As a small business owner, at some point, you’ll likely find yourself in a situation where you could use extra cash, no matter the age or stage of your company. Whether you need temporary help making ends meet or you’re looking to finance a large purchase, it’s helpful to understand how to apply for a business loan.

How Do Small Business Loans Work?

Business financing, whether through loans or other options, can help established small business owners and entrepreneurs who are launching new businesses. Small business loans work as a way to pay for day-to-day operations and purchase equipment or real estate. You can also use them to fund marketing costs and inventory.

Once you qualify for a business loan or other financing option, you have instant access to funds. You pay for that access over time, usually via interest payments. Applying for a business loan is a decision you should make with careful consideration, figuring out which loan option and lender to pursue is best for you.

What Do You Need to Get a Business Loan?

applying for a business loan

Every business must apply for a business loan before lenders can determine whether it’s qualified to borrow money. Most traditional lenders want to see a strong business plan, clear financial records (including annual revenue, cash flow reports and tax returns) and your business’ credit history. They’ll also request information on the business and its owners before deciding whether to issue a loan. While alternative lenders often have more lenient eligibility requirements, their applications typically request similar information.

Applying for a Business Loan in Five Steps

Once you know that you need funding for your small business, it’s time to research different loan types. Start by focusing on why you need a loan and what the money will help you finance. Some loan types are designed for specific large purchases, like manufacturing equipment and commercial property. Other financing options can be used to cover general needs.

Once you’ve narrowed down which types of loans may work for you, get familiar with the loan qualifications and begin to compare lenders. With a short list of lenders to consider, the next step is to review loan requirements and gather relevant documents before applying for the loan. Read on for more details on each step.

1. Determine Your Need and Choose Your Loan Type

To help you determine which type of loan to pursue, consider your business’ creditworthiness and goals. Why do you need a business loan at this point in time? Maybe you’re financing a large equipment purchase or need a relatively small amount to purchase raw materials. Maybe you’re having temporary cash flow issues. Or perhaps you’re expanding your business and must fund increased operating expenses while your sales grow to match this new scale.

When you keep your needs at the forefront, you’ll have an easier time identifying which type of loan is right for your business.

Your next step should be researching each type of loanavailable to small businesses. Common business loan options include:

  • Term loans. These business loans come with a repayment term between two to 10 years. They are typically issued by banks and other private lenders that are known to have lower approval ratings for small business loans. Because these lenders tend to service higher loan amounts, they are more wary of risk. To qualify for a term loan, you often need a credit score above 680 and to have been in business for at least two years with demonstrated profitability. This means term loans are often best for large businesses with longer track records.
  • Small Business Administration (SBA) loans. The SBA partners with various lenders – including banks, credit unions, microlenders and community development organizations – to design and issue loans that meet various needs unique to small businesses. The loans that SBA offers through its network of lenders can range from $10,000 microloans to $5 million 7(a) loans. Because the SBA guarantees a portion of each loan, it assumes some of the risks of each lender. This enables small businesses to take advantage of lower interest rates, longer repayment periods and lower credit score requirements. In the 2022 fiscal year, the SBA issued more than 62,000 loans, including 7(a) loans, 504 loans and microloans.
  • Equipment loan. Also known as equipment financing, these loans are designed specifically for purchasing machinery, hardware or even furniture. If you secure this type of loan, your equipment functions as the loan’s collateral. And if you fail to make payments, your lender can seize it.
  • Online business loans. These loans are offered by alternative lenders that have higher risk tolerance and fewer eligibility requirements. Small business owners with poor credit and newer businesses can often qualify for online business loans. While business owners may be able to secure online business loans quickly and easily, this type of loan comes with much higher interest rates than others, especially for borrowers with poor credit scores.
  • Personal loans. Your ability to secure a personal loan depends on your own credit score and income. Typically, only new entrepreneurs starting up their business use personal loans to fund business needs—and only if their lender hasn’t restricted use for business.

Other options for financing business expenses include business lines of credit and business credit cards, each of which can be obtained more quickly than most business loans. Plus, they can help you build and improve your business’s credit history.

Now that you understand various loan options, you can determine which type of loan may work best for your needs.

Tip: Use a business loan calculator to determine your potential monthly payment.

2. Review Business Loan Qualifications

Once you’ve narrowed down your loan options, it’s time to determine whether you meet the criteria to qualify for a business loan. Do a self-audit to see what types of loans you’re likely to qualify for using this checklist:

  • Check your personal credit score.
  • Know your business’ credit score.
  • Write down the date you established your business and calculate how many years you’ve been operating.
  • Decide whether you’re willing to personally guarantee your loan.
  • Catalog potential collateral.
  • Look at your financial records and find your average annual revenue.

Eligibility Review

Beyond a standard loan‑preparedness checklist, lenders may evaluate additional factors that influence eligibility. While many business owners expect the process to mirror a personal loan application, documentation requirements can vary depending on the type and term of financing being considered:

Eligibility For Short Term Loans

For short‑term and revenue‑based financing options, lenders often focus on recent cash‑flow performance rather than long‑term profitability. This may include reviewing the most recent three to four months of bank statements to assess consistency and overall financial activity. Approval decisions may also take into account the owner’s credit profile, industry, average monthly revenue, deposit frequency, average daily balances and existing business credit.

Eligibility For Long Term Loans

By contrast, longer‑term financing options, such as SBA and traditional bank loans, typically require more comprehensive financial documentation. This may include tax returns, profit and loss statements, balance sheets and debt schedules. Businesses are generally expected to demonstrate profitability. Repayment structure is another important consideration, as shorter‑term financing may involve more frequent payments and repayment may begin shortly after funding.

