How hard it is to get a business loan depends on various factors, including: 

  • Credit history
  • Length of time in business 
  • Annual revenue
  • Loan purpose
  • Loan type
  • Lender 

Generally, conventional bank loans and loans guaranteed by the Small Business Administration (SBA) are among the most difficult business loans to obtain. On the other hand, the easiest financing to get is a merchant cash advance. Let’s dig deeper into answering the question, “How hard is it to get a business loan?”

Is It Hard to Get a Business Loan?

While it can be hard to get a business loan, it can be rather easy. Here are a few factors that impact the difficulty or ease of getting a small business loan. 

Your Business Stats 

One thing that can impact the difficulty in obtaining funding is your business’s background. Specifically, your revenue and time in business. If your company’s a startup, you could find it challenging to get the funding you need. Your business revenue tells lenders if you have the ability to repay a loan and provide insight into how much funding you actually can afford.

Lender Requirements and Timelines

Different lenders have different minimum borrower qualification requirements. What’s more, approval timelines vary by lender.

For instance, conventional banks can have more stringent lending requirements than other lenders, including collateral requirements for some loans and high credit score minimums. They also require businesses to submit various financial documents, such as profit-and-loss statements, bank statements, tax returns and more. What’s more, approval and funding can take months. 

In contrast, alternative, non-bank lenders are known for their hassle-free processes, with streamlined online applications and often just a few months of bank statements required. They’re also known for their speed of funding, many offering same-day financing. According to the 2019 Small Business Credit Survey by the regional Federal Reserve Banks, speed and the perceived chance of being funded are the top reasons small business owners apply with online lenders.

Your Credit Score 

Your business and personal credit score also can affect your chances of getting a small business loan. The better your score, the higher the chances you’ll likely have getting the loan you want as well as qualifying for competitive interest rates and terms. 

Banks, which offer some of the most competitive interest rates and repayment terms, typically prefer to lend to borrowers with credit scores in the 700s, though some may consider a borrower with a score in the 620-640 range.

In contrast, alternative lenders are known to offer financing to borrowers with bad credit, though higher repayment fees aren’t uncommon. According to the survey by the Federal Reserve Banks, applicants with medium-to-high credit risk had higher approval rates with online lenders compared with conventional banks.

Small Business Loan Stats

How hard is it to get a business loan? Well, according to the 2019 Small Business Credit Survey by the Federal Reserve Banks, 47% of employer firms that applied for credit received all of the financing they requested. 

Top reasons loans were denied for the remaining percentage included a low credit score, too much existing debt, insufficient collateral, insufficient credit history and weak business performance.

Circles around each reason for credit denial. Low credit score is 36%. Too much debt and insufficient collateral are 35%.

What Are the Least and Most Difficult Business Loans to Get?

Some of the least difficult business loans and financing to apply, qualify and get funded for include:

These funding options are generally easier to qualify for when compared to conventional business loans. Incidentally, online lenders and small banks offered the highest approval rates for lines of credit, loans and cash advances, according to the Federal Reserve’s recent report.

Conventional term loans offered through banks and credit unions and SBA loans can prove difficult to get. SBA loans tend not to get approved as fast as other financing types, sometimes taking a few months. (The exception is an SBA Express loan, which could be funded as quickly as 7 days post-approval.) 

Which Financing Has the Highest Approval Rates?

Merchant cash advances, equipment and auto loans and business lines of credit have the top approval rates for at least some financing, according to the Federal Reserve Banks’ recent Small Business Credit Survey. Here’s a breakdown of loan approvals by percentage rate:

Merchant cash advance: 85%

Equipment or auto loan: 80%

Business line of credit: 73%

Business loan 67%

SBA loan: 52% 

Of all applicants surveyed, 60% were fully approved and 22% were partially approved.

Approval rates for loan, line of credit and cash advance applicants. Merchant cash advance approval rate was highest at 85%.

How to Increase Your Chances of Getting a Business Loan

Increasing your chances of getting approved for a small business loan requires you to meet certain standards. Every lender you apply with will look at your time in business, your annual revenue and credit score. Lenders will use this information to analyze the health of your business. 

You won’t be able to change things such as your credit score and annual revenue overnight, but you can impact their decision in other ways. 

Get Organized

Show lenders your business in a position to succeed by presenting a well-formulated business plan, a list of references, an active target market and an engaging product. Too often, business owners approach lenders unprepared and unable to explain their reason for applying.

Give Realistic Projections

When presenting your business plan to your potential lender, it’s important to present well-calculated, realistic cash-flow projections Blowing your projections out of proportion won’t make you a more qualified applicant. 

Make Yourself More Attractive to Lenders 

If you don’t have an immediate need for funding, there are other ways to improve your likeliness of approval. Make lenders want to say yes to you. Paying off debts, rebuilding your credit and, in some cases, offering collateral, are all ways to reduce the risk for lenders and make it less hard to get a small business loan

When you’re asking yourself, “Is a small business loan hard to get?” keep in mind what lenders are looking for and how you can improve your chances for approval.

Two business professionals hold suitcases and shake hands surrounded by various graphics, including laptops and cell phones.

So, Is It Hard to Get a Small Business Loan?

Instead of wondering how hard it is to get a small business loan, consider how easy it might be. With so many financing options available to small business owners, getting a business loan doesn’t have to be difficult. Use the information we’ve provided here to understand what lenders take into account when loaning funds and what you need to qualify. 

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