Small Business Loans

How to Research, Apply for and Get Financing

As an entrepreneur, you have many small business loans to choose from. The hardest part is determining which one to select and where to start. How hard it is to obtain a business loan will depend on the type of business loan you apply for.  You might be looking for a loan for the purpose of growth, or for a new business venture. Researching and getting to know much about small business loans will significantly help you make smart borrowing decisions.

Deciding How Much You Should Borrow

By now, you know that running and growing your business will require a substantial amount of money. When the right time comes to apply for your small business loan, how much money will you borrow? How much money will the lender loan your business?

According to Mark Quinn, a district director at Small Business Administration in San Francisco, the worst thing that you can do is go to the bank and ask how much loan they can lend you. You are supposed to know exactly how much you need, how it will be utilized, and how you will repay the loan.

The loan amounts vary from lender to lender, and every loan agreement is different. The business loan you can get will depend on your yearly gross sales, current debt, and creditworthiness. The SBA can guarantee a loan of up to $150,000 or less. The SBA can also guarantee term loans of up to $5 million. The smallest loan they can guarantee is up to $50,000. These microloans are ideal for working capital, inventory, and equipment. Your company needs a business loan, but how much exactly? Remember that lenders will question your ability to repay the loan if you ask for too much.

To find out the exact amount of loan you need for your business, create comprehensive cost predictions to determine how you will most likely use your funds. Prepare financial plans, including profits, loss, and cash flow reports to approximate the revenue you will generate after taking out a loan and your costs. You will then be able to know if you will be able to repay.

It is always advisable to find a mentor to help you avoid the common pitfalls of applying for small business loans. You can get advice from SBA partner organizations like SCORE mentors and Small Business Development Centers near you.

How to Get a Small Business Loan

The main challenge that small business owners face is getting a business loan.  Finding, applying for, and getting approved for a small business loan is hard; however, it’s important to be prepared. Getting a business loan is easy if you follow these steps.

Do I qualify for a Business Loan?

Loan programs and lenders require distinct eligibility requirements. Eligibility is usually based on what your business does to get its revenue, the ownership characters, and where the business operates. However, there are other factors that lenders consider when deciding whether to give you the term loan:

Your credit score and credit history

Qualifying for a loan largely depends on your credit history. Lenders will most definitely look at your credit score. They also have different eligibility criteria depending on the level of risks tolerable for the given credit. You can get your credit report from the major Credit Reporting Bureaus to determine if you qualify for a loan.

Your business experience

Lenders need assurance that you have experience and can successfully manage a business. Your reputation will play a significant role in getting a loan. If you don’t have the experience, most lenders will expect you to hire or partner with people with the needed expertise.

The nature of your business

Certain types of businesses are riskier than others. Businesses that involve providing services to seniors are less risky than starting a video leasing business, for example. Taking out a loan to start a business that is risky only gets you a higher interest even with a significant down payment and an excellent credit.

The purpose of the loan and business plan

If you are worth the risk, lenders will provide your business with financing. Submit a professional and detailed business plan to help them understand the business you are investing in.

The equity in your business

Lenders are cautious of lending to businesses that have existing debt with other lenders. Small business owners usually take credit from different lenders during the startup phase. With this in mind, know that an existing loan with other lenders may be a major strike against you.

Your ability to repay the loan and collateral

Borrowers must show that they can repay the loan out of the company’s cash flow. Lenders usually analyze the debt-to-income ratio and free cash. Banks like to take property and assets as collateral to recover their loan in case you fail to pay; however, they never want to use collateral to repay the loan, as the collateral may be insufficient.

How to Choose a Lender

As an entrepreneur, the hardest and most important decision you will have to make is choosing a lender for your small business. The decision you make will greatly affect the growth and stability of your business. When you choose the right lender, your choice will do more than just getting capital for your business. A good lender will provide you with ongoing assistance, resources, and tools to improve your financial performance and promote your growth.

Below are the available financiers for your small business:

Traditional banks

Bank loans are available to many of us; however, to qualify for one, you need excellent credit, a personal guarantee, collateral, and healthy financials. Additionally, the banks will want to know the purpose of your loan. Traditional banks only lend to businesses that have been operational for at least two years. If you need cash quickly, find an alternative lender since the approval process of traditional banks is slower.

Credit unions

Credit unions offer a variety of loans. Every loan has its own requirements, limitations, and terms. Small business owners who have good credit can turn to credit unions for small business administration loans. A larger percentage of the loan is usually guaranteed by the government, making it less risky for credit unions to lend money to small businesses.

