Where small business loans come from and how to find them
Small business loans are offered by banks, credit unions, online lenders, and the Small Business Administration (SBA). The SBA itself does not lend money — instead, it guarantees loans made by private lenders, which reduces the lender's risk and often makes the terms more favorable to you. You explore directly to the lender, not to the SBA.
Banks and credit unions are traditional sources and often have the lowest interest rates, but they typically require an established business with two or more years of tax returns and a personal credit score of 680 or higher. Online lenders move faster — sometimes funding within days — but charge higher rates and may work with newer businesses. The SBA loan program you choose (7(a), Microloan, or Express) determines which lenders can offer it, so your first step is understanding which program fits your situation, then finding a lender that offers that program.
You can search for SBA-approved lenders on the SBA website by state and loan type. Many banks and credit unions advertise their SBA lending directly on their websites. Online lenders often specialize in one SBA program or offer non-SBA small business loans alongside SBA options.
Key Takeaways
- The SBA guarantees loans made by banks, credit unions, and online lenders, but you explore to the lender, not the SBA.
- Banks and credit unions typically require two years of business history and a credit score of 680 or higher, while online lenders may fund newer businesses faster but at higher rates.
- The SBA loan program you need (7(a), Microloan, or Express) determines which lenders can serve you, so identify your program first.
- Lenders will ask for personal and business tax returns, a business plan, proof of collateral or personal may provide, and details about how you will use the money.
- Loan approval typically takes two to eight weeks depending on the lender and program, though online lenders may move faster.
What lenders ask for before they say yes
Every lender will request your personal tax returns for the past two years and your business tax returns for the same period. If your business is newer than two years old, bring what you have. You will also need to provide a business plan that describes what your business does, who your customers are, and how you will use the loan money — this does not need to be formal or lengthy, but it must show the lender how the loan will generate revenue to repay it.
Lenders require proof of collateral (equipment, inventory, real estate, or cash) that secures the loan, or they ask you to sign a personal may provide, which means you are personally responsible for repaying it if the business cannot. Many small business loans are secured by business assets or a lien on your home. You will also need to show your personal credit report, which the lender pulls directly, and your business license or articles of incorporation.
For SBA loans specifically, you must own at least 20 percent of the business (or 51 percent if you are explore as a business owner rather than a co-owner). The SBA also requires that you have invested some of your own money into the business already — this shows the lender you have skin in the game.
How much you can borrow and what it costs
Loan amounts vary by program. SBA 7(a) loans, the most common type, go up to $5 million. SBA Microloans max out at $50,000. SBA Express loans cap at $350,000. Non-SBA small business loans from banks or online lenders may have different limits — some online lenders offer as little as $5,000 to $25,000, while others go higher.
Interest rates depend on the lender, the program, your credit score, and how long you borrow for. SBA 7(a) loans typically carry rates between 8 and 13 percent, though this varies. Online lenders often charge 10 to 30 percent or higher. Banks and credit unions usually offer the lowest rates if you have strong credit and an established business. The SBA does not set the rate — the lender does, within SBA guidelines for may provide loans.
You will also pay fees. SBA 7(a) loans include a may provide fee (paid to the SBA, usually 1 to 3.75 percent of the loan amount) and may include a loan origination fee (paid to the lender, typically 1 to 2 percent). Online lenders may charge origination fees, prepayment penalties, or other fees — ask for a full fee schedule before you commit.
Loan terms typically run five to ten years for working capital or equipment, and up to 25 years for real estate. Longer terms mean lower monthly payments but more interest paid overall.
The step-by-step process from process to funding
Start by choosing a lender and the loan program that fits your needs. Contact the lender directly — by phone, online portal, or in person — and ask what documents they need. Most lenders provide a checklist. Gather your tax returns, business plan, proof of collateral, and personal identification.
Complete the lender's process form. For SBA loans, you will also fill out SBA Form 1919 (Personal Financial Statement) and possibly SBA Form 912 (Statement of Personal History), which the lender provides. Submit everything to the lender, not to the SBA.
