
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.
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.
To get approved for a business loan without collateral, you may need to look to online banks or alternative lenders. In general, youโll 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.
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