Small business loans from banks are often considered the gold standard, with attractive rates and terms. But many business owners find it difficult to get the financing they need from banks. And bank loans aren’t known as a very fast funding option.

When the bank says no, what do business owners do? Here we’ll explain how to get financing quickly and easily from online lenders.

What Do Banks Consider When Giving Business Loans?

Each bank will set its own credit policy, but in most cases they will look at the following factors when evaluating business loan applications:

Financials

Banks need to take reasonable risks and making sure the business has the cash flow to repay their loan is one way they do that. The will look at the income the business brings in. They may evaluate business financials in a number of ways, but ultimately they want to make sure the business makes enough to repay the loan. They may look at: 

• Average monthly revenue
• Annual revenue
• Cash flow  
• Debt service coverage ratio 
• Debt-to-income ratio 
• Financial statements, 
• Business bank statements and/or 
• Business tax returns 

Is revenue increasing or decreasing? Revenue that’s declining can be a red flag that the business is heading for trouble. 

Does revenue come from a small number of sources? A business that relies on just a few clients, for example, will generally be considered risky. Similarly, if a single client is a main source of revenue, that’s also considered risky. 

Tip: Ask whether the bank has minimum revenue requirements, and be prepared to share supporting documents to prove income and financial information. 

Credit

Many banks check personal credit. Banks may check personal credit reports and/or personal credit scores for any owners. In the case of SBA loans, which are often made by banks and other traditional financial institutions, owners of 20% or more of the business will be subjected to a personal credit check. 

Some banks also review business credit reports and/or business credit scores. Whether you have a new or existing business, you’ll want to make sure you check your business credit, and if necessary, establish business credit to help increase your options. 

Tip: Check your business credit and personal credit before you apply. If your company has multiple owners, discuss personal credit before you apply. Learn how to establish business credit here.

Time in Business

Banks generally prefer to lend to established businesses, and may require at least 1—3 years in business. Unfortunately, startups are more risky and some banks aren’t willing to lend to new businesses. 

Tip: If your business is new, ask the bank if it has a time in business requirement, and whether it has made any loans in the past year to new businesses.

Industry/Experience

Banks may prefer to lend to certain types of businesses, and may avoid others. Your business will often be identified by an industry code—SIC code and NAICS code—so make sure you provide an accurate industry code if asked. Sometimes banks will lend to businesses in your industry but reject your loan simply because of the amount of outstanding loans to businesses in that industry. 

To get a bank loan as a startup will likely require a business plan with financial projections. The lender may require collateral (including personal collateral like home equity) and/or a personal guarantee. 

Tip: Ask the bank if they have a list of restricted industries available. But don’t assume that they will lend to your industry just because yours is not on the list. 

What Is the Rejection Rate for Business Loans?

According to the Federal Reserve’s 2023 Small Business Credit Survey (employer firms), nearly half (47%) of business owners were fully approved for financing (loans, lines of credit, and cash advances). That’s down from 62% of applicants who were fully approved for financing in 2019. 

Here’s data from the Federal Reserve on the overall rejection rate for loans, lines of credit and merchant cash advances: 

Years in business	Employees	% Rejected
0-2	No	46%
3+	No	35%
0-2	Yes	34%
3+	Yes	17%

But even if your loan application isn’t rejected, you may find it hard to get the full amount of funding you need. Additional Federal Reserve data sheds insights into which types of businesses that received the full amount of funding they sought: 

Years in business	Employees	% That Received Full Funding Requested
0-2	No	29% applied for financing. 31% were fully approved
3+	No	27% applied for financing. 38% were fully approved
0-2	Yes	46% applied for financing. 37% were fully approved
3+	Yes	39% applied for financing. 57% were fully approved

Why Would a Bank Deny a Business Loan?

According to the most recent Federal Reserve Small Business Lending Survey, the main reason banks reported for rejecting loans was “borrower financials (67 percent). Other commonly cited reasons were credit history and collateral.”

Reasons cited for rejection	Most common reason	Second most common reason	Third most common reason
Financials	66.9%	19.2%	10.8
Collateral	4.6%	36.2	31.5
Credit history	17.17%	26.9	20
Owner equity	6.2%	7.7	13.1
Management experience	.8%	1.5	7.7
Concerns about business plan	.8%	.8%	5.4
Reduced risk tolerance by bank management	2.3%	3.1	5.4
Industry Experience	.8%	2.3	3.1

There may be many reasons why a business may not qualify for a small business bank loan. And, as you can see from the chart above, there may be more than one reason for a denied loan application. 

And some reasons may be related to others. For example, a business with poor credit may need excellent financials and collateral to qualify. (Or either factor may disqualify the applicant.) 

Here are some more insights into these reasons for denial. 

Creditworthiness is often an important factor when it comes to qualifying for bank loans. Banks often require good or excellent personal credit scores, which may mean FICO or VantageScore credit scores of 680—720 or more. It’s generally difficult for entrepreneurs who have bad credit to qualify for a bank loan. 

