How to Get a Small Business Loan in 3 Steps

Finding a small business loan is often a necessity at some point during the growth of your business, but it can be difficult if you don’t know where to look to find a loan you qualify for. Getting a small business loan involves first evaluating your options, second determining your eligibility, and third applying for the right loan.

One of the most important aspects of small business financing is choosing the right loan provider. BlueVine offers flexible lines of credit that are easier to qualify for then loans from traditional lenders. They can fund up to $250,000 in as quick as 24 hours. Get prequalified online in minutes.

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Small Business Loan Options

Loan Option	Who It’s Right For
SBA Loans With SmartBiz	SBA loans for long term financing projects like working capital, CRE, or large equipment.
Short Term Loans With OnDeck	Short term loan provider typically used for working capital.
Business Line of Credit With BlueVine	Short term line of credit provider typically used for working capital or cash flow problems.
Equipment Loans With Smarter Finance USA	Equipment loan provider for large pieces of equipment that have a long shelf life.
Invoice Financing With BlueVine	Invoice financing typically used for working capital.
AR Financing With FundBox	Line of credit for unpaid invoices, typically used for working capital.
Merchant Cash Advance With National Funding	Merchant cash advance finances your daily credit/debit card receipts.

How to Get a Small Business Loan

Getting a small business loan has many moving parts that can waste time and money if you don’t know how to properly deal with them. Learning how to get a small business loan includes 3 steps. Properly understanding each step will increase your chances of getting funded and can also lower your total financing costs.

The 3 steps to getting a small business loan are:

Step 1: Evaluate Potential Loan Options

Before you can apply for a loan, you need to find the right one based on your unique personal and business circumstances. There’s plenty of loan options out there that may help your small business, depending on what your situation is. Most of the loan options you’ll qualify for can fall into one of these main categories:

Asset Based Loans

You can use current business assets, or assets you’re acquiring, as collateral to get the financing you need. These loans can be a good option if you don’t qualify for long-term financing due to your credit profile, or if you’re business is less than one year old. Two of the best options in this category are equipment loans and invoice financing.

Equipment Loans

Equipment loans use the equipment you’re acquiring as collateral to pay for the purchase of that equipment. These loans can’t be used for other business purposes, and will only go towards the purchase of the equipment. Some equipment financing comes through the use of an equipment lease that allows you to use the equipment with an opportunity to purchase it at the end of your lease term.

Invoice Financing

Invoice financing, or AR financing, providers pay you a percentage of the amount owed to you from unpaid customer invoices, or they give you a credit line for the value of them. It’s a great way to get the value out of your unpaid invoices without having to worry about when your customers will pay.

Short-Term Loans

Short term loans are easier to qualify for than most other business loans, and they can typically fund much faster. In exchange for those benefits they also typically carry a larger APR than a general business loan. If you have a short-term financing need like overcoming a temporary cash flow problem, then this could be the best solution for you.

Some of the best short-term financing solutions we’ve found are short-term loans from OnDeck and Kabbage. Both offer financing with a 30-50% APR, and both can fund you in as quick as one day. You can learn more by reading our guide comparing the best short-term loan options.

Long-Term Loans

Long-term loans typically will offer you the longest repayment terms and lowest rates, giving you the most affordable loan payments of any loan type. Long-term financing can be the right option if you’re buying a business or financing a large purchase like commercial real estate. These loans generally come from traditional banks. The loans with the best rates are typically SBA loans.

SBA Loans

SBA loans are guaranteed by the Small Business Administration, increasing the chances that your traditional lender will approve your loan application. They can be tough qualify for, but they’re the best option for long-term financing if you’re an existing business. The rates typically fall between 6 – 9.5%, with repayment terms up to 25 years. You can learn more by reading our guide on the different types of SBA loans.

The qualifications for each loan type above are different, and the loan you’ll need is unique to your specific situation. This is why it’s important to evaluate all of your options before you start applying for a loan. You don’t want to waste time or money applying to loans that you either don’t qualify for, or that won’t help your business succeed.

Step 2: Determine Eligibility

Before looking for financing, it’s important to understand the 6 primary factors that determine which types of business loans are best for you. These are the criteria that most loan providers use when determining if you meet their minimum qualifications. The requirements in each category vary from one loan provider to the next, based on what type of financing you need.

The 6 factors to keep in mind when applying for a small business loan are:

Time in Business

In general, it’s tough to get funding for a startup unless you’re rolling over your own retirement money. Business lenders that lend to startups and small businesses typically only provide small amounts of funding, and they can be very expensive. The best option for startup owners is to get a startup business loan or use personal assets like your retirement account.

