Business loan

How to Apply for a Small Business Loan in 4 Steps


If you’re wondering how to apply for a small business loan, take the time to do your research and find the one that’s right for you. It may take months for get a business loan, in particular one supported by the Small Business Administration. By understanding all of your options and avoiding rushing the process, you will be in the best position to gain approval and avoid wasting time or money.

with Fundera by NerdWallet

Find a lender

Here are four steps to apply for a small business loan.

1. Decide where to apply for a small business loan

Banks, online alternative lenders, and other sources offer business loans. The best place to apply for a small business loan will usually be where you qualify for the lowest interest rate. But the following questions should also influence your decision:

  • How good are your finances? Bank and SBA loans generally offer the most competitive interest rates. These low rates come with strict criteria, however: you’ll likely need at least two years in business, high annual income, and good credit (many small business lenders require a FICO score of at least 650. ) to be eligible for funding. If you have bad credit or cannot achieve these marks, your best bet may be to apply for a small business loan from an online lender.

An SBA loan is a loan given to small businesses by private lenders but supported by the federal government. You apply for an SBA loan through a lending institution such as a bank or a credit union. Then this lender asks the SBA for a loan guarantee, which means that if you default on an SBA loan, the government pays the lender the guaranteed amount. The SBA requires an unconditional personal guarantee from anyone who owns at least 20% of the ownership of a business, which requires them and their personal property to pay. The SBA offers several loan programs, including 7 (a) loans, 504 loans, and microloans.

  • What type of financing do you need? Several types of commercial loans are available, but not from all lenders. If you buy heavy machinery, for example, a lender with a equipment financing may make sense. For ongoing working capital, consider a business line of credit that you can draw on as needed. If you want to apply for an SBA loan, which can be up to $ 5 million, you can find participating lenders using the lender matching tool.

  • When do you need the loan? If you need financing quickly, you may want to prioritize online lenders. These lenders may have automated processes that allow them to quickly review requests and offer fast business loans. If you can wait more than a few days, SBA Express Loans may offer faster turnaround times than other federal options, but similar benefits, such as competitive pricing and flexible terms.

If multiple lenders meet your needs, see if there are any that allow you to pre-qualify for an estimated interest rate. This option will likely be more common with online lenders. For traditional lenders like banks, consider speaking with a loan officer before applying to make sure you qualify.

2. Obtain your application documents

Each lender may require different documents for their small business loan application. Most will probably want some form of the following:

  • Information about your business. These items range from simple – like name, address and Tax Identification Number – more detailed documentation. For example, a lender may want a business plan or a proposal describing how you will use the loan.

  • Financial statements for you and your business. These can include documenting your annual income, such as profit and loss statements, as well as income tax returns and bank account statements for business owners and the business itself.

  • Details of the owners of the business. You may need information such as the names, social security numbers, and addresses of anyone who owns more than a certain percentage of your business, typically 20% or 25% depending on the lender or loan.

3. Review your small business loan application

Before applying for a small business loan, consider having someone else review your application, especially if it includes information that could be subject to interpretation, such as a business plan. One resource is a Small Business Development Center, or SBDC.

SBDCs are local organizations partially supported by the federal government. Each branch has qualified professionals who can provide assistance on topics such as running a business and obtaining financing. You can locate SBDCs in your state using SBAs research tool.

Be sure to double check that your business loan application includes everything the lender has requested and in the correct format. The lender may have questions while they are reviewing your application, but reducing unnecessary back and forth will get you to a decision as quickly as possible.

4. Follow the lender’s instructions to apply

Once everything is in order, how you apply for the small business loan will depend on the lender. For example, online lender Fund of funds allows you to link your business accounts through its website to qualify for funding.

More traditional financial institutions, such as banks and credit unions, may require you to apply at a branch or over the phone. For example, Bank of America accepts online applications for some of its products, such as its auto loans to businesses – but requires an appointment in person or by phone for others.

Regardless of how you submit your application, find out about the lender’s typical turnaround time. This way you will know when to expect a decision on your approval.