Where to Start: The Three Main Routes

Small business loans come from three sources: banks, credit unions, and the Small Business Administration (SBA). Banks and credit unions lend their own money and set their own terms. The SBA does not lend money directly — instead, it guarantees loans made by banks and credit unions, which means the lender takes less risk and can offer better rates to you.

The fastest route depends on what you need. If you need money in weeks, a bank line of credit or a credit union loan may move faster. If you need a larger amount and can wait six to twelve weeks, an SBA-backed loan often costs less over time because the SBA's may provide lets lenders offer lower interest rates and longer repayment periods.

Start by calling your bank or a local credit union and asking whether they offer SBA loans. If they do, ask them to send you the SBA loan program guide — usually a one-page sheet that explains which SBA program fits your situation. If they do not offer SBA loans, ask for a referral to a lender that does, or search the SBA's lender directory at sba.gov.

Key Takeaways

  • Banks and credit unions make the actual loan; the SBA guarantees it, which lowers your interest rate but adds paperwork and takes longer.
  • You will need a business plan, personal tax returns for the past two years, business financial statements, and a personal credit report — the lender orders the credit report themselves.
  • The SBA 7(a) loan is the most common program and covers up to $5 million, but most first-time borrowers receive $50,000 to $350,000.
  • Approval takes four to twelve weeks depending on the lender and the loan size; the SBA's part of the review takes two to four weeks.
  • You will personally may provide the loan, meaning if the business cannot pay, the lender can pursue your personal assets.

What Documents You Need Before You Call a Lender

Lenders ask for the same core set of documents regardless of the program. Gather these before you contact anyone, because having them ready speeds up the process and shows the lender you are organized.

You need your personal tax returns for the past two years (the actual filed returns, not just the summary). You need your business's financial statements — profit and loss statement and balance sheet — for the past two years if the business has been operating that long. If the business is newer than two years, bring whatever statements you have. You need a current business license or certificate of good standing from your state. You need a list of all business debts, including credit cards, equipment loans, and any money owed to owners. You need the business plan or a one-page summary of what the money will be used for.

If you are buying equipment or real estate with the loan, bring quotes or appraisals. If you are buying an existing business, bring the seller's financial statements and the purchase agreement. The lender will order your personal credit report themselves, so you do not need to bring that, but you should check your credit report beforehand at annualcreditreport.com to catch any errors.

The SBA 7(a) Loan: The Most Common Program

The SBA 7(a) loan is the standard program for most small businesses. It covers almost any business use: working capital, equipment, real estate, inventory, or buying an existing business. The maximum is $5 million, but most lenders approve first-time borrowers for $50,000 to $350,000.

Interest rates vary by lender and by market, but SBA 7(a) loans typically cost 1 to 3 percentage points less than a conventional bank loan because the SBA guarantees 75 to 90 percent of the loan amount. Repayment terms run five to ten years for working capital and equipment, and up to twenty-five years for real estate. You pay a one-time SBA may provide fee, usually 2 to 3 percent of the loan amount, which the lender adds to your loan balance.

The lender reviews your application in two to four weeks. If they approve it, they send it to the SBA for the SBA's review, which takes another two to four weeks. Once the SBA approves it, the lender funds the loan — usually within one week. Total time from application to money in your account is typically six to ten weeks, though some lenders move faster.

The Microloan Program for Amounts Under $50,000

If you need less than $50,000, the SBA Microloan program may be faster and require less paperwork. Microloans are made by nonprofit lenders, not banks, and they focus on new businesses and businesses that have trouble getting conventional loans.

Microloan amounts range from $500 to $50,000. Interest rates are higher than 7(a) loans — typically 8 to 13 percent — but the application is shorter and approval is faster, usually three to six weeks. Most microloan lenders also require you to take a free business training course, either before or after you receive the loan.

To find a microloan lender near you, search the SBA's microloan lender directory at sba.gov. Call the lender and ask what documents they need; most ask for personal tax returns, a simple business plan, and a personal credit report, but requirements vary.

What Happens During the Lender's Review

The lender evaluates four things: your personal credit history, your business's cash flow, the collateral you can offer, and your experience running a business. You do not need perfect credit, but scores below 650 make approval harder. You do not need a profitable business yet, but you need to show that the business will generate enough cash to repay the loan.

Collateral is something of value the lender can take if you do not pay — usually business equipment, inventory, or real estate. For a 7(a) loan, the lender typically requires collateral worth 75 to 100 percent of the loan amount, though the SBA may provide means they are less strict than a conventional lender would be. For a microloan, collateral requirements vary by lender.

The lender will also ask about your experience: how long you have run a business, whether you have managed employees, and whether you have borrowed money before. If you are new to business ownership, be honest about it and emphasize any relevant work experience or training you have completed.

Personal may provide and What It Means

Every small business loan requires a personal may provide, which means you personally promise to repay the loan. If the business fails and cannot pay, the lender can pursue your personal bank accounts, your house, your car, and other personal assets to recover the money.

This is not optional — it is standard for all small business loans. The lender requires it because most small businesses have limited assets, and the personal may provide gives the lender recourse if the business does not work out. Before you sign, understand that you are taking on personal liability equal to the full loan amount.

Some lenders will release you from the personal may provide after you have made on-time payments for a set period — usually three to five years — but you need to ask about this in advance. It is not automatic.

Timeline and What to Expect at Each Stage

The process moves in stages, and knowing what happens at each one helps you plan. Week one: you call the lender, describe your business, and ask what documents they need. Week two to three: you gather and submit documents. Week three to six: the lender reviews your application and orders your credit report. Week four to eight: the lender makes a decision and either approves you, asks for more information, or denies you.

If approved, the lender sends the application to the SBA (for a 7(a) loan) or closes the loan (for a microloan or conventional loan). Week six to ten: the SBA reviews the application. Week ten to twelve: you sign closing documents and the lender funds the loan. Money usually arrives in your business account within one week of closing.

This timeline assumes no complications. If the lender asks for more information or the SBA has questions, add two to four weeks. If you are buying real estate, add time for an appraisal and title search.

Frequently Asked Questions

Do I need a business license to apply?

Most lenders require a current business license or certificate of good standing, but some will approve you before you have one if you are in the process of registering. Call the lender and ask — do not assume you are disqualified. If you do not have one yet, register with your state or local government first; it usually takes one to two weeks.

What if my business is brand new and has no financial statements?

Bring whatever you have: a business plan, a startup budget showing how you calculated your costs, and personal tax returns showing your income history. Microloans are often easier for new businesses because lenders expect limited business history. Some 7(a) lenders will also work with new businesses if you have relevant work experience and a solid plan.

Can I get a loan if I have bad credit?

It depends on how bad and why. Credit scores below 650 make approval harder, but not impossible — some lenders work with scores in the 600s if your business plan is strong and you have collateral. Microloans are often more flexible on credit. If you have recent late payments or collections, explain what happened and show that you have resolved the issue.

How much can I borrow?

The maximum depends on the program: $5 million for a 7(a) loan, $50,000 for a microloan. But the lender will not approve you for the maximum — they approve you for what your business can realistically repay. Most first-time borrowers receive $50,000 to $350,000. The lender calculates this based on your business's projected cash flow and the collateral you can offer.

What if the lender denies me?

Ask the lender why. Common reasons are low credit score, insufficient collateral, or unclear business plan. You can address some of these — improve your credit, find a co-signer, or strengthen your plan — and reapply in a few months. You can also try a different lender or a microloan program, which has different standards.