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How to Get a Small Business Loan

By Elise Moores Managing Editor at Fast Capital 360 Reviewed By Mike Lucas

Getting a business loan or other financing, and securing that funding at the best rates, isn’t as difficult as one might think. It all starts with learning about the right option for your small business.


8 Steps to Getting a Business Loan

Here’s how to apply for a small business loan: Do some homework before signing on the dotted line.

Conducting research and employing due diligence before filing a small business loan application are crucial and will help you determine which financing options work for you — now and in the future as you pay down the loan.

Follow these 8 steps to getting a small business loan:

  1. Determine whether a loan is truly necessary
  2. Check your creditworthiness
  3. Weigh your options
  4. Prep your financial records
  5. Choose a loan type
  6. Assemble the application
  7. Make your pitch
  8. Wait for approval

Step 1: Should You Get a Business Loan?

Determine exactly why you need outside funding. Do you require a loan to start your small business or manage its daily expenses? Or do you need capital to expand your company?

The reasons why you’re seeking a business loan should steer you toward which financing options best suit your needs and how you should go about securing them. For example, if you’re seeking a loan for startup capital, equity financing might be the better choice.

How Much Funding Do You Need?

Many business owners interested in applying for funding often ask, “How much financing can I get?” The better question is, “How much do I really need to borrow?”

If you have a vague idea of how much your company requires to cover  its short-term expenses or projects, you might end up borrowing (and paying interest on) more funding than you need.

Conversely, some business owners are too conservative when it comes to asking for a larger or longer-term loan. Don’t underestimate the amount of capital you need: That can jeopardize the financial sustainability of your company.

Know what you’re asking for — and what you need — to make this investment successful.

Step 2: Start Searching for Small Business Financing

Once you’ve decided your company needs funding, it’s time to track down the best options for a small business loan. Applying for financing has never been easier.  However, prepare yourself before you  rush to submit your small business loan application.

Make sure your company’s financial records are organized and accessible before you apply for a business loan or other financing.

Also take steps to ensure your credit score and financial metrics are the best they can be. The stronger those numbers are, the more likely you are to get approved — and land more competitive rates.

How to Apply for a Business Loan with Bad Credit

Wondering about how to obtain a business loan with bad credit? It’s possible. Just keep in mind the terms won’t be as favorable. The worse your business’s financial condition, the more expensive your loan will be.

Make sure your company is in the black and not operating at a loss at the time of application.

Many lenders look to your own creditworthiness when assessing your business’s fundability. If your personal credit score is fair to very poor (580 or below), you should start building positive credit as quickly as possible to bolster your chances of getting the loan approved. Simple things, including paying bills or debts on time and maintaining a diverse credit portfolio, can contribute to a better credit score.

Step 3: Know Your Credit Score

Not all small businesses are equal in the eyes of lenders. Indeed, there are metrics and scores that separate highly qualified  businesses from those who are riskier for financing providers. The key to how to get  approved for an affordable business loan, is lenders putting your business in the first category.

Because it can take some time for a small business to establish a strong credit rating, many lenders consider other qualifications and guarantees. Some review personal credit scores.

What credit score do you need to get a small business loan? It depends on the lender and the type of financing. Many institutions will want to see a minimum credit score of 680, but other lenders could accept scores of 630 or 600.

Regarding the Debt-to-Income Ratio

Another important metric creditors use to determine creditworthiness is your debt-to-income (DTI) ratio, which helps lenders measure your business’s overall financial health and ability to repay additional debts.

If your debt-to-income ratio is too high (under 35% is preferred, but ratios as high as 50% can still be OK), most creditors could see you as a poor candidate for getting a business loan.

Step 4: Pick the Right Lender

Some new entrepreneurs assume they have to get a small business loan from a large, national bank. You’re more likely to get approved if you solicit a smaller, regional bank with a history of taking on smaller clients.

When considering how to get a small business loan, keep in mind there are other lender options to consider, namely credit unions, not-for-profit financiers and alternative lenders, including online marketplace operators such as Fast Capital 360.

