How to Get a Small Business Loan


Bryce Warnes


Reviewed by


December 20, 2021

This article is Tax Professional approved


Getting access to funding helps businesses hit that next gear of growth. If you’re looking to inject some capital into your business, here’s how to get a small business loan in nine steps.

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Determine your loan amount

All loans come with interest, meaning borrowers pay based on the amount they’re borrowing. Interest can be a fixed or variable rate. Fixed rates won’t change as you are paying the loan back. But variable rates can change over time making it harder to plan for.

To avoid shelling out extra cash in the long run, borrow only what you need. That means planning out your business needs and future finances as closely as possible.

Put together the following info before you start looking for lenders:

All the expenses you need to cover.

Whether it’s one large purchase (a new piece of equipment) or many smaller ones (renovations and supplies for a new office), make sure you’re accounting for every expense you want your new loan to pay for.

Available cash flow for loan payments

If you have a lot of income coming in during the summer, but you barely break even during the winter, take that into account. Look at past cash flow trends so you know your capacity, month to month, to make loan payments. You can see that info on your cash flow statements or income statements. Startups in particular should be mindful of how consistent their cash flow is as they’re getting established.

Your expected return on investment (ROI)

Which investments will earn you money in the future, and which won’t? Replacing an old piece of equipment with the same model may not grow your revenue. But replacing it with a newer, more efficient model might. Plot out how borrowing money now will earn you money in the future.

Choose which type of loan you need

Once you’ve figured out how much working capital you’ll need, and how it will help you make a profit, it’s time to consider your options. There are three types of loan you have to choose from: SBA loans, business term loans (aka a regular bank loan), and short-term loans.

Small Business Administration (SBA) loan

While you apply for an SBA loan at the usual financial institutions, they are unique in how they’re guaranteed by the Small Business Administration. These long-term loans have some of the most attractive interest rates and loan terms. They’re arguably the best loan you can get but they’re tricky to get your hands on without good finances and a solid credit history.

The SBA also offers microloans with interest rates of 8 to 13% with a repayment term of up to 6 years. Microloans are only available through non-profits and community-based organizations that offer lending and business management assistance.

Key points:

  • Repaid over 5-25 years
  • Backed by the US government
  • Interest starts at ~7.75%
  • Can be used for almost any business purpose
  • Max. $5k–$5m
  • Very stringent application requirements

Best for: Businesses that have operated for at least 2 years, with a proven financial track record and a credit score of at least 640.

Business term loan

A traditional loan, usually provided by a bank, with a set repayment schedule and fixed interest.

Lenders earn money on the loan interest you pay. So if you try to pay your loan off early, you might be charged a penalty fee (since the lender is making less money from you than they originally thought).

Key points:

  • Repaid over 1–5 years, usually with monthly payments
  • Fixed interest rates of ~7–30%
  • Can incur early repayment fees
  • Usually used for large, one-off business investments
  • Few restrictions on how you use the loan
  • Max. $25k–$500k
  • Stringent application requirements

Best for: Predictable businesses with steady cash flow and a credit score of 680 or more, looking to finance something big.

Short-term loans

Finance short-term goals, with loan repayment averaging 3–18 months.

Key points:

  • Repaid over 3–18 months, usually with monthly payments
  • Interest starts at ~10%
  • Max. $2.5k–$250k
  • Suitable for a variety of costs
  • Low or bad credit score may be acceptable

Best for: Businesses with strong cash flow, looking for a shorter repayment commitment.

Heads up! Check the origination fee

Most lenders will charge you an origination fee (or processing fee) for getting your loan set up. According to Investopedia, the origination fee is usually between 0.5-1.0% of the total loan amount.

Consider other financing options

Instead of asking how to get a small business loan, pause for a second. Are you sure you need a small business loan? Or is it something else you’re looking for?

Loans aren’t your only small business financing option. Especially for new businesses without established credit scores, securing a loan with favourable terms is a struggle. But there are other borrowing products for small business owners—some obvious, some not so obvious—that deserve consideration. Those include:

Review lenders

Choosing a lender is a personal decision, based on a number of factors. When looking for a lender, consider:

  • Lender reputation
  • APR (annual percentage rate of the loan)
  • How well you meet the lender’s criteria
  • Positive customer reviews
  • Speed of the loan (how fast is the application process? And how soon can you get the money?)

Start by deciding what kind of lender you would like to work with. Do you have a bank you have an existing relationship with? Would you like to work with a smaller operation like a credit union? Does the ease and accessibility of an online lender entice you? These are the kinds of questions you should ask yourself before you start applying.

Take a look at any FAQs offered by lenders, they provide answers to questions you may not have known you wanted to ask in the first place. If you’re unsure about a lender, check out Google Reviews or TrustPilot and search for the lender’s name. Real reviews from customers will give you an idea of a lender’s strengths and weaknesses. Your loan will likely have a multi-year repayment term, so look out for any history of poor customer service, or reports of costly errors on the lender’s part.

