Getting a business loan starts with understanding what lenders look for, gathering the right paperwork, and choosing a loan type that fits your needs. The process can take anywhere from a few days with an online lender to two or three months for an SBA loan. Here’s what you need to know to move from idea to funded.
What Lenders Want to See
Before you start filling out applications, it helps to know the benchmarks lenders use to evaluate your business. Your personal credit score is one of the biggest factors, especially for smaller or newer businesses that don’t have a long financial track record.
A FICO score of 750 or higher opens the widest range of options, including traditional bank loans and SBA loans. Scores in the 700 to 749 range still qualify for most of the same products. If you’re targeting an SBA loan specifically, aim for at least 680, and expect to need strong credentials in other areas like revenue and time in business. Some SBA lenders also pull your FICO SBSS (Small Business Scoring Service) score, which is a separate score ranging from 0 to 300 that blends personal and business credit data.
Beyond credit, lenders evaluate your annual revenue, how long you’ve been operating, your existing debt load, and whether you have collateral. Most traditional banks want to see at least two years in business. Online lenders are more flexible on time in business and credit scores, but they charge significantly higher interest rates to offset that risk.
Documents You’ll Need
A business loan application requires both financial and legal paperwork. Pulling everything together before you apply saves time and signals to lenders that you’re organized. Here’s what most lenders ask for:
Financial documents:
- Up to one year of business bank account statements
- Personal and business tax returns from the most recent three years
- Balance sheets showing current assets and liabilities, including projections
- An income statement covering all revenue and expenses over a specific period
- A cash flow statement breaking down expenses into operating, investing, and financing activities
- A list of current accounts receivable showing all revenue sources
- A schedule of business debts, including any existing loans or commercial real estate obligations
Legal documents:
- Articles of incorporation
- Your Employer Identification Number (EIN)
- Business licenses and permits
- Operating agreement (for LLCs)
- Commercial lease agreement, if you operate outside your home
- Contracts with third parties
- Franchise agreement, if applicable
Not every lender requires every document on this list. Online lenders tend to ask for less paperwork than banks. But having these ready means you won’t stall mid-application waiting on your accountant or business partner.
Choosing the Right Loan Type
The type of loan you apply for depends on what you need the money for, how much you need, and how quickly you need it.
SBA 7(a) Loans
The most common SBA loan, the 7(a), can be used for almost anything: working capital, real estate, equipment, supplies, furniture, or refinancing existing debt. Maximum loan amount is $5 million. Repayment terms run up to 25 years for real estate and up to 10 years for everything else. Interest rates on SBA loans currently range from about 5.61% to 14.75% APR, making them one of the most affordable options available.
SBA 504 Loans
If you need to buy or build a facility, purchase major equipment, or modernize an existing property, a 504 loan is designed specifically for that. These loans go up to $5.5 million with repayment terms of 10, 20, or 25 years. They’re structured to promote job growth, so your project typically needs to create or retain jobs in your community.
Bank Term Loans
Traditional bank loans carry interest rates of roughly 6.75% to 11% APR. They’re a solid middle ground: lower rates than online lenders, less paperwork than SBA loans. You’ll generally need good credit and an established business to qualify.
Online Lender Loans
Online lenders process applications faster and accept borrowers with lower credit scores or shorter operating histories. The trade-off is cost. Interest rates range from 14% to 75% APR. That upper end applies to short-term loans or borrowers the lender considers higher risk. If you need funding quickly and can’t qualify at a bank, this may be worth exploring, but run the numbers carefully before committing.
Business Lines of Credit
A line of credit works like a credit card for your business. You draw funds as needed and pay interest only on what you use. Current rates range from about 6.65% to 28% APR. This is a good fit for managing cash flow gaps, seasonal expenses, or unexpected costs rather than one large purchase.
Equipment Loans
If you’re buying a specific piece of equipment, an equipment loan uses that equipment as collateral. That built-in security means rates can be lower, currently around 4% to 24% APR depending on your credit and the lender.
What the Process Looks Like
The timeline varies dramatically depending on where you apply. Here’s the general sequence:
Step 1: Prepare your documents and business plan. Gathering financial statements, tax returns, and legal documents can take a few weeks on its own, especially if you need to request records from your accountant or bank. If a lender requires a business plan, write one that clearly explains how you’ll use the funds and how you’ll repay the loan.
Step 2: Apply. Submit your application along with all supporting documents. Some online lenders let you complete this in under an hour. Banks and SBA lenders typically require more detailed applications.
Step 3: Underwriting. The lender reviews your financials, credit, and business viability. This is where they verify your revenue, check your debt obligations, and assess risk. For SBA loans, underwriting alone can take several weeks.
Step 4: Approval and commitment letter. If approved, the lender issues a formal commitment letter detailing your loan amount, interest rate, repayment terms, any collateral requirements, and conditions you need to meet before closing.
Step 5: Closing. You sign final documents and the funds are disbursed. For SBA loans, closing typically takes 7 to 14 days but can stretch to 90 days. The lender may request additional items during this period, like proof of insurance or statements confirming your down payment.
End to end, an SBA loan takes roughly two to three months from application to funding. Bank term loans generally fall in the same range, sometimes a bit faster. Online lenders can fund in as little as one to five business days.
What It Costs Beyond Interest
Interest rates are only part of the total cost. Many lenders charge an origination fee, typically 2% to 3% of the loan amount, though some charge as much as 8% or more. On a $100,000 loan, a 3% origination fee adds $3,000 to your costs upfront.
When comparing offers, look at the APR rather than just the interest rate. APR folds in fees along with interest, giving you a more accurate picture of what the loan costs on an annual basis. Some lenders, particularly in the online space, use a “factor rate” instead of APR. Revenue-based financing, for example, often quotes factor rates of 1.08 to 1.25. A factor rate of 1.20 on a $50,000 loan means you repay $60,000 total. Unlike APR, a factor rate doesn’t account for how quickly you repay, so the effective annual cost can be much higher than it first appears.
How to Strengthen Your Application
If your credit score or business history doesn’t meet the thresholds for your preferred loan type, you have a few options. Paying down existing debt improves both your credit score and your debt-to-income ratio, which lenders weigh heavily. Waiting until you have at least two years of operating history opens up more traditional lending products. Offering collateral, such as equipment, inventory, or real estate, can also help you qualify for better terms because the lender has something to recover if you default.
Applying with a co-signer or business partner who has stronger credit is another route. And if you’re a newer business, consider starting with a smaller loan or a business credit card to build a repayment track record before pursuing a larger amount. Lenders like to see that you’ve borrowed before and paid it back on time.