Getting a business loan takes planning, but it doesn’t have to be overwhelming. If you know what lenders are looking for and understand your financing options, you may be able to find a loan that fits your business needs.
Getting Started
One of the first questions many people have about business loans is “Is it hard to get a business loan?” Some online lenders have much lower barriers with higher rates and shorter terms. Meanwhile, traditional banks may have more requirements but offer lower rates and give you more time to pay them back.
There are programs run by the U.S. Small Business Administration, the USDA, or even the state you live in that exist to help you secure funding. Some of these programs can even provide guidance on finding lenders. Be aware that these programs may take several weeks or months to secure a loan for you.
Here’s more on what you need to know when applying for a business loan.
Loan Eligibility
In general, most banks have some combination of requirements for loan approval. This can include:
- Annual revenue: Many banks need a minimum amount of revenue for you to even apply. This requirement can be as low as $50,000. However, for larger loans or loans with better terms, it can often be upwards of $100,000.
- Credit score: Some banks will look at your personal credit score. Some need an excellent score, but others offer loans for those with lower scores. Your business can also have its own credit score, which can change the terms banks will offer you.
- Time in business: Many loans require you to be in business for a certain amount of time before getting a loan. This can be anywhere from six months to two years.
- Business plan: Lenders want to work with business owners who can think ahead and be successful. They want to see that you know your product or services and have a strategy for expansion. While it might be tempting to only highlight your strengths, make sure to include a balanced analysis of your weaknesses and any areas that may not go as planned.
- Collateral: Some loans require a guarantee, like a cash down payment or business assets. This helps protect the lender if you can’t repay the loan.
Loan programs backed by government agencies, such as the U.S. Small Business Administration (SBA), may have additional requirements based on your business type or size.
How Does Your Personal Credit Affect Business Loans?
Your personal credit may play a role in whether you qualify for a business loan—especially if your business is new or doesn’t have an established credit history.
Lenders may ask for a personal guarantee, which means you agree to repay the loan yourself if your business can’t. This is more common if your business is a sole proprietorship or partnership.
A sole proprietorship is a simple business owned by one person, but it can look different depending on what you do—like freelancing, selling products, offering services, or driving for a gig app. It’s all the same setup legally, just used in different ways.
In some cases, a business loan could affect your personal credit if payments are missed or if the lender reports activity under your name. For more detail, SoFi explains how business loans may impact personal credit.
Types of Business Loans
Here’s a short list of the most common types of loans:
- SBA loans are offered by lenders and backed by the U.S. Small Business Administration. Because the SBA guarantees part of the loan, lenders may offer more favorable terms. Approval can take time, and you’ll typically need good credit. Common SBA loan programs include:
- 7(a) loans: These are the most flexible SBA-backed loans. They can be used for working capital, buying equipment, or refinancing existing debt. The maximum loan amount is $5 million.
- 504 loans: These long-term, fixed-rate loans are used to buy or improve real estate or large equipment. The borrowing limit is up to $5.5 million.
- Microloans: These smaller loans, up to $55,000, are typically used for startup costs or working capital. They can’t be used to buy real estate.
- Term loans: These are traditional loans where you borrow a set amount and repay it over time with interest. Approval is often quicker, but you may need to provide a personal guarantee.
- Startup loans: Aimed at new businesses with little or no history, these loans can be more expensive but may help you build credit for the future.
- Business lines of credit: Similar to a credit card, you can borrow up to a set limit and only pay interest on the amount you use. Requirements are often stricter, but they offer flexibility for managing cash flow.
Wrapping Up
Getting a business loan isn’t always easy, but it’s more manageable when you know what to expect. Whether you’re applying through a bank, an online lender, or a government-backed program, taking time to prepare can make a big difference. Make sure your business finances are in order, know your credit situation, and choose a loan that fits your goals. If you’re not sure where to start, a small business advisor or local lender may be able to help.
