How to Get a Business Loan (Complete Guide)

Types of Business Loans

Term loans — lump sum repaid with interest over a fixed period (1–25 years). Best for large one-time expenses like equipment or expansion. SBA loans — government-guaranteed loans through approved lenders. Lower rates and longer terms, but require extensive documentation. Lines of credit — revolving credit you draw from as needed, paying interest only on what you use. Best for cash flow gaps and short-term needs. Invoice financing — borrow against outstanding invoices. Fast access to cash, but fees can be high. Equipment financing — loan secured by the equipment itself. Easier approval, but you are on the hook if the equipment depreciates. Merchant cash advances — lump sum repaid from future credit card sales. Most expensive option — avoid unless desperate.

SBA Loans Explained

7(a) loans — the most popular SBA program. Up to $5 million for working capital, equipment, real estate, or refinancing. Rates: prime + 2.25% to 4.75%. Terms: 10 years for equipment, 25 years for real estate. Requires 2 years in business, personal guarantee, and 680+ credit score. CDC/504 loans — fixed-rate financing for major fixed assets like real estate or heavy equipment. Up to $5 million with 10% down payment. Microloans — up to $50,000 through nonprofit intermediaries. For startups and small businesses that cannot qualify for larger loans. SBA loans take 60–90 days to close, so plan ahead. The paperwork is heavy, but the rates and terms are the best you will find.

Term Loans vs Lines of Credit

Term loans provide a lump sum upfront that you repay in fixed monthly installments. Best for known, one-time expenses: opening a second location, buying equipment, or a major marketing campaign. Interest rates are typically lower than lines of credit because the lender knows exactly how much you are borrowing and for how long. Lines of credit are revolving — you borrow, repay, and borrow again up to a set limit. Best for unpredictable cash flow needs: covering payroll during a slow month, taking advantage of a supplier discount, or bridging the gap between expenses and receivables. You only pay interest on what you draw. Lines of credit usually have higher interest rates than term loans but offer more flexibility.

Business Loan Requirements

Credit score — 680+ for most bank and SBA loans; 600+ for online lenders. Higher scores unlock lower rates. Time in business — most traditional lenders require 2+ years. Startups may qualify for SBA microloans or online alternatives with a strong business plan. Annual revenue — $50,000–$100,000 minimum for term loans; $250,000+ for larger SBA loans. Collateral — real estate, equipment, inventory, or accounts receivable. SBA loans require a personal guarantee from owners with 20%+ equity. Debt service coverage ratio (DSCR) — lenders want to see that your net operating income covers 1.15–1.35x your total debt payments. Business plan — especially important for startups and SBA loans. Include financial projections and a clear use of funds.

How to Improve Your Chances of Approval

Boost your credit score — pay down personal credit card balances, dispute errors on your credit report, and avoid new inquiries for 6 months before applying. Prepare financial statements — have 2–3 years of tax returns, profit and loss statements, balance sheets, and cash flow projections ready. Reduce your debt-to-income ratio — pay off existing debt if possible. Lenders compare your monthly debt payments to your income. Offer collateral — secured loans are easier to approve than unsecured ones. Use equipment, real estate, or even personal assets. Write a business plan — even if your lender does not require one, a professional plan shows preparation and reduces perceived risk. Build a banking relationship — applying for a loan at the bank where you hold your business checking account improves approval odds significantly.

Business Loan Interest Rates

SBA 7(a) loans — prime rate + 2.25% to 4.75% (effective rate ~7.5%–12% depending on prime). Bank term loans — 6%–13% for well-qualified borrowers. Online term loans — 8%–30%, with most falling in the 12%–20% range. Equipment financing — 8%–30% depending on credit and equipment type. Lines of credit — 7%–25% annual percentage rate. Invoice financing — 1%–3% per month (equivalent to 12%–36% APR). Merchant cash advances — factor rates of 1.2–1.5, which translate to effective APRs of 40%–100%+. Always shop at least 3–5 lenders and compare the total cost of borrowing, not just the monthly payment.

Common Business Loan Mistakes

Borrowing too little — undercapitalization is a leading cause of business failure. Borrow enough to reach your next revenue milestone. Borrowing too much — taking more than you need means paying unnecessary interest. Model your cash flow to determine the exact amount. Ignoring total cost — the monthly payment is not the whole picture. Factor in origination fees, closing costs, prepayment penalties, and insurance. Not reading terms — personal guarantee clauses, prepayment penalties, and financial covenants can trap you. Have a lawyer review if the loan is significant. Applying to multiple lenders at once — hard credit pulls from multiple lenders in a short period damage your credit score. Use pre-qualification (soft pull) first.

FAQs

What credit score do I need for a business loan?

Traditional bank loans typically require 680+. Online lenders may accept 600+. SBA loans prefer 680+. If your score is below 600, focus on improving it before applying, or look into secured loans and merchant cash advances (at higher cost).

Can I get a business loan with no revenue?

Very difficult through traditional lenders. Startups may qualify for SBA microloans (up to $50,000), personal loans used for business, or equipment financing (secured by the equipment). A strong business plan and personal credit are essential.

How long does it take to get a business loan?

SBA loans: 60–90 days. Bank term loans: 2–6 weeks. Online lenders: 24 hours to 7 days. Line of credit: 1–3 weeks. Invoice financing and merchant cash advances: 24–48 hours. Trade speed for cost — faster funding means higher rates.

What is the difference between a secured and unsecured business loan?

Secured loans require collateral (real estate, equipment, inventory) and typically offer lower rates and longer terms. Unsecured loans require no collateral but have higher rates, stricter credit requirements, and lower maximum amounts.

Do business loans require a personal guarantee?

Most do, especially for small businesses. SBA loans always require a personal guarantee from any owner with 20%+ equity. Some online lenders offer no-personal-guarantee loans, but they are rare, smaller, and have higher rates.