Getting a business loan starts with matching the right lender type to your needs, preparing strong financial documentation, and understanding what lenders evaluate before they say yes. The process typically takes anywhere from a few days with an online lender to several weeks with a traditional bank or SBA-backed loan. Here’s how to move through each stage.
Decide What Type of Loan Fits Your Needs
Before you start filling out applications, get clear on how much you need, what you’ll use the money for, and how quickly you need it. These three factors will steer you toward the right loan product.
A term loan gives you a lump sum you repay over a set period with interest. Bank term loans currently carry APRs ranging from about 6.75% to 11%, making them one of the more affordable options. These work well for larger purchases, expansion, or refinancing existing debt.
A business line of credit works more like a credit card: you draw funds as needed up to a set limit and only pay interest on what you use. APRs range from roughly 6.65% to 28%, depending on your creditworthiness and the lender. Lines of credit are ideal for managing cash flow gaps or covering unpredictable expenses.
Equipment financing is specifically designed to purchase machinery, vehicles, or technology. Because the equipment itself serves as collateral, rates can start as low as 4% and go up to around 24%. If you’re buying a specific piece of equipment, this is usually cheaper than a general-purpose loan.
SBA 7(a) loans, backed by the U.S. Small Business Administration, offer competitive rates and longer repayment terms. You can use them for working capital, buying real estate, purchasing equipment (including AI-related expenses), refinancing business debt, or funding a change of ownership. The tradeoff is a longer application process and stricter eligibility requirements.
Choose Between Banks and Online Lenders
Where you apply matters as much as what you apply for. Traditional banks and online lenders serve different borrower profiles, and the differences in cost and experience are significant.
Small banks have the highest full-approval rate at 57%, according to the Federal Reserve’s 2025 Small Business Credit Survey. Large banks approve at somewhat lower rates but still tend to offer reasonable borrowing costs. Only about a third of borrowers at banks reported costs higher than expected.
Online lenders approve borrowers more quickly and often accept applicants with weaker credit profiles, but the price tag reflects that flexibility. APRs on online business loans range from 14% to as high as 75%. Sixty percent of borrowers who used online lenders said their actual costs were higher than expected, and these borrowers were more likely to report challenges with high interest rates and unfavorable repayment terms. If you have decent credit and can wait a bit longer, a bank or credit union will almost always save you money.
SBA loans are issued through participating banks and lenders, not the SBA directly. You apply at an SBA-approved lender, and the SBA guarantees a portion of the loan, which reduces the lender’s risk and typically results in better terms for you. To qualify, your business must meet SBA size standards for your industry, and you need to demonstrate a reasonable ability to repay.
Gather Your Documentation
Incomplete paperwork is one of the most common reasons applications stall or get denied. Pull everything together before you start the application so the process moves smoothly.
You’ll need financial records that show how your business is performing and where it’s headed:
- Personal and business tax returns from the most recent three years
- Up to one year of business bank account statements
- Income statement showing all revenue and expenses over a specific period
- Cash flow statement breaking down expenses into operating, investing, and financing activities
- Balance sheets (current and projected) showing your assets and liabilities
- Accounts receivable list detailing all sources of revenue
- Schedule of business debts listing every current obligation, including commercial real estate loans and other business loans
You’ll also need legal and organizational documents:
- Articles of incorporation or organization
- Employer Identification Number (EIN)
- Operating agreement if your business is an LLC
- Commercial lease agreement if you operate outside your home
- Business licenses and permits
- Franchise agreement if applicable
- Contracts between your company and third parties
Discrepancies between documents, like income figures that don’t match between your tax returns and financial statements, can trigger a denial even when everything else looks good. Double-check that your numbers are consistent across all documents before submitting.
What Lenders Evaluate
Understanding what drives approval decisions helps you position your application effectively. Lenders weigh several factors, and weakness in any one area can sink an otherwise strong application.
Credit score is the single most common reason loans get denied. Most banks set a minimum threshold for each loan type, and falling below it results in near-automatic rejection. Check both your personal and business credit scores before applying. If your personal score is below 680, you may want to spend a few months improving it before approaching a traditional bank.
Cash flow and income tell the lender whether your business generates enough revenue to cover loan payments on top of existing expenses. Lenders look at your debt service coverage ratio, which is simply your net operating income divided by your total debt payments. A ratio of 1.25 or higher, meaning you earn 25% more than your total debt obligations, is a common benchmark. If your ratio is thin, paying down existing debts before applying can help.
Existing debt raises concerns about your ability to handle another payment. Lenders review your full schedule of obligations. If you’re already stretched, consider paying off or consolidating smaller debts before taking on new financing.
Collateral gives the lender something to recover if you default. Real estate, equipment, inventory, and accounts receivable can all serve as collateral. Having substantial assets to pledge makes approval significantly more likely, especially for larger loan amounts.
Industry risk and experience also factor in. Some industries, like restaurants or construction, carry higher perceived risk. Your managerial experience in the industry can offset this. Lenders want to see that you know the business, not just the idea.
Strengthen Your Application Before Applying
If you’re not in a rush, a few months of preparation can meaningfully improve your terms or move you from a denial to an approval.
Start by pulling your credit reports and disputing any errors. Even a small correction can bump your score above a lender’s threshold. Pay down credit card balances to reduce your credit utilization ratio, which is one of the fastest ways to boost a credit score.
Build up your business bank account balance. Lenders review your statements to see average daily balances and cash flow patterns. Consistent deposits and a healthy cushion signal stability. If your business income is seasonal, apply during or just after your strongest months so your most recent statements look their best.
Write a clear loan proposal that explains exactly how you’ll use the funds and how that investment will generate enough return to repay the loan. This isn’t always required, but it demonstrates seriousness and financial awareness, especially at community banks where a loan officer personally reviews your file.
Submit and Follow the Process
Once your documents are ready, submit your application to one or two lenders. Applying to too many lenders simultaneously can trigger multiple credit inquiries, which may temporarily lower your score.
After submission, the lender will review your documentation, verify your financials, and may request additional information. At a traditional bank, expect this process to take two to six weeks. SBA loans often take longer because of the additional government review layer. Online lenders may fund in a few business days, but remember the cost tradeoff.
During underwriting (the lender’s review process), be responsive. If the lender asks for a clarification or an updated document, delays on your end slow everything down. Keep copies of everything you submit, and maintain a point of contact at the lending institution so you know who to follow up with.
If you’re approved, review the loan agreement carefully before signing. Pay attention to the APR (the total annual cost of borrowing, including fees), the repayment schedule, any prepayment penalties, and whether the rate is fixed or variable. A variable rate means your payments could increase if market rates rise.
What to Do If You’re Denied
A denial isn’t the end of the road. Lenders are required to tell you why they turned you down. Use that feedback to address the specific weakness, whether it’s your credit score, insufficient cash flow, or missing documentation.
If a traditional bank says no, you have options. A smaller community bank or credit union may have more flexible standards. An SBA microloan program targets smaller amounts for newer businesses. And while online lenders charge more, they can serve as a bridge while you build the profile needed for cheaper financing down the line. The key is treating a denial as diagnostic information rather than a final answer.