Key takeaways
- Calculating how much debt your business can afford and how much it needs will direct you to the appropriate loan type and lender for your business.
- Assessing your eligibility based on universal standards like credit score, annual revenue and time in business can also help direct your search to the right type of lender.
- Researching and comparing lenders is important to make sure you get the best deal for your business, and helps you avoid predatory lenders.
Getting a small business loan is a multi-step process that involves running numbers for your business, researching lenders and organizing your business documents and financials. If you’re able to go through this process and get approved though, a small business loan can help keep your business afloat during hard times, and help stimulate growth as well. Let’s take a look at the process.
1. Calculate how much you need and how much you can afford
Getting an idea of how much capital you need and how much you can afford is the first step in getting a small business loan. Understanding these numbers can help direct you to the appropriate lender, type of loan and what you’ll need to qualify.
The total amount of money you need to borrow will be determined by the purpose of your loan, but to determine the total amount that you’ll repay, you’ll need to account for any interest or fees associated with the loan as well.
You can use our small business loan calculator to get an idea of what payments will look like and how they fit into your cash flow. If you can’t afford the monthly payments, you may need to consider waiting, or requesting a lower loan amount.
2. Choose your loan type
The type of business loan you choose will depend largely on your loan purpose and what you can afford. Below, explore some common business loan types.
| Loan type | Best for | Pros | Cons |
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| Long-term business loans | Large purchases and businesses with strong credit |
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| Short-term business loans | Fast funding for small- to medium-sized purchases |
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| SBA loans | Long-term affordable loans |
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| Business lines of credit | Short-term needs; covering cash flow gaps |
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| Commercial real estate loans | Real estate used for commercial purposes |
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| Equipment loans | Purchasing or upgrading equipment |
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| Invoice financing | Using outstanding client invoices to secure funding |
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3. Determine your eligibility
Each lender determines its own qualification requirements; however, there are universal factors that you can expect almost any lender to look into. These include:
- Length of time in business. Traditional lenders typically want to see a couple of years of tax returns and business financials when making their decision, and therefore require at least two years in business to qualify for loans. Online lenders and other alternative lenders may fund businesses with just six months in business.
- Personal credit score. Whether or not you have established business credit, many lenders assess your personal credit score to understand your likelihood of repayment. Traditional lenders typically want to see a FICO score of 680 or higher, while some online lenders may lend to business owners with scores in the 500s.
- Business credit score. If you have one, lenders may also use your business credit score to assess your loan application. Your business credit score will range from 0 to 100 (or 0 to 300 with the FICO Small Business Scoring Service). The score factors in your company’s size, payment history, industry and other debts. A strong business credit score may allow you to forgo a personal guarantee.
- Annual revenue. Annual revenue requirements tend to vary by lender and depend on the type of loan you apply for. While online lenders generally have more lenient qualification requirements, they tend to have minimum annual revenue requirements of $100,000 or above, similar to banks. There are some exceptions though — online lender Fundbox, for example, requires a minimum of only $30,000 in annual revenue to qualify for its line of credit.
- Debt service coverage ratio (DSCR). Debt service coverage ratio (DSCR) is a measure of monthly cash flow against current debt obligations. It is used by many lenders as a metric to determine whether or not your business is able to afford monthly loan payments. Most lenders require a DSCR above one, which means you can afford more than your current debt obligations.
In addition to these requirements, other factors like collateral and your relationship with the lender can impact your chances of approval. If you are able to offer assets to secure your loan, it can help mitigate other risk that you may pose to your lender, increasing your chances of approval and potentially lowering interest rates.
In addition, if you have a positive history and relationship with your bank or lender, it can help ease your application process, and it may also bump your chances of approval because your lender already knows how you do business.
4. Research and compare lenders
Once you’ve narrowed down the type of loan you need, you can compare lenders side by side to find the best small business loan for you. Here are some things you should consider when comparing lenders:
- Cost (interest rates and fees). The total cost of a loan is what impacts how much you end up paying and can be an indicator of whether or not you can actually afford the loan. When comparing lenders, make sure you use annual percentage rate (APR), not just interest rate. APR is a measure of the overall cost of a loan, including interest rate and all fees. If your lender offers a factor rate, you can convert it to APR to make it easier to compare with other offers.
- Loan repayment terms. Terms for term loans and lines of credit can range from three months to twenty-five years. The term of your loan impacts how much total interest you pay, and more immediately, the amount of your monthly payments. A longer term means lower monthly payments, but you’ll likely pay more over time in interest than you would with a short-term loan.
