How to Get a Small Business Loan

How to Get a Small Business Loan

Advertiser & Editorial Disclosure

You have a vision, a plan, and the motivation to start your own business or take your current one to the next level. Everything is ready to go, all you need is money. For many entrepreneurs, getting a small business loan is the key to fulfilling short and long term goals.

So how do you get a small business loan? Is it difficult? Do you need to meet certain requirements? If you’ve asked these same questions, then you’re in luck; that’s exactly what we are going to discuss.

Jump to:

Qualifying for a small business loan

Devising a business plan

Knowing your credit history and scores

Where to get a small business loan

How to get small business loans with bad credit

How do you qualify for a small business loan?

One of the first steps in understanding how to get a small business loan is getting a general idea of what you qualify for. Qualifying for a small business loan will depend on the lender you want to work with. A bank loan, for example, generally requires a business to have been in operation for at least two years. If you see that a lender you are considering has a strict standard that you don’t meet, now may not be the best time to have them on your target list. Applying to options you know you won’t qualify for can dominate your time and damage your credit scores. Here are 5 general steps to qualifying, which we’ll go into more detail about below.

  1. Identify lenders that you want to work with and their requirements to qualify
  2. Have a business plan in place.
  3. Know your credit scores and what’s in your report.
  4. Know your business credit scores.
  5. If you need it, identify collateral sources.

Have a solid business plan in place

One of the best ways to get all your financial ducks in a row is to devise a solid, well-thought-out business plan. This will show any potential lenders that you’ve done the research and completed your homework.

Here are a few general things you should keep in mind:

  • What kind of business are you starting or running and what are your goals? Before requesting a loan, you’ll need an elevator pitch to give to a potential small business loan lender. What is your product and who does it serve? What are your short and long term goals in terms of revenue, and what strategies will you use to hit the mark?
  • How will you use the funds? When it comes to requesting a small business loan, you’ll need to know how you’re going to use the money. Working capital, equipment, purchasing a new location, long term development—your reason will drive the type of loan that makes the most sense for your business.
  • How much money do you need?  If you’re remodeling your storefront, for example, get an estimate from a contractor before you head to the bank. Though your number may not be exact, you should be honest and realistic with your estimates. Overestimating could cause lenders to shy away; underestimating could leave you in a cash flow emergency before you’ve realized any revenue from your loan funds.

Know your credit history and credit scores

While it may seem redundant and overstated, it’s absolutely essential to know your credit scores. It’s no secret that the best business loans require a great credit history. Many banks, for example, require credit scores in the 700s and above. The SBA’s most popular loan program, the 7(a) loan program, often require businesses to have solid business credit scores. Knowing where your personal and business credit scores stand can help you evaluate potential lending opportunities and get to where you need to be to qualify for the best options.

There are over 150+ places to get your personal credit scores for free, and you can get both your personal and business scores for free with Nav.

Deciding where to get a small business loan

Determining where to get a small business loan can depend entirely upon your needs, your business’s credentials, and your credit history. For owners looking for small business loans, the following options should be considered:

Bank Loans

Best for: established businesses with excellent credit who have a good relationship with their bank.

When it comes to loans, most people immediately think of bank loans for businesses. Banks often offer the best rates, however they have strict requirements, usually require collateral, and can be extremely slow. You may not get your funding for months. With those two factors in mind, if you have a good working relationship with your bank, a community bank or credit union, it’s in your best interest to start there.

SBA Loans

Best for: established businesses or startups with excellent credit.

The Small Business Administration offers government guaranteed loans through various lenders, like community banks or through some online providers like SmartBiz. SBA loan rates rival bank rates but require excellent credit, tend to be document intensive and the approval process may take awhile.

SBA Loan by SmartBiz

SmartBiz combines the benefits of a traditional SBA loan without the long and tedious application Learn More

Business Credit Cards

Best for: funds you can pay back in 12-15 months.