Make sure you review your funding options and research where to get a small business loan, including:

  • Big banks (e.g., Wells Fargo, JPMorgan Chase, etc.)
  • Regional banks (small local chains)
  • Nonprofit lenders
  • Online lenders (e.g., Fast Capital 360)
  • Microlenders
  • Credit unions
Do you need a loan for your small business?

Step 5: Choose a Form of Business Financing

Far too often, new business owners apply for a long-term bank loan without considering financing alternatives. Here are 4 of the most popular financing options for small businesses:

SBA Loans

This is a secured loan backed by the Small Business Administration (SBA). These low-interest loans are provided by commercial banks, financing companies and nonprofit lenders rather than the U.S. agency itself.

When applying for a regular term loan at a bank, you need to put up assets to secure the funding. If you need to get a small business loan without collateral—such as property, cash or inventory—the bank will likely consider the application too risky.

Enter the SBA and its loan program: The federal agency provides the capital guarantee needed to secure a small business loan  on your behalf. Since SBA loans are generally less expensive than other alternatives to regular term loans, they’re one of the most cost-effective ways to fund a small business.

Getting a long-term small business loan from the SBA can be competitive, so be ready to meet the requirements.

Do you qualify?*

  • In business 2 or more years
  • Annual revenue of $50,000 or higher
  • Credit score of 650 or more

*Fast Capital 360 requirements for borrowers

Business Line of Credit

Business lines of credit are a convenient, take-what-you-need option for financing a new company. Unlike conventional loans, a business line of credit offers accessible funding for companies that need an indefinite sum of capital to get them through a cash crunch or major expense.

A business credit line allows better control over your business’s debt and can be easier to secure than a small business loan. Acting as a reserve source of cash to be used whenever needed, the line of credit can also supplement a conventional loan.

Compared with loans and equity financing options, business lines of credit offer the following advantages:

  • Flexible cash-flow management
  • Lower interest rates and higher limits than most credit cards

Do you qualify?*

  • In business 6 months or more
  • Annual revenue of $160,000 or more
  • Credit score of 575 or higher

*Fast Capital 360 requirements for borrowers

Invoice Financing

A form of accounts receivable financing, invoice factoring involves the pledging of unpaid invoices as collateral in exchange for cash.

Companies that need fast cash for short-term expenses often turn to invoice financing if they have high-value outstanding invoices yet to be paid.

Most banks and creditors offer between 75%-90% of the invoice face value. The cash is then advanced to the borrower and the remaining balance is remitted after the invoice is paid in full, minus fees.

Those looking to get a small business loan with bad credit can take advantage of invoice financing because the creditworthiness of your customers is weighted more heavily than your company’s financial health.

Do you qualify?*

  • In business 1 year or more
  • Annual revenue of $150,000 or more
  • Credit score of 600 or higher

*Fast Capital 360 requirements for borrowers

Equipment Financing

If your business operates in an industry that’s reliant on equipment, such as the medical or construction industries, you may be eligible for equipment financing. To help purchase the expensive equipment needed to run your business, banks and other creditors can advance you up to 100% of the value of the equipment, which you then repay with interest.

One of the main benefits of equipment financing is lower interest rates. Since the equipment generally secures the loan itself, interest rates don’t skyrocket because you don’t have collateral on hand.

Do you qualify?*

  • In business 2 years or more
  • Annual revenue of $160,000 or more
  • Credit score of 620 or higher

*Fast Capital 360 requirements for borrowers

A man and a woman sit at a table as the woman reviews documents and prepares to sign them.

Step 6: Complete the Loan Application

Now that you’ve narrowed down the type of loan or financing option that’s right for you, you’re ready to move on to the process of applying. You’ll need to go to the lender and begin the application. Generally, a loan officer will be your first point of contact and go-to for all things related to your loan.

Small business tip:

For more on how to do this, skip steps 7 and 8 and go right to “How to Apply for a Business Loan Online.

Meeting with a loan officer, likely face-to-face, will be a critical step in securing your loan.

However, if you’re looking to an online lender regarding how to secure a business loan, some lenders provide web access to applications and business advisers to help with this stage. In that case, you may simply be able to speak to an adviser over the telephone to complete the entire process.

