The basic path to getting a small business loan
Getting a small business loan involves three main steps: choosing the type of loan that fits your business, gathering the documents the lender will ask for, and submitting your process. Most small business loans come from the Small Business Administration (SBA), traditional banks, credit unions, or online lenders — each has different speed, cost, and document requirements.
The SBA does not lend money directly. Instead, it guarantees loans made by banks and other lenders, which means the lender takes less risk and can offer better terms. An SBA loan typically takes 30 to 90 days from process to funding, while a bank loan may take 60 days or longer. Online lenders move faster — sometimes one to two weeks — but charge higher interest rates.
Before you explore anywhere, you need to know your credit score, how much money you actually need, what you will use it for, and how much of your own money you can put in. Lenders almost always want to see that you have some skin in the game.
Key Takeaways
- SBA loans are may provide by the federal government but issued by banks and credit unions, so you explore to the lender, not to the SBA itself.
- You will need your personal credit report, business tax returns (usually two years), a business plan, and proof of how much money you are putting in.
- The most common SBA loan for small businesses is the 7(a) loan, which can be used for equipment, inventory, working capital, or buying an existing business.
- Your personal credit score matters even for business loans — most lenders want to see 680 or higher, though requirements vary by lender and loan type.
- The process process is the same whether you explore to a bank, credit union, or online lender: you submit documents, the lender reviews them, and they approve or deny within weeks.
What documents you need before you explore
Lenders ask for the same core set of documents no matter which type of loan you are seeking. Start gathering these before you contact any lender, because having them ready speeds up the process and shows you are serious.
Personal documents: Your Social Security number, driver's license or passport, and personal credit report. You can get your credit report free once a year from annualcreditreport.com. Lenders will pull their own copy, but seeing yours first tells you if there are errors to dispute.
Business documents: Your business license, articles of incorporation or formation (if you are an LLC or corporation), and an Employer Identification Number (EIN) from the IRS. If your business is brand new, you may not have tax returns yet — some lenders will work with you on a startup basis, but most want to see at least one year of business tax returns, and many want two.
Financial documents: Your business tax returns for the last two years, personal tax returns for the last two years, a current business balance sheet (what you own minus what you owe), and a profit-and-loss statement for the current year. If you are self-employed or own a pass-through business, your personal and business returns are closely linked, so bring both.
Use-of-funds statement: A straightforward explanation of what you will do with the money — buy equipment, hire staff, pay off existing debt, expand inventory. The more specific, the better. "Working capital" is vague; "hire two full-time technicians and buy a delivery van" is clear.
Choosing between SBA loans and other lenders
An SBA 7(a) loan is the most common option for small businesses. It can go up to $5 million, has a fixed interest rate, and the SBA guarantees 75 to 90 percent of the loan, so the bank's risk is lower and your rate is usually better than you would get on an unsecured loan. The catch: the process takes longer (30 to 90 days) and the paperwork is heavier.
A traditional bank loan does not have SBA backing, so the bank takes all the risk. Banks usually want to see two to three years of strong financials and may require collateral — equipment, real estate, or inventory the bank can seize if you do not pay. Interest rates are competitive if your credit is good, but approval takes time.
Credit unions often have lower rates than banks and are more willing to work with newer businesses, but you have to be a member. Some credit unions have SBA lending programs; others do not.
Online lenders approve fast — sometimes in days — but charge much higher interest rates, often 10 to 30 percent or more. They are useful if you need money urgently and have been turned down elsewhere, but they are expensive.
| Loan Type | Time to Funding | Interest Rate Range | Collateral Required |
|---|---|---|---|
| SBA 7(a) | 30–90 days | Prime + 2.25–2.75% | Usually yes |
| Bank loan | 60–90 days | Prime + 1–3% | Usually yes |
| Credit union loan | 30–60 days | Prime + 1–2.5% | Varies |
| Online lender | 1–14 days | 10–30%+ | Usually no |
How to find lenders and submit your process
For SBA loans, start with banks in your area that have an SBA lending program. The SBA website has a lender search tool at sba.gov where you can enter your state and see which banks and credit unions near you make SBA loans. Call three to five and ask about their SBA 7(a) process, typical approval timeline, and what documents they need upfront.