If your business doesn’t crack the high standards of a bank or the SBA, but your financial needs easily fall into your approved credit limits, then a business credit card can act as a means to get fast funds. If you plan to carry a balance, consider a credit card with a 0% APR promotional financing offer that will allow you to carry a balance for up to 15 months without paying interest.

The Blue Business® Plus Credit Card from American Express
American Express is a Nav Partner
Terms, Rates & Fees

The Blue Business® Plus Credit Card from American Express

Get rewarded for business as usual. Earn 2X Membership Rewards® points on everyday business purchases Learn More

Alternative Loans

Best for: businesses with solid plans for growth

Loan alternatives such as peer-to-peer lending, merchant advance loans, or microloans from non-profit organizations can get you the money you need. However, these options can be pricey. Be sure to thoroughly read through your term sheet and evaluate the true cost of the business financing option before accepting an offer.

Personal Sources

Of course, loans from your personal savings or from friends and family can also help you reach your business goals. However, we all know the adage about mixing business and family; for that reason, it’s always advised to tread lightly in this area and only do what you and the lender feel completely comfortable with.

How to get a small business loan with bad credit

Opening or maintaining a business isn’t easy, specifically if you have bad credit. Though certainly not unheard of, bad credit loans can be challenging to obtain, and usually come at a higher cost.

Fortunately, there are options. While your credit score is important, the SBA cites these factors as ones that can help you get a small business loan even with bad credit:

  • Bank Deposits: Your history of revenue as seen through your banking history (i.e. deposits) can be used to help secure the funds you need. Typically, a lender will approve a small business loan for 10% of your annual gross.
  • Credit Card Sales: In this situation, a bank will review your credit card sales and extend a loan with the expectation that they will receive a certain percentage of your monthly credit card sales. Always make sure you can maintain the monthly deduction before you commit.
  • Credit Partner: Some types of loans require you to partner with a business that will effectively co-sign for your loan. This does carry risk for the partner; however, as long as you don’t default on the loan, their credit history will stay clean.

Businesses with bad credit can consider alternative financing options such as crowdfunding. Kiva Zip, for example, allows business to crowdfund a microloan from the community at 0% interest. This option allows business owners to kill two birds with one stone — validate their product in the market while raising funds.

Financial Health—signup free

Pro Tip: Take charge of your financial health today with a FREE Nav account. We'll protect and monitor your personal and business credit, so when it comes time to find financing you're prepared on all fronts.

This article was updated on February 7th, 2018.

Rate This Article

This article currently has 13 ratings with an average of 4.5 stars.

Have at it! We'd love to hear from you and encourage a lively discussion among our users. Please help us keep our site clean and protect yourself. Refrain from posting overtly promotional content, and avoid disclosing personal information such as bank account or phone numbers.

Reviews Disclosure: The responses below are not provided or commissioned by the credit card, financing and service companies that appear on this site. Responses have not been reviewed, approved or otherwise endorsed by the credit card, financing and service companies and it is not their responsibility to ensure all posts and/or questions are answered.

Leave a Reply

Your email address will not be published. Required fields are marked *

2 responses to “How to Get a Small Business Loan

  1. I like how you mentioned that going to a bank is one of the best ways to be able to get a small business loan since they’re the ones who offer the best rates–at the cost of having a lot of requirements and the slow turnaround time along with getting some form of collateral to keep paying. The good side of this though is that if you have a good working relationship with your bank–or a credit union–it’s best to start getting the funds from there even if it will take some time. While I don’t have experience with taking out loans, what I can say is that it’s important to establish good ties with a credit union so that if and when the time comes for you to get a loan to start a small business, the good standing you have with the union would help increase the chances of getting the loan quicker.

  2. That’s good that bank loans generally have the best rates even while having strict requirements. I’d imagine that it would be important when starting a small business to have a lot of capital that you can use for whatever you need. So you’d want to find a small business lender who would give you good rates.