Your 6-Step Guide to Getting a Small Business Loan
Last updated Jan. 21, 2025
Getting a small business loan can be an intimidating process. Even if you’ve narrowed down a lender, you may be confused about where to go from there, especially if this is your first time looking for financing. Follow our guide for how to get a small business loan, and when you’re ready to explore your loan options, Fundera is here to help.
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1. Determine Why You Need a Business Loan
The first question you should ask yourself (and that every lender will ask you) when you’re trying to get a business loan is: Why?
Some small business owners need working capital to cover a range of purposes, and others have a very specific need, like a certain piece of equipment. The reason you need the money will drive your choice of lender and loan type, so you’ll want to take some time to figure out why you need capital.
Sometimes, the lines between these loan purposes can blur a little. For instance, you may need capital to purchase equipment for the startup business you’re getting off the ground, or you may want to refinance existing debt but also borrow additional funds for working capital. Many lenders work with borrowers who need business loans for multiple reasons.
With this in mind, here are some common reasons why you may be looking to get a small business loan:
- To start a business.
- To buy a business.
- For day-to-day working capital.
- To cover cash flow gaps.
- To grow your business.
- For emergency spending.
- To finance an equipment purchase.
- To refinance debt.
2. Calculate How Much Debt You Can Afford
Once you’ve determined why you need financing, the next step to getting a small business loan is figuring out how much debt you can afford.
Unfortunately, the amount of capital you want to meet your business’s goals may not necessarily match up with how much you can actually afford.
If you take on too much financing, you could find yourself caught in a cycle of debt that’s difficult to break free from—hurting your business instead of helping it. Of course, if you take on too little debt, you may end up missing opportunities.
Therefore, you’ll want to do the following to ensure that you can afford to get a business loan.
Use a Business Loan Calculator
A business loan calculator can be a helpful tool to help you get a better sense of how much debt you can afford before you apply—and even more useful when you actually have a loan offer on the table.
With a business loan calculator, you can estimate the monthly payment on your loan—so that you can evaluate your cost of debt on a long-term basis—and how this payment will or won’t fit in with your other expenses.
There are many free business loan calculators available online (the SBA even has one specific to its 7(a) loan product). You might try plugging your numbers into a few of them, since each site uses its own proprietary formula to calculate average monthly loan payments. That way, you can get a range for your potential monthly payment amount.
Then, check your business’s profit and loss statement, and determine if the incoming revenue is enough to cover the monthly payment. You should also have a “cushion” to comfortably cover other business expenses.
Calculate Your DSCR
Next, you can check your debt service coverage ratio (DSCR)—which is a number that small business lenders use to see whether or not you can afford to pay back a loan.
To calculate your DSCR, take your average monthly net income and divide it by your monthly loan payment.
Ideally, you get a number above one, which means you have enough cash on hand to cover your loan payments and have some left over for other expenses. If your DSCR is below one, then you’ll either need to find a way to increase your business’s income or decrease your monthly payment (e.g., by requesting a smaller loan or qualifying for a better interest rate).
3. Determine Your Eligibility for a Business Loan
An important step in getting a business loan is knowing what kind of financing is a realistic option for you. Before you start a broad search, take a look at your eligibility and determine what funding options you’re likely to qualify for.
Here are three of the most important business loan requirements lenders will look at when considering your application.
Time in Business
Borrowers with at least two years in business will have the most affordable small business loans available to them, including bank loans and SBA loans.
If you have at least one year in business, you may not be able to qualify for the most competitive loan products, but you should still be able to qualify for a variety of options—particularly from online and alternative lenders. For startup businesses in operation less than a year, options will be even more limited. There are, however, certain types of loans that are well suited for startup funding.
Annual Revenue
Next, take a look at your business finances because your annual revenue is another important eligibility factor in getting a business loan.
Lenders work with a variety of businesses in this regard. For instance, many online lenders will consider businesses with a minimum of $50,000 in revenue. Banks and SBA lenders, however, will require hundreds of thousands in annual revenue to qualify.
Generally, if you have at least $100,000 in annual revenue, you can qualify for a wide variety of business loan products.
Personal Credit Score
Personal credit scores also play a large part in what business loans are available to business owners.
As you can imagine, the higher your personal credit score, the better. Lenders want to see a track record of on-time, full payments. If your personal credit score is strong and indicates that you can be trusted to pay back your debts on time (690+), you’ll likely be able to shop for top-tier lending products when looking for a business loan.
This isn’t to say there aren’t business loans for bad credit available; they’ll just be more limited. Therefore, before you dive headfirst into a business loan search, you should know where your credit score stands so you aren’t considering options that aren’t available to you.