The lender reviews your process and may ask follow-up questions about your business, your finances, or how you plan to use the money. This back-and-forth typically takes one to three weeks. Once the lender approves the loan, they send it to the SBA for review (for SBA loans), which adds another one to four weeks. After SBA approval, the lender prepares closing documents, which you sign. Funding usually happens within a few days of closing.
Total time from process to money in your account is typically two to eight weeks, though online lenders may move faster and traditional banks may take longer.
When a bank says no and what to do next
If a bank or credit union denies you, ask why. Common reasons include insufficient business history, low personal credit score, unclear use of funds, or inadequate collateral. Some of these you can fix — paying down debt, waiting six months to a year for more business history, or finding a co-signer with stronger credit.
If you cannot meet a bank's requirements, try an online lender, which often has more flexible credit and history requirements. If you need a smaller amount, an SBA Microloan program may accept you when a 7(a) loan would not. Community development financial institutions (CDFIs) also lend to small businesses that traditional lenders turn down, though rates may be higher and terms stricter.
You can also explore non-loan funding: a line of credit (which you draw from as needed), a business credit card, or a personal loan using your home as collateral. Each has different terms and costs, so compare before choosing.
Personal credit score and business credit: what matters
Your personal credit score matters because most lenders look at it, even for business loans. A score of 680 or higher opens doors to traditional banks and better rates. Below 680, you will likely face higher rates or online lenders only. Below 620, many lenders will decline you outright.
Business credit is separate from personal credit and builds over time as your business pays vendors, takes out loans, and builds a payment history. If your business is new, you may have little or no business credit yet. Lenders will rely more heavily on your personal credit and business financials in that case.
If your credit score is low, you can improve it before explore: pay down existing debt, dispute errors on your credit report, and make all payments on time for several months. Even a 20 to 30 point improvement can lower your interest rate or make you may be able to access for a better program.
Collateral, personal guarantees, and what happens if you cannot repay
Most small business loans require either collateral (business assets or real estate) or a personal may provide. Collateral is property the lender can seize and sell if you default. A personal may provide means you personally owe the debt if the business cannot pay — the lender can go after your personal assets, including your home, car, or savings.
SBA loans typically require a personal may provide from all owners with 20 percent or more stake in the business. The lender may also take a lien on business equipment, inventory, or accounts receivable. For real estate loans, the property itself is the collateral.
If you default on a small business loan, the lender will attempt to collect from you personally (if there is a personal may provide) and may seize collateral. This damages your personal credit score and can lead to wage garnishment or a lawsuit. SBA loans have a slightly longer grace period before aggressive collection begins, but default still has serious consequences.
Frequently Asked Questions
Can I get a small business loan if my business is less than a year old?
Some lenders will work with newer businesses, but most prefer at least two years of tax returns. Online lenders and SBA Microloans are more flexible. You may need a larger personal down payment, a co-signer, or collateral to offset the risk. Ask lenders directly about their minimum business age requirement.
What is the difference between an SBA loan and a regular bank loan?
An SBA loan is may provide by the federal government, which means the SBA promises to repay the lender if you default. This reduces the lender's risk, so they often offer lower rates and longer terms. A regular bank loan has no government may provide, so the bank bears all the risk and may charge higher rates or require stricter terms. Both come from banks — the difference is the may provide.
Do I have to use the loan money for what I said I would use it for?
Yes. The lender approves the loan based on how you said you would use it. Using the money for something else violates the loan agreement and can trigger default. If your plans change, contact the lender and ask for permission to redirect the funds.
How long does it take to get approved and funded?
Traditional banks typically take four to eight weeks from process to funding. Online lenders may fund within days to two weeks. SBA loans add extra time for SBA review, usually pushing the total to six to ten weeks. The exact timeline depends on how quickly you provide documents and how busy the lender is.
What if I cannot afford the monthly payment?
Contact your lender when ready — do not skip payments. Many lenders offer loan modification, forbearance, or deferment options that temporarily lower or pause payments. The SBA also has programs to help borrowers in hardship. Acting early gives you more options than waiting until you are in default.