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 your lender will ask for, and finally submitting your application. Most small business loans come through banks, credit unions, or the Small Business Administration (SBA) — which doesn't lend money itself but guarantees loans made by private lenders, reducing their risk and making approval easier for borrowers with thinner credit histories or less collateral.

The timeline from application to funding typically runs four to eight weeks, though SBA loans can take longer. Your personal credit score, business revenue, how long you've been operating, and what you're borrowing for all affect whether you get approved and what interest rate you'll pay.

Key Takeaways

  • SBA loans are may provide by the federal government but issued by banks and credit unions, making them easier to obtain than conventional loans for many small business owners.
  • You'll need your personal tax returns, business tax returns (if you've been operating for two years), a business plan, and a personal financial statement before you start the application.
  • The SBA 7(a) loan program is the most common option and covers general business needs; the Microloan program works for businesses under two years old or with limited credit history.
  • Banks and credit unions process applications differently, so comparing offers from multiple lenders can save you thousands in interest over the life of the loan.

Decide which type of loan matches your business stage

The SBA 7(a) loan program is the most widely used option. It covers equipment, inventory, working capital, real estate, and debt refinancing. Loan amounts range from a few thousand dollars up to $5 million, and you can borrow for up to 10 years for equipment or 25 years for real estate. Interest rates are typically prime plus 2.25 to 2.75 percent, though the exact rate depends on your lender and creditworthiness.

If your business is newer or you have limited credit history, the SBA Microloan program may be a better fit. These loans max out at $50,000 and come with more flexible credit requirements, though the interest rates run higher — usually 8 to 13 percent. Microloans are issued through nonprofit intermediaries rather than banks, and many of them offer free business training alongside the loan.

For businesses that have been operating fewer than two years, or if you need money quickly and don't may have access to for SBA loans yet, a conventional bank loan or line of credit may be your only option, though approval is harder without an established track record. Some lenders also offer equipment financing (where the equipment itself serves as collateral) or invoice factoring (selling unpaid invoices at a discount for immediate cash), which have different requirements and costs.

Gather your financial documents before applying

Lenders will ask for the same core set of documents regardless of loan type. Start with your personal tax returns for the past two years — lenders use these to verify your income and assess your personal financial health. If your business has been operating for two years or longer, bring your business tax returns for the same period. If you're newer than that, you'll need profit-and-loss statements and a balance sheet for the months you've been in operation.

You'll also need a personal financial statement that lists your assets (savings, investments, real estate you own) and liabilities (credit card debt, car loans, mortgages). This shows the lender your net worth and ability to repay if the business struggles. Bring your business license, articles of incorporation or partnership agreement, and a list of all business debt — existing loans, lines of credit, equipment financing — with current balances and monthly payments.

Have your business bank statements for the past three to six months ready. These show cash flow and how you manage money day-to-day. If you're borrowing to buy equipment or real estate, get quotes or appraisals. If you're using the loan to pay off existing debt, gather statements from those creditors showing current balances and terms.

Write or update your business plan

Most lenders require a business plan, though the depth varies. At minimum, describe what your business does, who your customers are, and how you make money. Explain what you're borrowing for and how the loan will help — whether you're buying equipment that will increase production, hiring staff to expand, or refinancing debt at a lower rate.

Include a realistic projection of revenue and expenses for the next three years. Lenders know projections are guesses, but they want to see that you've thought through your market, your competition, and your costs. If you're a startup with no revenue yet, explain your experience in the industry and why you believe customers will buy from you. If you're an established business, use your actual financial history as the foundation for your projections.

Your plan doesn't need to be polished or lengthy — five to ten pages is typical. The goal is to show the lender that you understand your business and have a realistic path to repay the loan.

Find and compare lenders

Start by contacting your bank or credit union. Many have SBA loan programs and already know your account history, which can speed up approval. If your bank declines or offers poor terms, contact other banks and credit unions in your area. Each lender sets its own interest rates and fees within SBA guidelines, so comparing three to five offers is worth the effort.

To find SBA-approved lenders near you, use the SBA's Lender Match tool on sba.gov. You can filter by loan type, amount, and location. Nonprofit lenders and community development financial institutions (CDFIs) often work with borrowers who have weaker credit or less collateral than traditional banks require, though their interest rates may be higher.

When comparing offers, look at the interest rate, the origination fee (usually 1 to 3 percent of the loan amount), the term length, and any prepayment penalties. A lower rate on a longer term might cost more in total interest than a higher rate on a shorter term. Ask each lender to provide a Loan Estimate that shows all costs upfront so you can compare apples to apples.

Submit your application and respond to requests

Most lenders now accept applications online, though some still require paper forms. You'll fill out the SBA Form 1919 (Application for Business Loan) or the lender's own application, which asks for business details, ownership structure, the loan amount and purpose, and personal information about all owners with 20 percent or more stake in the business.

After you submit, the lender will likely ask follow-up questions or request additional documents — clarification on a gap in your employment history, more detail on a business expense, or updated bank statements. Respond quickly and completely. Delays here are the most common reason applications stall.

The lender will order a personal credit report and may order a business credit report. They'll verify your tax returns with the IRS and may call your references or customers. If you're borrowing against real estate or equipment, they'll order an appraisal. All of this takes time, which is why the full process typically runs four to eight weeks.

Understand what happens after approval

Once approved, you'll receive a Loan Agreement that spells out the interest rate, term, monthly payment, what the money can and cannot be used for, and any covenants — promises you make to the lender, such as maintaining a minimum cash balance or not taking on additional debt without permission. Read this carefully and ask questions before signing.

You'll also sign a promissory note (your promise to repay) and a security agreement (giving the lender a claim against assets if you default). If the loan is SBA-may provide, you'll sign a personal may provide, meaning you're personally liable if the business can't pay. The lender will order title insurance if real estate is involved and may require you to carry business insurance naming them as loss payee.

Funding typically happens within a few business days of closing. The lender deposits the money into your business account, and you can begin using it for the stated purpose. If you borrow for equipment, the lender may require proof of purchase before releasing funds.

Frequently Asked Questions

What credit score do I need for an SBA loan?

Most SBA lenders prefer a credit score of 680 or higher, though some work with scores as low as 620, particularly through Microloan programs or community lenders. Your score is one factor among many — lenders also look at your business revenue, how long you've been operating, and what you're borrowing for. A lower score doesn't automatically disqualify you.

Can I get a small business loan if my business is less than a year old?

Traditional SBA 7(a) loans typically require at least two years of business history. However, the SBA Microloan program works with newer businesses, and some banks offer conventional loans to startups if you have strong personal credit and collateral. You may also consider a line of credit or equipment financing, which have different requirements.

How much can I borrow?

SBA 7(a) loans go up to $5 million. Microloans max out at $50,000. Conventional bank loans vary by lender and your creditworthiness. Most lenders will lend up to a certain percentage of your collateral value or your annual revenue, whichever is lower. Ask each lender what amount they're willing to consider based on your situation.

What if I get denied?

Ask the lender why. Common reasons include insufficient credit history, too much existing debt, or a business plan that doesn't convince them you can repay. You can address some of these — paying down debt, waiting six months to build more business history, or strengthening your plan — and reapply. You can also try a different lender or a different loan type, such as a Microloan or a line of credit.

Do I have to use a bank, or can I borrow from other sources?

Banks and credit unions are the most common and usually the cheapest option. You can also borrow from family or friends, use a business line of credit, or explore alternative lenders like online platforms, though these typically charge higher rates. Equipment financing and invoice factoring are options if you need money for a specific purpose but don't may have access to for a traditional loan.