Established businesses have more financing options available to them. If you run an established profitable business and have good personal credit, you will be a good candidate for an SBA or bank loan, which are the cheapest forms of business financing.

Your Credit Score

Your personal credit score is often used by most lenders, making it one of the most important factors in finding financing. Your credit score will help determine where you should apply and can provide an immediate rejection if it’s not high enough. If you have good credit of 680+ (check yours for free here), it’s much easier to qualify for a traditional loan.

While your personal credit score is the important one that must meet certain minimum requirements, there’s also a likelihood that your business credit score will be checked. This is sometimes the case even if you’re told it won’t be. This score is sometimes used as a qualitative assessment so you should understand how business credit scores work as well as what a business credit report looks like.

Having bad credit doesn’t make it impossible to find a business loan, but it does make it harder. Instead of a traditional bank, borrowers with lower credit scores will need to seek out costlier alternatives. You can also find a loan that doesn’t require a credit check. You can read our ultimate guide on the best business loans with no credit check.

Business Revenues & Cash Flow

In order to get a business loan, you must show the lender that you’ll be able to pay it back. Even though you may put up collateral, it’s a costly and time-consuming process to collect on a defaulted loan. This is why lenders want to make sure your business financials are strong and that you can afford your loan payments before approving your loan.

Before looking for a loan, make sure you know your business revenues for the last 2-3 years as well your Debt Service Coverage Ratio (DSCR). DSCR is the amount of debt you have relative to your income. Banks prefer a DSCR of 1.25 or higher. Your business revenues will also impact which lenders are willing to loan you money. If you’re starting a new business, you will need to project these numbers based on expected performance.

Collateral and Personal Guarantee

Determine if you have equipment, vehicles, real estate, or other business assets that can be used as collateral to secure the loan. Collateral is very important for traditional loans, and the more you have the higher your chances are at getting funded. Alternative lenders typically don’t require collateral, although they may place a UCC lien on your business assets.

Most business loans, whether from a bank or an alternative lender, require a personal guarantee. This is a promise to pay the loan out of your own pocket if the business fails to make payments. In the event of a default, the lender will usually first foreclose on your collateral and then collect the remainder of the loan balance, if any, by enforcing the personal guarantee.

Speed

How quickly you need a loan can limit your financing choices. If you can afford to wait a while, don’t mind all the paperwork involved, and meet the qualification criteria, then you’re a good candidate for a traditional loan. These loans can routinely take 45-120+ days to get funded, but they’re more affordable than other loan options.

On the other hand, if you need a fast loan or an easier business loan, you would do better to seek out an online or alternative lender. Be prepared, however, to pay more in terms of interest rates in exchange for the speed and convenience.

Customers Payments

Finally, how your customers pay you can open or close doors to financing. For example, if you bill your clients via invoice, invoice factoring or invoice financing might be the right solution for your cash flow problems. If you accept credit card payments, a merchant cash advance might be an option if you can’t qualify for more affordable financing.

Other Requirements

Other requirements are less universally used, but they’re still important. For example, your lenders don’t want you to put yourself in financial distress by taking out a loan. They want to know that you’ll be able to make all of your loan payments. The general rule of thumb for small businesses is that you don’t want to have a low debt-to-equity ratio (DTE) for your industry. DTE is calculated by dividing your liabilities by your equity.

While an acceptable DTE score varies by industry, you typically don’t want it to be above 2 for any sector. The lower your ratio is projected to be after you get your small business loan, the better your chances will be of getting funded. Many traditional lenders will have their own DTE requirements that you must meet if you want them to approve you.

Loan Qualifications by Loan Type

In general, the longer you’ve been in business, the higher your credit score is, and the more collateral you have, the easier it will be to qualify for a loan. However, each of the different types of loan categories discussed above also have very different loan qualifications.

While those qualifications will vary by lender, let’s look at the general qualifications for each loan type. Asset-based loans are going to vary a lot based on what type of asset you’ve put up as collateral, so we’ll just look at short-term loans and long-term loans here.

Short-Term Small Business Loan Qualifications

Qualifications will vary by lender, but typically you’ll qualify for a short-term loan if you have:

1+ Year in business
Credit score of 550+ (check your credit score for free)
Annual gross revenue of $100K+

OnDeck is a short-term loan provider who can fund you for up to $500K in as quick as 1 day. They have an online application process where you can get approved within a few minutes.

