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How To Get A Small-Business Loan

Victoria Araj5-minute read
UPDATED: June 01, 2024


Whether you’re an aspiring entrepreneur or you have a few years under your belt, there may come a time when you find that your small business is in need of financial assistance. This money may be required to assist you in developing a new business or scaling your existing business to meet the demands of growth.

One way to obtain the financing your business needs is through a small-business loan. These loans are available for qualifying businesses that would benefit from the financial assistance.

Let’s take a closer look at the concept of a small-business loan, how to apply for one, and the requirements you’ll need to meet during the application process.

What Is A Small-Business Loan?

A small-business loan is a type of financing that allows new entrepreneurs or small-business owners to secure the capital they need to start a new business or grow their existing business. This loan can help cover expenses such as startup costs, real estate investments or business expansions.

How To Apply For A Small-Business Loan

Getting approved for a small-business loan might seem overwhelming, but it doesn’t need to be. Below, you’ll find the steps to take when applying for a small-business loan so you can easily navigate the process.

1. Choose What Type Of Small-Business Loan You Need

When it comes time to choose the right loan for your business, you have a few options.

  • Small Business Association (SBA) 7(a) loans: Guaranteed by the U.S. Small Business Administration (SBA), these loans are for qualifying businesses that need financing. SBA loans typically have higher borrowing limits than other types of small-business loans, as businesses can borrow upward of $5.5 million. To obtain an SBA loan, you’ll need to find a participating lender.
  • Business term loans: Business term loans are unsecured traditional loans. A business will receive the financing as a lump sum and later repay that sum in set monthly payments.
  • Working capital loans: Working capital loans are a business line of credit allowing you to borrow funds to help cover important expenses. These could include items such as payroll and emergency costs. Working capital loans are available through banks to which you pay interest only on the money you use, not the total amount you borrow.
  • Business microloans: Much like their name implies, business microloans are smaller loans typically ranging from $5,000 to $50,000. Although banks prefer not to lend this small of an amount, you can partner with nonprofit organizations and government agencies to acquire a business microloan.
  • Start-up financing: To qualify for a traditional small-business loan, you must be in business a year or longer and have sufficient cash flow. Because of this requirement, businesses in their first year may need to find other sources of financing, which could include business credit cards or a small-business personal loan.

2. Understand What Is Required For A Small-Business Loan

Before you can begin the application process, you’ll need to make sure that you and your business are eligible for a loan. The requirements for a small-business loan include:

  • Credit score: Lenders use your credit score to assess the risk of lending to you. Lenders prefer to lend to borrowers with a credit score in the 600s or higher. Bad credit leads to higher interest rates and more debt.
  • Time in business: Lenders are also looking for stability in a business, and businesses that have been around longer tend to prove more stable than startups.
  • Cash flow: Most lenders will have a minimum annual revenue requirement. This can range from $50,000 to $250,000 and will depend on your cash-flow projections. During this process, the lender will also evaluate your debt-to-equity ratio and working capital to assess your financial situation and the risk of lending to you.
  • Collateral: Many small-business loan options are secured. To qualify for one, you’ll need to put some form of business collateral down. This could include items such as equipment, buildings or accounts receivable. Putting collateral down on a secured loan can also help you get a lower interest rate and higher loan amount.

3. Decide How Much Money You Need

Next, you’ll need to decide how much money you need to borrow and what you can afford in monthly payments. Start by evaluating your financials and calculating what payments can fit into your budget. If you borrow too much, you could risk defaulting on the loan and losing your collateral. However, not borrowing enough could leave you struggling to continue to operate your business.

Carefully evaluate your current costs, the costs you’ll be taking on in the future, and how you can leverage the loan to best serve your business goals and needs.

4. Compare Lenders

The next step is choosing a lender. You’ll want to compare offers from each lender before deciding which one is right for you. Whether you apply for a loan through a traditional lender or an online lender, be sure you’re getting the best interest rate and conditions possible.

While each lender will have requirements you’ll need to account for, it’s also important to consider which lender offers you the loan that will best serve the needs of your business. Finding an attractive interest rate can save you money in the long run, and you can then allocate these savings for other business needs.

Once you’ve researched each lender’s loan offerings for your business, you can make an informed decision about the best one for you.

5. Apply For Your Loan

Once you’ve chosen a lender, you can start the application process. Keep in mind that small-business lenders typically view applications for individuals and businesses similarly. Because of this, using your personal financial statements for your loan application can temporarily impact your credit score.

The first step in the application process should be to gather all the information that the lender will require. This will likely include:

  • Personal and business tax returns
  • Personal and business bank statements
  • Business financial statements
  • Business legal documents
  • A business plan

Once you’re approved for the loan, you can begin allocating your funds to your business needs.

Getting a personal loan has never been easier.

The Rocket LoansSM application process makes borrowing simple.

FAQs About How To Get A Small-Business Loan

Below are the answers to a few of the questions that business owners most often have when applying for a small-business loan.

How hard is it to get a small-business loan?

Qualifying for a small-business loan can be difficult if you don’t have a strong enough individual credit score and sufficient cash flow from your business. If you don’t meet these requirements, you may not obtain the financing you need through a traditional SBA loan and may want to consider alternative financing options.

What is the maximum for a small-business loan?

The maximum loan amount for an SBA loan is $5.5 million. The total SBA guarantee for an individual borrower can’t exceed $3.75 million.

Can you apply for a small-business loan twice?

There’s not a limit on how many times you can apply for a small-business loan. Although one loan may not be enough to cover the financing needs of your business, it’s important to consider whether you can afford to take on multiple small-business loans at once.

Final Thoughts

When you’re starting a business or scaling an existing one, a small-business loan can be a wonderful way to secure the financing you need. With the right option, you can allocate your newly acquired resources toward growing your business into a successful operation.

However, if a traditional SBA loan isn’t the right option for you and your business, consider applying for a small-business personal loan instead. If you do go this latter route, please note that individual borrowers are personally liable for the debt, and loans are not related to or guaranteed by the Small Business Administration.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.