The Basic Path to Getting a Small Business Loan

A small business loan comes from a bank, credit union, or online lender, and you repay it over time with interest. The lender wants to know three things before they say yes: whether your business can generate enough money to repay them, whether you have personal savings or assets to put at risk, and whether you have a realistic plan for how you'll use the money.

The process typically takes four to eight weeks from process to funding. You'll need to gather documents about your business finances, personal credit history, and what you plan to do with the money. The lender will review all of this, may ask follow-up questions, and then either approve you, deny you, or ask you to reapply with changes.

The most common sources are traditional banks (which move slowly but have low rates), credit unions (which may offer better terms to members), SBA-backed loans (which have government backing that makes lenders more willing to say yes), and online lenders (which move faster but often charge more). Your choice depends on your credit score, how much you need, and how quickly you need it.

Key Takeaways

  • Lenders want to see your business plan, personal tax returns for the past two years, and a detailed breakdown of how you'll use the money.
  • Your personal credit score and business credit history both matter — lenders use both to decide whether to lend to you.
  • SBA loans have government backing, which means lenders take on less risk and may approve you even if your credit is not perfect.
  • You will need to put some of your own money into the business (called a down payment or equity injection) — most lenders want to see you have skin in the game.
  • The interest rate you get depends on the type of loan, the lender, your credit, and how long you take to repay — shop around before you commit.

What Documents You Need to Gather

Before you contact a lender, collect your personal tax returns for the past two years. If your business has been operating for more than two years, gather your business tax returns for the same period. If you're starting a new business, you won't have business returns yet, but you'll still need your personal returns to show the lender your income history.

You'll also need a business plan that explains what your business does, who your customers are, and how you'll use the loan money. This doesn't have to be a 50-page document — lenders often want a one- to three-page summary that shows you've thought through the basics. Include how much money you're putting in yourself, what you'll spend the loan on (equipment, inventory, payroll, real estate), and how you expect the business to make money.

Bring your personal identification, proof of your business address (a lease or utility bill), and a list of your business assets and debts. If you have a business bank account, bring the last three months of statements. If you're using personal accounts for business, bring those statements too. The lender wants to see where money is coming from and going.

How Your Credit Score Affects Your Chances

Your personal credit score is one of the first things a lender checks. Most traditional banks want a score of 680 or higher, though some will go lower. Credit unions and SBA lenders are often more flexible — they may work with scores in the 620 to 650 range. Online lenders vary widely; some focus on newer businesses and lower scores, while others are stricter than banks.

If your score is below 620, you have options. An SBA loan is often your best bet because the government backing reduces the lender's risk. You can also ask a family member or business partner with better credit to co-sign the loan, meaning they promise to repay it if you don't. Another route is to wait three to six months, pay down existing debts, and try again once your score improves.

Beyond your score, lenders look at your credit history itself. They want to see that you pay bills on time and don't carry too much debt. If you have late payments or collections on your report, be ready to explain what happened. A lender is more likely to approve you if the problem was temporary (a medical emergency, a job loss you've recovered from) rather than a pattern.

Understanding SBA Loans and When to Choose One

An SBA loan is a loan from a bank or lender that the Small Business Administration backs with a government may provide. This means if you stop paying, the government reimburses the lender for most of the loss. Because the lender's risk is lower, they're willing to approve loans they might otherwise turn down.

The most common SBA loan is the 7(a) loan, which can be used for almost any business purpose — buying equipment, paying for inventory, covering payroll, or refinancing existing debt. You can borrow up to $5 million, though most loans are smaller. The repayment term is usually five to ten years for equipment and up to 25 years for real estate.

SBA loans typically have lower interest rates than other options because the government is backing them. However, you'll pay an upfront fee (called a may provide fee) that gets added to the loan amount — usually between 2 and 3 percent. You'll also need to put down at least 10 to 20 percent of the money yourself, depending on what you're buying. The process process takes longer than a traditional bank loan, often six to eight weeks, because the SBA has to review and approve it.

What Happens During the process and Review

When you submit your process, the lender will do a preliminary review to make sure you've included everything. If something is missing, they'll ask for it. Once the process is complete, they'll pull your credit report and may order a business credit report if you have one.

Next, a loan officer will review your documents and may call you with questions. They might ask why you left a job, what happened with a late payment, or how you calculated your revenue projections. Answer honestly and directly. If your numbers don't add up or your story doesn't match your documents, the lender will notice.

For SBA loans, the lender sends everything to the SBA for approval. This step adds two to four weeks. For traditional bank loans, the bank makes the decision on its own. Either way, you'll get a decision: approved, denied, or conditional approval (approved if you make certain changes, like putting down more money or finding a co-signer).

How Much You Can Borrow and What It Costs

How much you can borrow depends on the lender and the type of loan. Traditional banks often lend between $25,000 and $500,000 for small businesses, though some will go higher. SBA 7(a) loans go up to $5 million. Online lenders typically offer smaller amounts, often $5,000 to $250,000.

The interest rate varies based on the lender, the loan type, your credit score, and how long you take to repay. SBA loans currently have rates ranging from around 8 percent to 13 percent, depending on the lender and the prime rate. Traditional bank loans may be lower if you have excellent credit. Online lenders often charge 10 to 30 percent or higher.

Beyond interest, you'll pay fees. SBA loans include a may provide fee and a servicing fee. Bank loans may include an origination fee or process fee. Online lenders often bundle fees into the interest rate. Always ask the lender for the total cost of the loan, not just the interest rate — this is called the Annual Percentage Rate, or APR, and it includes all fees.

What to Do If You're Denied

If a lender denies you, ask why. They're required to tell you. Common reasons include a credit score that's too low, not enough time in business, insufficient collateral, or a business plan that doesn't look profitable. Understanding the reason tells you what to fix.

If it's a credit issue, you can wait a few months, pay down debt, and reapply. If it's a business plan issue, you can revise your plan and try a different lender. If it's a collateral issue, you can offer more assets as security or find a co-signer. If the lender says your business is too new, try again after you've been operating for a few more months.

You can also try a different type of lender. If a bank turned you down, try an SBA lender or a credit union. If traditional lenders won't work, an online lender might, though you'll pay more. Some business owners also explore microloans (small loans under $50,000 from nonprofit lenders) or lines of credit instead of term loans.

Frequently Asked Questions

How long does it take to get the money after approval?

After approval, funding usually takes one to two weeks. The lender prepares the loan documents, you sign them, and the money goes into your business account. For SBA loans, the timeline is similar once the SBA approves it. Online lenders sometimes fund within days.

Do I have to put my personal assets at risk?

Most lenders require you to put down some of your own money (usually 10 to 20 percent) to show you're committed. Some also ask for a personal may provide, meaning you're personally responsible for repaying the loan if the business can't. This puts your personal assets at risk if the business fails. Ask the lender upfront whether a personal may provide is required.

What if my business is brand new?

Most traditional banks want to see at least two years of business history. SBA loans are more flexible — some lenders will work with businesses that have been operating for six months to a year. Online lenders often have no minimum. You'll need a strong business plan and personal credit to make up for the lack of business history.

Can I use a business loan to pay myself a salary?

It depends on the lender and the loan type. Some lenders allow you to use loan money for payroll, including your own salary, as long as it's reasonable and you've documented it in your business plan. Others restrict loan money to specific uses like equipment or inventory. Ask the lender what the money can be used for before you explore.

What's the difference between a term loan and a line of credit?

A term loan is a lump sum you borrow all at once and repay over a set period. 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've borrowed. Lines of credit are useful for managing cash flow; term loans are better for one-time purchases like equipment.