For businesses that do not yet meet lender requirements, taking steps to improve readiness can strengthen future financing opportunities. Key considerations include:

  • Time in business: Most lenders require a business to be at least six months old and many apply a match‑maturity approach, meaning loan terms typically do not exceed the length of time the business has been operating.
  • Revenue consistency: Demonstrating steady revenue trends across recent bank statements can help signal financial stability.
  • Account management: Negative balance days and non‑sufficient fund occurrences may impact eligibility and should be avoided when possible.
  • Personal credit: Maintaining strong personal credit can improve financing options, particularly for newer businesses that are still building a financial track record.

Tip: If you find that you don’t qualify for traditional term loans or SBA loans, identify what you need to do to improve your chances of qualifying in the future (e.g., improving your credit score). In the meantime, consider other options. It is possible to qualify for a business loan with bad credit, but you’ll likely have to settle for higher interest rates and shorter repayment terms. There are also other financing options such as business credit cards, invoice factoring and merchant cash advances.

3. Compare Loan Lenders

Would you buy a car after test driving it at the first dealership you visit? Most likely not. You’d probably visit several dealers to make sure you’re getting a good deal. This strategy applies to shopping for a loan, too. Once you know which type of financing option will best serve your business, it’s time to find out which lender is the right fit. Shop around with various lenders.

When comparing lenders, interest rate is an important consideration, but it should not be the only one. Business owners may also want to review repayment terms, flexibility and how a lender supports future access to capital.

Understanding whether prepayment penalties apply and whether early repayment can reduce the remaining cost of capital or interest can help clarify the true cost of a loan over time.

It is also helpful to understand how and when additional funding may become available. Some lenders require a higher percentage of the original loan to be repaid before offering more capital, while others allow borrowers to qualify sooner. Finally, the speed of funding and the overall application process may be key factors for businesses that need timely

If you’re pursuing a term loan, talk with several traditional banks and credit unions. For a short-term loan, check with multiple online lenders. Whatever financing option you choose, compare interest rates, repayment terms and your monthly payments. Make sure your business can afford the cost of borrowing money. Beyond the numbers, consider each lender’s reputation for fairness and service.

4. Review Business Loan Requirements and Gather Documents

Each lender has their own application process and loan requirements. Some, for instance, require a personal guarantee from the small business owner. The necessary documentation you’ll need to gather will depend on this criteria, so get a list of what your top lenders need to see. In general, most require:

  • General business information, such as years in business, the product lines you offer and your business plan. This will help lenders determine the viability of your business.
  • Financial documents. such as your profit and loss statement, cash flow report and tax returns. These demonstrate your business’ financial track record and help lenders calculate whether you’ll be able to afford monthly repayments.
  • Information about you, the business owner. This includes details like your experience, educational background, personal income and personal credit score. This gives lenders confidence in your ability to run a successful business – and to make good on your personal guarantee, if necessary. There are sometimes special financing options for minority and underserved business owners, so you may choose to disclose that information if relevant.
  • Collateral information, such as vehicle titles and property deeds, will be required if your loan requires collateral as backing.

5. Apply for a Loan

Each lender has their own application process. Some applications take as little as five minutes with decisions given within 24 hours. Others might take weeks to decide whether a candidate qualifies. Many online lenders aim to streamline the application process as much as possible, even offering a funding specialist to help guide small businesses through the loan process – from application and loan selection to qualification and funding.

If you opt to apply for a business loan from traditional lenders such as banks and credit unions, you may not have a lending specialist to guide you. In those cases, consider working with a business-focused financial advisor who can both help you determine whether you’ve chosen the best option for your business and double-check your loan application before you submit it.

4 Reputable Lenders for Business Loans

business loan requirements

These lenders help small business owners get the right funding for their business needs.

1. Lendio

You can apply for financing in just 15 minutes with Lendio. If you qualify, you could receive your funds in as little as 24 hours. Lendio’s lender marketplace offers various types of business loans, from SBA loans and startup loans to commercial mortgages and business acquisition loans. You’ll also find other financing options such as accounts receivable financing (or invoice factoring) and business lines of credit.

2. Biz2Credit

When you use Biz2Credit, you can apply for a business loan from $25,000 up to $6 million. This business financing partner says its application process takes just four minutes and qualified businesses can get funded within 72 hours. The process is designed to start with your business needs before serving up potential funding solutions that include short-term working capital loans, term loans and commercial real estate (CRE) loans.

3. Fundera

After businesses fill out just one application, Fundera finds the best financing options from its lending marketplace and pairs applicants with a funding advisor. From there, businesses can compare options from various funding categories with guidance from their advisor. These options may include SBA loans, term loans, equipment financing, invoice financing, business lines of credit, short-term loans, merchant cash advances, startup loans, business credit cards and personal loans.

4. National Funding

National Funding operates in all 50 states and has helped small business owners with their financing needs since 1999. Known for its quick funding, National Funding also offers an early payoff discount to borrowers who pay off their loans quickly. This lender offers both short-term small business loans from $10,000 to $400,000 and equipment financing up to $150,000. It also has low-threshold eligibility requirements. To secure a small business loan, for example, business owners need just six months in business and a credit score of 600, even without collateral to back their loan.

About our contributor: Jeffrey Maitles is a Senior Account Executive at Lendio, where he has spent over five years helping small business owners navigate the loan application process. With hands-on experience guiding borrowers through eligibility requirements, documentation and lender expectations, Jeffrey brings a practical, people-first approach to connecting entrepreneurs with the right financing.