Online Lenders

Online lenders are becoming more popular. These lenders usually have faster application and delivery time. The flexibility and the ease of application allow small business owners to get quick funding for their business needs as well as manage their businesses efficiently.

Community development banks

These are lending institutions that function at a local level. They offer optimal lending services for families nearby. Community development banks also provide loans to small business owners.

Small Business Administration does not lend directly to business owners. Instead, intermediary lenders like credit unions offer the loans. The government guarantees 85% of the loan.  Whichever lender you choose, don’t forget to ask them if they offer SBA loan programs. SBA loans are the most affordable loans for small business owners.

Business Loans and Special Groups

The SBA loan programs are set up in a way through which the SBA facilitates small business lending. There are various types of SBA loans for most small business owners looking to finance their working capital needs. For instance:


Today, there are many businesses successfully run by women. In 2015, almost one-third of women-owned businesses incurred losses. However, women have a lot of potential when given the right financing. Luckily, the Office of Women’s Business Ownership assists women through SBA coordinated programs. These programs offer business training, federal contracts, counseling, and access to credit and capital. The small business loans for women come with a government guarantee.


Minority business owners face a lot of challenges when starting or expanding their businesses. These loans are strictly offered to minority-owned businesses. The Minority Business Development Agency offers grants to organizations that operate Minority Business Centers. These institutions provide small business loans for the minority-owned business.


There are various veteran loan programs offered by the SBA. The (OVBD) Office of Veterans Business Development is devoted to supporting veteran entrepreneurship. It does this by facilitating the use of the existing SBA programs by disabled veterans, those in active-duty, veterans, and those transitioning along with their dependents.

Whether you need a short-term loan for working capital or a startup, you can get a small business loan for veterans by visiting any of the 15 Veterans Business Outreach Centers where you will get referrals, training and mentoring.


The SBA’s Office of Entrepreneurship Education offers self-paced training programs tailored to provide an overview of the opportunities and challenges of young entrepreneurs.

Expert Q & A

How does an SBA loan work?

The SBA doesn’t give loans directly to borrowers. However, it creates a set of guidelines for financing made by its partners. SBA partners include community development organizations, micro-lending institutions, and other partnering lenders. The SBA guarantees 85% of the loans, lowering the risk that may be faced by the lending institution. The maximum SBA loan you can acquire is $5 million, while the lowest you can borrow is $50,000.


What if I need a quick loan? Doesn’t the SBA loan take a long time?

The amount of time it takes to finalize an SBA loan greatly depends on the lenders’ timeline. An SBA loan usually takes 2-3 months to be approved. The time to finalize a loan also varies by case, for example, how long will it take you to complete a well-researched business or financial plan? Note that applications for larger loan amounts might take longer for the lender to evaluate.

Small microloans can be processed quickly, and your loan application can take a minimum of four weeks to be approved by both the intermediary lender as well as the SBA. Additionally, your loan application might be approved faster if you have an SBA preferred lender. SBA loans can take longer to get approved, but they have the best terms and rates.


Is it hard to acquire a traditional loan as a startup?

New businesses always find it hard to get a business loan from traditional banks. Lenders usually consider startups to be the riskiest investments. Most of the loan programs from SBA are for existing businesses; however, they offer micro-loans that are given in small amounts to small business owners. Micro-loans rules vary from one lender to the other. These loans help small business owners expand their operations, purchase inventory, start a new marketing campaign, or purchase new furniture or fixtures.

If you are a new entrepreneur in need of capital, you should consider applying for a microloan. Most microloan programs offer loans with interest rates ranging between 8 and 13%. They have a maximum repayment term of up to seven years.


What is the best advice to individuals seeking financing for their small businesses within the first two years?

Many lenders expect you to have capital and collateral as well as the capacity to repay the loan. The main challenge that startups face is the inability to qualify for funding because their businesses have no credit. Ensure that you take a close look at your assets and decide whether to use them as your collateral. You will have an easier time getting a business loan if you are able to put up 100% collateral for the loan amount. If you are thinking of starting a franchise, make sure that it is on the SBA franchise registry; this will make it easier for you to get a loan.

SBA also offers continued support to help you start and run your business effectively. The programs include small business ownership, SCORE, and entrepreneur education, among others. We offer small business counseling and training that can provide you with the guidance you need to increase the chances of long term success.

Choose a bank that you have an existing relationship with. A lender who knows you will be more willing to work with you to get your loan application approved. To get help in writing and refining your business plans, consult SBA regional offices or SCORE.

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