The basic path to a small business loan

Getting a small business loan starts with deciding what type of loan fits your situation, then gathering the documents lenders will ask for, then submitting an application to a lender. Most small business loans come from banks, credit unions, online lenders, or the Small Business Administration (SBA) — each has different speed, cost, and requirements. The whole process from application to funding typically takes two to eight weeks, depending on the lender and loan type.

Before you apply anywhere, know your credit score, how much you need to borrow, and what you'll use the money for. Lenders will ask all three questions, and your answers determine which lenders will even consider you. A personal credit score below 620 closes off most traditional bank loans, though some SBA lenders and online lenders work with lower scores — at higher interest rates.

Key Takeaways

  • Banks and credit unions typically offer the lowest rates but take the longest and require strong credit; online lenders and SBA loans are faster but cost more.
  • You will need your personal tax returns for the past two years, business tax returns if you have them, a business plan or description of how you'll use the money, and proof of business ownership or registration.
  • SBA loans are may provide by the federal government, which means the lender takes less risk and charges you less interest — but the application is longer and requires more paperwork.
  • Your personal credit score, time in business, and monthly revenue are the three things lenders check first to decide whether to move forward.
  • Many lenders will give you a pre-qualification or pre-approval within days, which tells you roughly how much you could borrow before you commit to a full application.

Understand what type of loan matches your timeline and credit

Banks and credit unions offer the lowest interest rates but move slowly and require the strongest credit. If you have a credit score above 680 and can wait four to eight weeks, a bank or credit union is usually cheapest over the life of the loan. If your score is lower or you need money faster, you trade lower rates for speed or looser credit requirements.

Online lenders approve and fund in days or weeks, but charge higher interest rates — sometimes 10 to 30 percent annually depending on your credit and the lender. They also tend to require less paperwork and are more willing to work with newer businesses or lower credit scores. SBA loans split the difference: they take longer than online lenders (four to eight weeks) but cost less than online lenders because the government backs them, reducing the lender's risk. SBA loans work best if you have time to wait and want a lower rate than online lenders offer.

Microloans from the SBA are smaller (up to $50,000) and faster than traditional SBA loans, and they're designed for newer or very small businesses. They still require paperwork and take two to four weeks, but they're easier to get than a standard SBA loan if you're just starting out or have limited credit history.

Gather documents before you apply

Every lender will ask for your personal tax returns from the past two years. If your business has been operating for more than a year, they'll also want your business tax returns or profit-and-loss statements for the same period. If you're brand new, you may only need a personal tax return and a business plan or written description of what you'll do with the money.

You'll also need proof that you own or operate the business — a business license, articles of incorporation, a DBA registration, or a partnership agreement, depending on your business structure. Bring your personal identification and Social Security number. If you're applying for an SBA loan, you'll need a detailed business plan that describes your business, your market, your competition, and how you'll use the loan money. For other loans, a one-page summary is often enough.

Have your bank statements ready — lenders want to see your business cash flow and personal savings. Some lenders will ask for a personal financial statement listing your assets and debts. If you're using business equipment or real estate as collateral, gather documents showing what you own and what it's worth.

Choose a lender and submit your application

Start by contacting two or three lenders to compare rates and terms before you commit. Many will give you a pre-qualification or pre-approval based on basic information — your credit score, how long you've been in business, and roughly how much revenue you make. This takes a few days and doesn't require a full application. Pre-qualification tells you whether it's worth applying; it's not a may provide, but it's a real signal that the lender thinks you're worth considering.

Once you've chosen a lender, submit your full application with all the documents listed above. Online lenders and some banks let you apply entirely online; others require you to meet with a loan officer in person or over the phone. Ask the lender upfront how long approval typically takes and what happens next — some will tell you within days whether you're approved, others will take weeks to review your application.

If you're applying for an SBA loan, you can apply directly to a bank or credit union that participates in SBA programs, or you can contact your local Small Business Development Center (SBDC) for help finding a lender and preparing your application. SBDCs are free and can walk you through the process.