Gather Your Documents

Make sure you have all the crucial documents on hand, including:

  • A piece of government identification
  • Business license and permits

You also will need to provide proof that you are the lawful owner of your company, such as:

  • Articles of incorporation (if applicable)
  • Owner’s tax return, including the Schedule C form
  • The “doing business as” with owner’s name attached
  • Stock ownership documents (if applicable)
  • Internal Revenue Service (IRS) form K-1
  • Company stock certificates

Step 7: Make Your Case

Once your small business loan application is signed, sealed and delivered, you should prepare to meet face-to-face with your financial institution’s loan officer.

You’ll pitch your case for why your business can be trusted with the money by explaining its intent. Be prepared: Come with a rehearsed pitch and an organized business plan.

Give yourself 10-15 minutes to go over your planned capital expenses and a roadmap to profitability. Your presentation should start with an executive summary that quickly states main talking points and your company’s competitive advantage.

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Step 8: Wait for Approval

How long it takes to learn whether you’re approved for financing depends on the lender.

It may take months to get approval for a small business loan from a bank, especially a large one. Smaller, regional banks tend to take significantly less time to process a small business loan application.

The approval process is typically much faster if you apply for a business loan online, with some lenders approving loan applications within hours of receiving them.

A woman receives a notification on her smartphone that a lender has approved financing for her business.


How to Apply for a Business Loan Online

Secure a small business loan from the comfort of your home. Online lenders make the loan application process quick and easy.

Choose an Online Business Loan Type

There are several options available to you if you’re interested in applying for a business loan online, including the options outlined above as well as:

Short-Term Loans

Short-term loans are a great choice if you need quick funding but don’t want to tie up your future expenses.

They’re structured similarly to long-term loans, but are repaid over 3-18 months. You can still borrow medium-to-large amounts (up to $500,000) but be aware that the shorter repayment terms can often mean higher monthly payments.

Do you qualify?*

  • In business for 1 year or more
  • Annual revenue of $75,000 or more
  • Credit score of 540 or higher

*Fast Capital 360 requirements for borrowers

Merchant Cash Advances

Another option when it comes to online borrowing is taking out a merchant cash advance.

This type of financing involves a lump sum cash infusion issued in return for a portion of the company’s sales.

Most online merchant cash advances require a minimum credit score of 500 or higher. Typically, online lenders issue merchant cash advances in the range of $3,000-$500,000, depending on your revenues and what you have the ability to repay.

Do you qualify?*

  • In business for 6 months or more
  • Annual revenue of $75,000 or more
  • Credit score of 500 of higher

*Fast Capital 360 requirements for borrowers


The Pros and Cons of Online Business Loans

Pros

✔ Applying for a business financing online is far more convenient and expedient than the conventional application process.

✔ At a brick-and-mortar bank, it might take upwards of a month for your application to be reviewed, but online lenders can process a loan application in as little as a day.

✔ For businesses going through a cash crunch, online financing provides accelerated access to cash. Some online lenders can provide business financing the same day you apply.

✔ Between SBA loans, merchant cash advances, short-term loans and more, there are various online business funding options to suit a company’s unique needs and challenges.

✔ Applying for a business financing online is far more convenient and expedient than the conventional application process.

✔ At a brick-and-mortar bank, it might take upwards of a month for your application to be reviewed, but online lenders can process a loan application in as little as a day.

✔ For businesses going through a cash crunch, online financing provides accelerated access to cash. Some online lenders can provide business financing the same day you apply.

✔ Between SBA loans, merchant cash advances, short-term loans and more, there are various online business funding options to suit a company’s unique needs and challenges.

Cons

✗ Expedited funding isn’t cheap. If you need cash within a few days, financing from an online lender may translate to higher annual percentage rates (APRs).

✗ You may be facing shorter repayment terms.

✗ Some online lenders tack on hidden fees or terms.

The Online Application Process

Typically, online lenders require applicants to contribute the following information:

  • Income and annual revenue information (often in the form of a bank statement)
  • Social Security number
  • Business name and legal name
  • Business tax identification number
  • Personal contact information

Depending on the online lender, your qualifications and the type of loan you’ve applied for, financing can be approved within hours and funding could be transferred to your business bank account in as little as 24 hours.