- Repayment schedule. As a part of your repayment terms, your lender will also determine your required repayment schedule, which could be monthly, weekly or even daily. Longer term loans typically have monthly payments, whereas short-term lenders often require more frequent repayments. Daily or weekly payments can eat into your cash flow and make it harder to afford the loan, so it’s important to consider this when you’re researching lenders.
Be wary of predatory lenders
Predatory lenders can target businesses that may be struggling to find financing with offers that seem too good to be true and hidden fees that make repayment almost impossible. Be wary of lenders that are pushy, lack transparency about rates and fees or guarantee approval.
To get an idea of what your options might be, take a look at the following types of lenders that offer small business loans.
| Banks and credit unions | Banks and credit unions offer some of the most affordable small business financing, with APRs that are typically between 5.5 and 12 percent for conventional loans and lines of credit. Many banks also offer loans backed by the U.S. Small Business Administration. As of June 2025, SBA loan rates were between 7.5 and 11 percent. Repayment terms may also stretch out longer than conventional loans, ranging from five to 25 years. |
| Online lenders | Online lenders offer fast approval, more lenient qualification requirements and sometimes easier loan management, but they typically come with much higher rates than bank loans — sometimes equally up to 75 percent of the loan amount. |
| Community Development Financial Institutions (CDFIs) | Community Development Financial Institutions (CDFIs) organizations that are certified through the U.S. Treasury to provide capital and other resources to underserved communities. They use a mix of private and federal funding to support borrowers that may not be able to qualify elsewhere, while preserving a relatively low cost of financing. |
| Minority Depository Institutions (MDIs) | Minority Depository Institutions (MDIs) are financial institutions that are majority owned or managed by minority individuals. Many MDIs focus on serving minority communities, providing business loans to entrepreneurs who are historically underserved in the banking industry. |
5. Gather required documents
Lenders not only need to know your business’s financial standing and legal status, but they also want documentation on how you plan to use the loan and its projected impact on your business. When you apply for a business loan, your lender should have a full list of required documents. Some of the documents you should have ready to go include:
General business information
- Business plan.
- Business tax ID number.
- Business legal documents and registration, and any relevant licenses.
- Any lease agreements the business has.
Business finances
- Business bank statements.
- Income tax returns from the last three years.
- Accounts receivable and accounts payable statements.
- Financial statements (profit and loss, balance sheet and financial projections).
- Information on any available collateral you plan to pledge.
- Use of funds statement.
- Business debt schedule.
Personal information
- Resumes of all business owners.
- Personal IDs of all business owners.
- Personal tax returns.
- Information on any personal assets that might be pledged as collateral.
6. Apply
Once you’ve gathered and reviewed your business documents, you can submit your application. Many lenders offer online applications that require minimal initial paperwork. If your bank or lender has a brick and mortar office or branch, you may also go in person to apply for the loan, especially if you’d like some assistance from a loan officer.
After you submit your application, if your lender doesn’t contact you within a day or two, feel free to reach out. A loan officer should let you know the status and timeline of your application and any additional documents required.
What to do if you’re denied financing
If your business loan is denied, the first thing you should do is talk to your lender to try and understand why. There may be steps you can take or ways to alter your request that can help you get an approval in the near future.
If you can’t afford to wait, consider other lenders you may have already researched, or look for other ways you could finance your business. These could include:
Business credit cards
Business credit cards can be used in a pinch to purchase things like inventory or small equipment. If you’re diligent about paying your credit cards off every month, they can be a good source of revolving funds and a great way to get rewarded for purchases you already have to make. But they can have much higher interest rates than traditional methods of financing, and their limits typically won’t reach high enough for some larger purchases.
Business grants
Business grants are another way to get funding for your business, and you don’t have to repay them. If you’re able to get free funding from a grant, you could save thousands on interest while building your business and keeping all cash flow free. Grants can be competitive and less flexible than loans when it comes to funding amounts and approval times.
Friends and family loans
Friends and family loans are a method of finance that involves repayment, sometimes with interest, but they can be more flexible and easier to get than traditional loans. If you have friends or family who believe in your business, it can be worth asking them for a loan. Make sure they are people you trust and are willing to do business with, and it’s a good idea to draw up some sort of written agreement to avoid potential personal disputes in the future.
Equity financing
Equity financing is a method of funding your business that involves trading ownership in your company for a lump sum of cash. It can include equity crowdfunding, venture capital and angel investors. While it can be a great way to avoid interest and repayment, if you trade too much ownership, you could end up losing control of your company.
Bottom line
Small business loans allow businesses to get the funds needed for expansion, working capital, equipment purchases, inventory management and more. The process to apply and qualification requirements can vary slightly depending on the type of lender and type of loan product you choose.
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