For non-SBA bank loans, contact your current bank first — they already know your account history. If they turn you down, try other banks or credit unions in your area. Ask about their small business lending programs and whether they have a relationship manager who can walk you through the process.
For online lenders, use the SBA's list of non-bank lenders or search for "small business loans online." Read reviews on independent sites, not just the lender's website. Check the Better Business Bureau and look for complaints about hidden fees or bait-and-switch interest rates.
Once you have chosen a lender, you will submit your process — either online, by email, or in person. The lender will give you a checklist of documents they need. Submit everything at once rather than trickling documents in; this speeds up the review.
What happens after you submit your process
After you submit, the lender will assign a loan officer to your file. They will review your documents, order a credit report, and may ask for clarification on anything that does not add up — for example, if your tax returns show a loss but you say the business is profitable, they will want to understand why.
If the lender needs more information, they will contact you by phone or email. Respond quickly; delays on your end slow down the whole timeline. Some lenders will ask you to sign a personal may provide, which means you are personally responsible for the loan if the business cannot pay.
Once the lender has everything, they will either approve, deny, or approve with conditions. An approval with conditions might mean you have to put more of your own money in, provide additional collateral, or reduce the loan amount. You can negotiate these terms.
If approved, you will sign loan documents and the lender will fund the account — usually within a few days. For SBA loans, the SBA has to sign off before funding, which adds a week or two to the timeline.
Common reasons loans get denied
The most common reason for denial is insufficient personal credit. Most lenders want a credit score of 680 or higher. If yours is lower, work on paying down debt and disputing errors on your credit report before you explore.
The second reason is weak or inconsistent financials. If your tax returns show losses, or if your profit-and-loss statement does not match your tax returns, the lender will worry you cannot repay. Be honest about where your business stands and explain any dips.
The third reason is not enough collateral or not enough of your own money in the business. Lenders want to see that you have skin in the game — usually 20 to 30 percent of the loan amount from your own savings or assets. If you are asking to borrow 100 percent of what you need, approval is much harder.
The fourth reason is a weak business plan or unclear use of funds. If you cannot explain what you will do with the money or how it will help the business grow, the lender will not fund it. Spend time writing a clear, realistic plan.
What to do if you are turned down
A denial from one lender does not mean you cannot get a loan. Different lenders have different standards. A bank might turn you down because your credit is below 700, but a credit union might work with you at 650. An online lender will almost certainly approve you, though at a higher rate.
Ask the lender why they denied you. If it is credit-related, ask what score they need and work on improving yours before you reapply. If it is income or collateral, consider whether you can put more of your own money in or find a co-signer.
You can also look into SBA Microloan programs, which are smaller loans (up to $50,000) for businesses that do not meet traditional bank standards. These are made through nonprofit lenders and often come with business training.
Frequently Asked Questions
Do I need a business plan to get a small business loan?
Most lenders want to see a business plan, especially for SBA loans. It does not have to be 50 pages — a one-page summary of what your business does, who your customers are, and how you will use the loan money is often enough. The plan shows the lender you have thought through the business, not just that you need cash.
Can I get a small business loan with bad credit?
It depends on how bad. Most banks and the SBA want a score of 680 or higher. Online lenders will work with scores as low as 500 to 550, but charge much higher rates — sometimes 20 to 30 percent. If your score is below 650, focus on paying down debt and disputing errors before you explore to traditional lenders.
How much can I borrow?
SBA 7(a) loans go up to $5 million, but most small businesses borrow $50,000 to $500,000. Bank loans vary by lender and your financials — some will lend up to $1 million, others cap at $250,000. Online lenders typically max out at $100,000 to $500,000. The amount you can borrow depends on your revenue, credit, and how much collateral you have.
What is the difference between a term loan and a line of credit?
A term loan is a lump sum you borrow upfront and repay over a set period — typically three to ten years. A line of credit is like a credit card: you borrow what you need when you need it, up to a limit, and pay interest only on what you use. Lines of credit are useful for working capital and unexpected expenses; term loans are better for equipment or expansion.
Do I have to put my personal assets up as collateral?
Most lenders will ask for collateral — equipment, real estate, or inventory. Some will also ask for a personal may provide, which means your personal assets (house, car, savings) are at risk if the business fails. Read the loan documents carefully and ask the lender to explain what happens if you default.