Whether you are a new business looking for a loan to get started or an established company that needs extra money to expand, a business loan can be a good option for keeping you running smoothly. But the process of applying for and getting a small business loan for your organization doesn’t always feel straightforward. To make understanding these loans easier, we’ve gathered all the information in one place for you.
Each financial institution will have slightly different requirements for business loans, but in general, these are the things you’ll need to provide:
Personal Credit Score - The higher the better when it comes to credit scores. Generally, a minimum is considered 640-700 to potentially have a loan approved (FICO credit scores are between 300-850, with a good score being 670-740).
Business Credit Score - A business loan credit score requirement may also apply. These commercial credit scores range from 0-100 and show things like if a business pays its bills on time, its legal standing, and how long it’s been operating. Many businesses, especially small businesses, won’t have a business credit score, and these are generally given less weight than personal credit scores.
Annual Business Revenue - This is the money your business brings in each year. Loan providers vary widely on what they require but the minimum range can typically be between $100,000 and $250,000.
Time in Business - The longer your business has operated, the less of a risk the bank sees you as. Often lenders require that a business has been operating 2-3 years when applying for a loan.
Industry - There are some specific industries that are ineligible specifically for Government-backed SBA loans, and might be less likely to be approved for other loans as well. These include firms participating in illegal activity, gambling businesses, pyramid sales-based companies, and non-profit organizations.
Size of Business - The number of employees in your business will affect which types of loans you might be eligible for, especially with small business loans.
Business Plan - A lender will likely want to see a business plan when considering a loan. This document lays out a company’s financial goals and how they’ll be achieved over the next 3-5 years.
Loan Proposal - Some loans will require a loan proposal, which provides specifics on how loaned money will be spent and how a business’ finances will be able to cover the repayment schedule.
Personal Guarantee or Business Collateral - Lenders often require collateral to back a loan. This can look like personal assets that will be used to repay the loan amount in case of a business failure (a personal guarantee) or business assets like equipment or real estate (business collateral).
Legal and Financial Documentation - Loan applications will need to include proof of relevant information, which can be things like bank statements, tax returns, commercial lease agreements, business licenses, and articles of incorporation.
The most common form of government loan for businesses is made available through the Small Business Administration (SBA). SBA loans are not given directly from the government, however. They are provided through approved lending agents like credit unions, banks, and online financial institutions that the SBA guarantees to back in order to lessen the risk to the lender. SBA loans are available in a wide range of amounts, from $500 to $5 million, and have a capped interest rate so they can be more affordable than non-SBA loans for the borrower.
There are a variety of SBA loan options, including:
SBA Express Loans
SBA 504 Loans
SBA Disaster Loans
SBA Community Advantage Loans
SBA Export Working Capital Loans
SBA Export Express Loans
SBA International Trade Loans
SBA loans are not without their downsides. They typically have a longer approval time than other loans, up to 2-3 months. This makes these loans unsuitable for very time-sensitive funding needs. They also usually require a 10%-30% down payment on the loan amount and can often require collateral. If you need a fast turnaround with no collateral required, Backd reviews lending applications and delivers funds within days instead of months.
The specifics of your business will play a factor in deciding what is the easiest SBA loan that you can qualify for. There are two SBA loan types specifically designed for underserved communities that have less strict SBA loan requirements, Microloans and Community Advantage Loans. These will be easier to get for startups, those with bad credit, and minority- or veteran-owned businesses.
Microloans are given by SBA-approved nonprofit community lenders, like credit unions. As the name suggests, they are smaller loans, with the maximum being $50,000.
Community Advantage Loans are a pilot program under the SBA 7(A) loan type that was created in 2011 and has been extended to at least 2024. In this pilot program, the SBA 7(A) loan requirements have been relaxed in order to better serve the needs of small businesses in underserved markets.
One of the main benefits of an SBA loan is that government backing means lenders are taking on less risk when giving out a business loan, so approval rates are typically higher than non-SBA business loans. At small banks, SBA loans have almost a 50% approval rate, while at large blanks they are approved around 25% of the time. Standard commercial loans, including non-SBA loans, stay closer to a 15% approval rate.
Getting a loan for a brand-new business can be a challenge. One of the important aspects of proving to a lender that you will be able to pay back a loan is showing that your business idea is able to generate profit, something a brand-new business doesn’t yet have proof of. Although there are fewer loan and borrowing options for startups, there are still options to choose from, including:
Business Credit Cards
Online Financing Options
Of the true loans available to startups, SBA microloans are the most accessible. The startup business loan requirements for microloans are set by the individual lender where you apply, so they vary from application to application. SBA microloans are available for a maximum of $50,000, but the average amount approved is $13,000.
In general, the requirements for a business loan for a new business include:
Being a for-profit business
Having average credit (usually 575 minimum) or better
Providing financial projections and a detailed business plan
Offering business or personal collateral
Demonstrating “good character” without a history of crimes of dishonesty, like theft or fraud
If you want a traditional loan as a brand new Limited Liability Company (LLC) that’s been in business less than six months, an SBA microloan with a maximum of $50,000 will likely be your option. LLC business loan requirements are the same as those for other business types and vary by lender.
For LLC’s that have been in business for a year or longer, alternative funding options like Backd can provide financial options from $10,000 to $2 million, depending on the specifics of the business.
It can be a challenge to get a loan for a brand new business without having money to invest from the start. The best way to go about it will likely be to:
Save or borrow enough from friends or family to legally establish the business. This can be done by registering it as an LLC in your state—which typically costs $100 or less depending on the state.
Open a business bank account to start establishing business credit and prove it is a legitimate business.
Create a strong business plan with clear financial projections for the first 3-5 years.
Apply for an SBA microloan or a grant specifically designed for startup businesses.
Operate your business on a small scale using these finances until your business has been established for 6-12 months, when more financing options will become available.
Small business loan requirements vary, but in many cases, the following things make it less likely your company will be approved for a loan:
A credit score under 550 - Business loans for bad credit are very few and far between, taking steps to improve your credit score will be needed before you are able to be approved.
Illegal or hard-to-fund industry - Things like drug paraphernalia sales, gambling establishments, and pyramid sales companies are often disqualified from commercial loans.
Lack of a business plan - Poorly done or missing business plans are unlikely to be approved for loans.
Limited time in business or unavailable annual revenue report - Proving to a loan provider that you can pay back your loan will be very difficult without provable company profitability.
No collateral - If you cannot offer up business collateral (like equipment or real estate) or personal collateral (like a home or car) many lenders will be unable to approve your loan.
Incomplete application - Paperwork matters for business loans, and if you do not correctly fill out everything and provide the needed documentation for your loan, you will not be approved.
Traditional loan options often have strict requirements for approval that exclude many small businesses. But there’s another option! Backd makes business funding easy with requirements that are simple to understand and same-day decisions.
All you need is:
1 year in business minimum
$100K annual revenue minimum
A business bank account
A U.S.-based business
Backd offers customized solutions to your business funding needs, so you can get exactly what you need to fuel your growth and success.
Working capital funds from $10,000 to $2 million
Term lengths up to 16 months
Automatic payment portal so you can customize your payback to daily, weekly, or semi-monthly
No collateral required
Apply today in three minutes or less and get the funding you need in just days!