Make sure you’re likely to qualify for a loan

Different lenders look for different things in an applicant. But the basics qualifiers for business financing include:

  • A good personal credit score (for the business owner)
  • A good business credit score
  • Minimum operation time (e.g., your business must have been up and running for at least 9 months prior to the application date)
  • Minimum annual revenue

What’s a “good” credit score? Here’s a rough ballpark, depending on the loan type:

  • Short-term business loan — 550
  • Equipment financing — 600
  • SBAs (Small Business Administration loans) — 640
  • Traditional bank loans — 700+

Before you get started with your loan application, check your lender’s list of specific requirements to make sure you have everything you need to apply.

Improve your eligibility for a small business loan

Here are a few things you can do to improve your eligibility before applying for a business loan.

Stack up your assets

Some loans require you to post collateral. Meaning, if you default on your loan, the lender is able to claim some of your assets with a lien. Those assets can include business vehicles, equipment, accounts receivable, and real estate.

Even if you aren’t posting collateral, lenders may look at your business assets before approving you; they want to see what kind of resources you have to pay off the loan in case your cash flow slows down.

Your most recent balance sheet will tell you how many assets your business holds. By analyzing your balance sheet, you may be able to find ways to increase your assets, such as:

  • Reducing your owner’s draw for a period, allowing the extra money to accumulate as retained earnings
  • Liquidating “slow” assets—such as stocks and bonds or extra unneeded business equipment. Lenders tend to look for “fast” assets; the easier it is to convert an asset to cash, the better. And cash is the fastest asset of all.
  • Auditing your business—going through every recurring expense and revenue source—will help you spot places where your finances can be tightened up. That could involve cutting unneeded expenses, or readjusting your focus to your most profitable revenue sources.

The more assets on your balance sheet when you go to a lender, the better. Beware that in some cases, lenders will require a personal guarantee. Your personal assets would then be used as collateral if your business defaults on the loan.

Fine tune your cash flow

Cash flow statements show you how much cash your company has on hand each month. Lenders may analyze these statements to check the financial health of your company, and make sure you’ll have enough cash each month to make loan payments.

If you’re just scraping by in terms of cash flow, you’d best remedy the problem before you apply for a loan. A few ways to improve your cash flow:

  • Speed up your invoicing cycle. If you get paid through invoices, take measures to get paid faster—like offering discounts for early payments.
  • Tighten up your inventory. Carrying extra inventory slows down your cash flow. You can solve this by making sure to only order from suppliers as much as you need—leaving more of your assets as cash each month, rather than inventory items.
  • Trim overhead. Reviewing your overhead spending could reveal ways to reduce monthly recurring expenses, and give you more cash to work with.

Take care of bad credit

If your credit report isn’t so hot, you should put in the time and effort to take care of your existing debt before you apply for a loan.

No, it’s not a quick and easy trick. Improving your credit score takes time and planning, and may affect some of the ways you do business—like taking a chunk out of your retained earnings to pay down credit cards, or tidying up your books so you’re never late to make payments. But a good credit score is one of the best tools in your kit when it comes to qualifying for a business loan.

Let your business mature

Again—no quick and easy trick here. For new businesses less than a year old, the best strategy may be to just sit and wait.

The longer your company has been around, the more reliable small business lenders consider you to be. Plus, putting off your plans to borrow can help you improve your loan eligibility in other ways—like taking time to improve your credit, or grow your assets and cash flow.

If you’re a new business or startup wondering how to get a small business loan, a detailed business plan can be your secret weapon. The more detailed your business plan, the more a lender may believe in backing your vision. Outline uses of the loan, financial forecasts, and whatever other information you can provide to detail how and when you would pay back the debt.

Prepare your loan application

The loan application process varies from one lender to another. At minimum, you should be able to provide:

Lenders may also ask for:

To apply, you’ll speak with a bank rep and fill out a business loan application. You’ll also provide the lender with all the documents they request. In some cases, there may be back-and-forth discussion about your business and what you’d like to borrow.

How Bench can help

When you’re preparing to apply for a loan, you’ll need to get your financial statements in order, but if you’re not sure where to get started, Bench can help.

First, we’ll get your bookkeeping caught up fast and make sure you have the documents you need to complete your application successfully. Then, once you’ve secured a loan, your Bench bookkeeper will ensure your payments are properly recorded and provide you with the cash flow information you need to stay on top of repayment. Learn more.

Apply for a loan…then wait

If you’re applying for a business loan from a bank today, expect to wait at least one week before hearing back. SBA loans may take longer.

If you’re approved, you’ll sign a contract agreeing to the loan terms. Then, you’ll be charged an origination fee.

After you’ve been approved, it will take a few days for the money to be transferred to your bank account. Be patient! After all, you’re using this loan to grow your business. And growth always takes time.

Not sure a loan is what you’re looking for? Here are the best ways to fund your business.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.
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