4. Browse Different Types of Business Loans and Lenders
Your next step for figuring out how to get a small business loan is to determine which loans to apply for. A couple of decades ago, your local bank was the only place you could really go to if you had a small business and needed a loan—now, there are many more options.
Therefore, you’ll need to decide which type of business loan meets your financing needs (and make sure you can qualify), and then find the right lenders to apply with. Ultimately, you’ll want to compare multiple options of the same type—considering factors such as interest rates, terms, amounts, fees, etc.—to find the best deal for your business.
The following summary of loan types can help guide your search for a small business loan that best fits your needs and qualifications. Note that the amounts, rates, terms, and minimum credit scores listed below are what you’ll generally find in your loan search, but of course, details vary by lender.
SBA Loans
Best for: Businesses that are unable to get a bank loan and can wait two to three months for approval and funding.
» MORE: Learn more about SBA loans.
AmountUp to $5 million
RatesVariable, based on prime rate
Terms10 to 25 years
Min. Credit Score690
Long-Term Loans
Best for: Big purchases or expansion opportunities for well-qualified businesses.
AmountUp to $10 million
Rates~6 to 99%
Terms3 to 10 years
Min. Credit Score600
Short-Term Loans
Best for: Short-term funding needs for newer or less-qualified businesses.
AmountUp to $10 million
~Rates6% to 99%
Terms3 months to 2 years
Min. Credit Score570
Business Lines of Credit
Best for: Flexible financing for a variety of businesses.
AmountUp to $5 million
Rates~10% to 99%
TermsVaries; many lines are revolving
Min. Credit Score600
Equipment Financing
Best for: Businesses looking to finance an equipment purchase.
AmountUp to 100% of the equipment cost
Rates~4% to 45%
TermsUp to the estimated life of the equipment
Min. Credit Score575
Invoice Financing
Best for: B2B businesses with capital held up in outstanding invoices.
AmountUp to 100% of the invoice value
Rates~10% to 79%
TermsUntil the customer pays the invoice
Min. Credit ScoreN/A
Merchant Cash Advances
Best for: Businesses that can’t qualify for any other type of financing. Note that this option is not technically a business loan and is therefore less regulated than the other options above.
AmountUp to $5 million
Rates~40% to 350%
TermsPaid daily via your merchant account until advance is paid off
Min. Credit Score300
5. Gather Your Loan Application Documents
Once you’ve explored all of your options and determined the type of financing (and potential lenders) that will be best for your business, the next step in getting a small business loan is gathering the documents for your application.
Typically, the harder it is to qualify for the loan, the more documents you’ll have to submit. Banks require the most documentation because they closely vet borrowers and approve only the most qualified—their rates are the most affordable on the market, though. Online lenders require less documentation. They’ve brought more technology to the application process and usually base their approval decisions on fewer pieces of information.
Overall, the specific documentation required and the process you need to follow will be unique to the lender you’re working with. However, almost every loan type and small business lender will require some or all of the following information and documents:
- Basic business information—entity type, address, industry, founding date, etc.
- Basic personal information about the applicant, as well as other owners
- Business financial statements
- Personal and business bank statements
- Personal and business tax returns
- Personal credit score
- Current debt schedule (if applicable)
- Business legal documents
The best thing you can do at this point is to organize any and all documents in a single location, like a file folder on your computer. You’ll also want to be as prompt as possible when lenders request more documentation—this way, you can complete the application process and receive your loan faster.
6. Submit Your Loan Application and Sign Your Agreement
The final step to getting a small business loan is completing and submitting the application.
We recommend that you get quotes from a few different lenders—a process that typically only requires a soft credit pull, which doesn’t affect your score—before actually submitting a loan application. You can also use a marketplace like Fundera, where you receive an aggregated list of quotes based on your qualifications with just one single application.
Then, choose the best loan option from among your shortlist, and complete the application. Once you submit your business loan application, either online or in person, the loan enters underwriting, when the lender will review all your documents and verify all your information. The lender will also perform a hard pull on your credit history, which can temporarily decrease your credit score.
If you’re approved for the loan, the lender will provide you with the loan agreement. Before signing the agreement, you should make sure you understand the terms of the loan—including any fees that will impact your APR.
Fees may include an application fee, origination fee, guarantee fee (for SBA loans), credit report fee, prepayment penalty, and late payment fee. You should make sure that the lender has answered all your questions regarding cost and loan structure. It’s also wise to consult with a business attorney or accountant to review the agreement before closing on the loan.
Fundera Can Help
We created Fundera to make the process of finding an online small business loan as simple as possible. With our free online marketplace, you can easily compare your options and figure out which small business loan is right for you.
You’ll be matched with one of our business loan experts who will help walk you through the process and find the best financing options for your business.
How much do you need?
No cost to you
Your credit score won't be impacted
Compare multiple lenders with one application