Long-Term Small Business Loan Qualifications

Qualifications will vary by lender, but generally carry these requirements:

2+ Years in business
Credit score of 680+ (check your credit score for free)
Profitable and trending up
No negative credit marks (bankruptcies, tax liens, repossessions, etc..)

SmartBiz offers working capital SBA loans up to $350K and commercial real estate loans up to $5 million. If you meet the qualifications above, you can fill out an online application that only takes a few minutes and be fully funded within 30 days.

Step 3: Apply for the Right Loan

Knowing how much financing you need, your minimum qualifications, and what you’re going to use those funds for will help you choose the type of loan that is right for your business. Now that you’ve evaluated your loan options, and know what you qualify for, it’s time to determine which one is the best fit and move forward with applying.

The type of loan you’re applying for will decide how much documentation you’re going to have to gather before you apply. SBA loans are typically the most extensive application process, while short-term loans from online lenders are usually the least extensive.

Application Process For Short Term Loans

Short-term financing has a much easier application process, requiring much less documentation than traditional lenders do. In fact, most online lenders for short-term loans only require you to provide very basic personal and business information. This information includes:

Name
Address
Business revenue
Amount of financing you need

Once you fill out the online application, which takes about 10 minutes with our recommended short-term financing lenders, you’ll connect the lender to your bank account. This is how they’ll verify your revenue and decide how much they can lend to you. The entire funding process typically takes 1-3 business days.

OnDeck is a great example of a short-term loan provider that’s easy to apply with. They offer loans up to $500k with interest rates starting at 9.9%. You can apply online with a short 10-minute application, and they can have you funded in as little as 24 hours.

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Required Documentation for Long Term Loans

Long-term loans can be difficult to qualify for, and the application process can be lengthy. SBA loans are a great example of this. These loans are guaranteed by the Small Business Administration but are actually borrowed from a traditional lender like a bank. Since you must be approved by both the lender and the SBA, a lot of documentation is needed in order to qualify.

You’ll typically need to gather the following documents before you apply for an SBA loan:

Detail allocation of how you’ll use all funds
Proof of business ownership
Loan Application history
Business overview and history
Current business financials
YTD P&L (profit and loss) statement
YTD balance sheet
Business tax returns (2 years)
Projected financials (1-3 years)
Business licenses
Business leases
Personal financial statement
Personal tax returns (2 years)
Owner resume

You’ll likely be asked for additional documentation if you’re using this loan to buy a business or if you’re buying commercial real estate. You may also be required to provide additional documentation during the underwriting process, depending on your personal or business situation.

Typically, no other type of loan will require more than these traditional loans do at the time of application. To learn more about the overall process you can read our article on how to apply for an SBA loan.

SmartBiz is an SBA loan provider who gets these long-term loans closed quicker than anywhere else we’ve seen. While these loans typically take 45-120+ days to close, SmartBiz can get you through the application process within 30 days. You can fill out an online application to prequalify, which only takes a few minutes.

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Find the Right Lender for Small Business Loans

You may meet the loan qualifications of multiple lenders that provide the same types of loans. Knowing which lender is the best choice for you before you submit a full application can save you time and money. Even though initial applications only trigger a soft credit check, submitting lots of full applications (with hard credit checks) could damage your business credit.

Here are some questions you can ask potential lenders to help you narrow down which lender might be a good fit for your business, before you apply:

How many loans have you funded in my industry?
What’s your average loan amount that gets funded?
What is the average APR of your current outstanding small business loans?
What fees are involved with originating and closing on a small business loan?
What is your required repayment schedule? (monthly, weekly, daily)
What is your exact application process entail, and how long does it typically take?
Do you have any current or past customers that I could speak to about your process?
Do you require a personal guarantee?
Which credit bureaus do you report to and when?

Having a lender that is experienced in your industry could be extremely valuable if you’re not in a conventional industry that is easily understood. Having that experience in your industry is a good indication that the loan provider understands your revenue cycle and what your business needs are. It should increase your likelihood of getting funded.

Bottom Line

There are plenty of small business loan options, whether you need the money for working capital, to start a new business, or to purchase equipment. Small business loan providers are more particular than ever that you understand and follow their loan application process. Following these four steps will put your business in the best situation possible to get funded for the financing you need.

For working capital needs, a small business loan is a good option but a line of credit can be even better. BlueVine offers a LOC up to $250k and interest rates as low as 4.8%. The online application takes just a few minutes to fill out, and you can be approved in just 20 minutes.