What happens after you apply

The lender will verify the information you provided — they'll pull your credit report, confirm your tax returns with the IRS, and may contact your bank to verify your account balances. They may also call your business to confirm you actually operate it. This verification step usually takes one to three weeks.

If the lender approves you, they'll send you loan documents to sign. Read these carefully — they spell out the interest rate, monthly payment, how long you have to repay, and any fees. If anything doesn't match what you discussed, ask before you sign. Once you sign, the lender will fund the money into your business bank account, usually within a few days.

If the lender denies you, they're required to tell you why — usually it's credit score, time in business, or revenue. Some lenders will tell you what would need to change for them to approve you. If one lender says no, it doesn't mean all lenders will; try another lender with different requirements or consider a smaller loan amount.

SBA loans require more paperwork but cost less

The SBA doesn't lend money directly to most small businesses — instead, it guarantees loans made by banks and credit unions. The may provide means the government promises to repay the lender if you default, so the lender takes less risk and charges you less interest. SBA loan rates are typically 2 to 3 percent lower than conventional bank loans, which adds up over the life of a five- or ten-year loan.

The trade-off is paperwork. SBA loans require a detailed business plan, personal financial statements, and sometimes a personal may provide — meaning you're personally responsible if the business can't repay. The application process is longer, usually four to eight weeks from start to funding. But if you have time and want the lowest possible rate, an SBA loan is often worth the wait.

The most common SBA loan is the 7(a) loan program, which can go up to $5 million. There's also the CDC/504 loan program for real estate and equipment, and microloans for smaller amounts. Each has different requirements and timelines — ask your lender which one fits your situation.

Improve your chances before you apply

If your credit score is below 650, spend a few months paying down debt and making all payments on time before you apply. A higher credit score can cut your interest rate by 1 to 3 percent. If you've been in business less than a year, waiting another few months to apply gives you more financial history to show lenders, which makes approval more likely.

If you're applying for a larger loan, consider putting down a down payment from your own savings — lenders see this as a sign you're committed and willing to share the risk. A 10 to 20 percent down payment can improve your approval odds and lower your interest rate. If you have a co-signer with stronger credit, that can also help, though many lenders won't require one if your business finances are solid.

Clean up your business finances before you apply. Make sure your tax returns match your bank statements and your business accounting. If there are discrepancies, lenders will ask about them, and unexplained gaps can slow down approval or lead to denial.

Frequently Asked Questions

How much can I borrow?

It depends on the lender and loan type. Most banks will lend up to $350,000 to $500,000 for a small business. SBA 7(a) loans go up to $5 million. Online lenders typically max out at $100,000 to $250,000. The actual amount you can borrow depends on your credit, how long you've been in business, and your revenue — lenders usually won't lend more than two to three times your annual revenue.

What if I have bad credit?

Online lenders and some credit unions will work with credit scores as low as 500 to 550, though you'll pay higher interest rates — sometimes 15 to 30 percent annually. Microloans and some SBA lenders are also more flexible with credit. If your score is very low, consider waiting a few months to improve it, or ask a co-signer with better credit to apply with you.

How long does it take to get funded?

Online lenders can fund in three to seven days. Banks and credit unions typically take four to eight weeks. SBA loans take four to eight weeks as well, sometimes longer if the SBA has a backlog. Pre-qualification is much faster — usually one to three days — but that's not the same as funding.

Do I have to put down a down payment?

Most lenders don't require a down payment, but putting one down — typically 10 to 20 percent of the loan amount — improves your approval odds and lowers your interest rate. It signals to the lender that you're invested in the business and willing to share the risk.

What if I'm denied?

Ask the lender why. Common reasons are credit score, insufficient time in business, or revenue too low. You can apply to a different lender with different requirements, wait a few months and reapply, or apply for a smaller loan amount. Some lenders will tell you what would need to change for them to approve you next time.