Loans guaranteed by the US Small Business Administration require an acceptable credit history, but banks have leeway in terms of setting a minimum credit score. It’s typical for banks that make SBA loans to require credit scores of 680—700 or more. 

When banks check business credit they may reject applications due to late payments, judgments or tax liens.

Too many UCC filings can also result in a loan rejection because it can affect whether the bank has enough collateral to support the business. (UCC filings are public record filings that lenders file when they have an interest in the business assets.)

Banks may require borrowers meet minimum annual revenue requirements, and businesses that can’t meet those requirements may be rejected.

What Information Do Banks Require When Applying for a Business Loan?

Every lender has different eligibility requirements, but generally these are the types of information banks may request for a business loan:

Borrower information: Name, address and phone number of the borrower, identification (driver’s license or passport), date of birth, Social Security number. (Lenders are required by law to verify borrowers’ identities.) 

Business information: Name, address and phone number of the business, as well as the Employer identification number (EIN). Copy of articles of organization or incorporation, franchise agreement, business license and permits (as applicable). A copy of the business lease may be required. 

Financial documents. Business bank statements, business and/or personal tax returns (or permission to get them from the IRS), financial statements, schedule of business assets and/or schedule of business debts. A business plan may be required. 

What Can I Do if My Bank Refuses To Approve My Business Loan Application?

Your first step when you are turned down for a loan is to understand why the bank denied your application. Lenders aren’t always required to provide detailed information in the rejection notice they send small business loan applicants. You may need to ask for more information to understand why your application wasn’t approved.  

Read: What Small Business Lenders Have to Tell You When You Apply for Credit

Follow up. That information may provide you with insights that may be helpful if you apply elsewhere. 

Find out whether it makes sense to reapply. For example, will you qualify if you offer more collateral or lower the loan amount requested?  

You can also look for financing that is a better fit for your qualifications. For example: 

• If your credit isn’t strong, you will need a loan that is based on revenue. Examples include business cash advances or invoice factoring. 
• If your revenues aren’t strong, but you have good credit, you may want to look at a loan with a personal guarantee, or even a small business credit card. 
• If you don’t have strong credit or revenues, you may need to look at options like crowdfunding or microloans. 
• If you can’t get the full loan amount you need, consider alternative lenders to fill the gaps.

What Are the Types of Business Loans?

There are a number of different types of small business loans and financing options. Choosing the best business financing involves finding the right loan option, as well as the right lender.

Here are the main types of loans and financing available to small business owners: 

Lines of Credit

A business line of credit gives a business access to credit to meet future business needs. Once approved, the borrower can borrow up to their credit limit as needed. It’s helpful to have on hand for working capital needs as they come up. 

Term Loans

Term loans are helpful for specific financing needs. Term loans may be short-term loans (2—5 years, for example) or long-term loans (5—25 years). 

Business Credit Cards

Business credit cards are more than just a convenient way to pay for purchases. Most also offer access to a line of credit. Startups may also qualify, provided the owner has good credit. Most small business credit cards can also help build business credit. 

Equipment Financing or Leasing

If you’ll use equipment in your business, equipment financing or leasing may help you  preserve cash flow. 

Commercial Real Estate Loans

Commercial real estate loans can help your business acquire or renovate commercial property. Loan payments are often stretched out over many years, though some loans are shorter with balloon payments due later. 

Crowdfunding 

Top types of crowdfunding for small business include loan-based crowdfunding, rewards-based crowdfunding and investment-based crowdfunding. Good credit is rarely required and startups may qualify. 

Business Cash Advance

If your business has strong sales, a business cash advance or merchant cash advance may be an option. Good credit is not always required. Instead, the company offering financing evaluates past sales and advances funds against future sales. Weekly daily payments are common.

Invoice Factoring or Financing

Businesses that invoice other businesses (B2B) may use invoice factoring or financing to speed up funding. With invoice financing, outstanding invoices are used to underwrite financing. With factoring, you sell or assign your invoices to another company at a discounted rate in exchange for immediate funds. That company then collects the invoiced amount.

SBA Loans

The U.S. Small Business Administration offers several types of loans through its SBA loan program, including 7(a) loans, SBA Microloans, Export loans and more.  Interest rates are competitive and these loans offer good repayment terms. Only Disaster Loans are made directly by the SBA. Other SBA loans are made by lenders approved by the SBA.

How Can I Get an Online Business Loan?

For many business owners, traditional bank loans are out of reach. For others, the long application process won’t work because they need money more quickly, or they have poor credit and need to find a more flexible lender. And some borrowers just want to compare all their options to find the best fit.

Online lenders may be a good fit for small business owners who need business financing quickly so they can get back to running their business. Getting a business loan online can take a few hours or just a few days. You’ll typically apply online, supply documentation requested by the company offering financing. You may need to link your business bank account and/or give the company permission to access your business tax returns, much like you do when you apply for a mortgage. 

Nav can help. Connect your data to find lending options based on your qualifications.