Are Online Business Loans Safe?

Yes, for a number of reasons.

Online business loan applications are managed and reviewed electronically using secure web portals that protect your data through encryption, keeping it confidential and safe from security threats.

For instance, Secure Sockets Layer (SSL) encryption is a standard technology that makes the link between the web server and your browser highly threat-resistant. It ensures that all data and messaging between the lender and borrower is kept private.

Seek online lenders with a TRUSTe Certified Privacy certificate. These finance firms have taken steps to ensure that the highest data privacy standards are upheld and all collected data is kept confidential and secure.

Keep in mind it’s crucial to exercise due diligence and thoroughly research any lender or platform you use to apply for an online business loan.

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  • Document icon
    Accounts Receivable Financing
    Advance amount: Up to 80% of receivable value
    Repayment terms: Until the customer pays the invoice
    Factor rate: Starting at 1.02
    Funding available: Same day
    Advance amount: Up to 80% of receivable value
    Repayment terms: Until the customer pays the invoice
    Factor rate: Starting at 1.02
    Funding available: Same day
  • Business Lines of Credit
    Financing amount: Up to $250,000
    Estimated repayment term: 6 months - 2 years
    Interest rate: Starting at 8%
    Speed of funding: 1 day
    Financing amount: Up to $250,000
    Estimated repayment term: 6 months - 2 years
    Interest rate: Starting at 8%
    Speed of funding: 1 day
  • Calendar icon
    Business Term Loans
    Financing amount: Up to $250,000
    Repayment terms: 1 - 5 years
    Interest rate: Starting at 7%
    Speed of funding: 1 day
    Financing amount: Up to $250,000
    Repayment terms: 1 - 5 years
    Interest rate: Starting at 7%
    Speed of funding: 1 day
  • Bank icon
    Commercial Loans
    Financing amount: Up to $5 million
    Loan term: 3 months - 25 years
    Interest rate: Starting at 7%
    Speed of funding: Same day
    Financing amount: Up to $5 million
    Loan term: 3 months - 25 years
    Interest rate: Starting at 7%
    Speed of funding: Same day
  • Wrench icon
    Equipment Financing
    Financing amount: Up to 100% of equipment value
    Repayment terms: 1 year - 5 years
    Interest rate: Starting at 8%
    Speed of funding: 2 days
    Financing amount: Up to 100% of equipment value
    Repayment terms: 1 year - 5 years
    Interest rate: Starting at 8%
    Speed of funding: 2 days
  • Money icon
    Merchant Cash Advance
    Advance amount: Up to $500,000
    Estimated repayment term: 3 - 24 months
    Factor rate: Starting at 1.10
    Speed of funding: Same day
    Advance amount: Up to $500,000
    Estimated repayment term: 3 - 24 months
    Factor rate: Starting at 1.10
    Speed of funding: Same day
  • Bag icon
    SBA Loans
    Financing amount: Up to $5 million
    Repayment terms: 5 - 25 years
    Interest rate: Starting at 6.25%
    Speed of funding: 7 days
    Financing amount: Up to $5 million
    Repayment terms: 5 - 25 years
    Interest rate: Starting at 6.25%
    Speed of funding: 7 days
  • Short-Term Business Loans
    Financing amount: Up to $500,000
    Repayment terms: 3 - 18 months
    Interest rate: Starting at 10%
    Speed of funding: Same day
    Financing amount: Up to $500,000
    Repayment terms: 3 - 18 months
    Interest rate: Starting at 10%
    Speed of funding: Same day
  • Store icon
    Working Capital Loans
    Financing amount: Up to $500,000
    Repayment terms: 3 months - 5 years
    Interest rate: Starting at 7%
    Speed of funding: Same day
    Financing amount: Up to $500,000
    Repayment terms: 3 months - 5 years
    Interest rate: Starting at 7%
    Speed of funding: Same day

One application. Multiple loan offers.

Quickly compare loan offers from multiple lenders without impacting your credit score.

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