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How to get a business loan

What to expect during the application process and how to cut down on time and stress.

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Applying for a small business loan can feel very daunting. And while it’s true that the process can involve months of submitting documents, paperwork and forms, it can go very smoothly if you’re prepared and know what to expect ahead of time. Read through our guide below to help you find the right lender and make the process more manageable.

How to apply for a business loan in 6 steps

Step 1: Compare lenders

Start by looking for lenders that offer the type of financing your business needs. Immediately rule out any provider that your business can’t qualify with. Then pay attention to the loan’s cost, how much you can borrow, terms and turnaround time. You should also look at customer reviews to make sure it’s a lender you feel comfortable working with.

Step 2: Determine how much debt your business can handle

The easiest way to determine the debt your business can afford is to calculate your Debt Service Coverage Ratio (DSCR). This will allow you to determine how much flexibility your business has at the end of every month to cover any new debt it takes on. You should also check your business’s profit and loss statement to ensure your incoming revenue will be large enough to cover loan repayments.

Step 3: Get prequalified

After you’ve narrowed down your selection to a few lenders, see if your business can prequalify to get an idea of the rates and terms you’re eligible for. Many online lenders let you do this by filling out a quick form. If you’re applying for a loan with a bank or credit union, consider getting on the phone with its lending department to find out what you’re likely eligible for.

Step 4: Gather your documents and information

Being prepared can cut down on how long it takes to apply. Have basic information about your business ready before you start the application, including its annual and monthly revenue and tax ID number. Many lenders also ask applicants to submit copies of their business tax returns and bank statements.

If the loan requires a personal guarantee from each business owner, have personal bank statements, tax returns and other information about your own assets and liabilities on-hand as well.

Step 5: Complete the application

Often the application itself only takes around half an hour to complete. The more prepared you are, the less time it will take.

Many lenders let you fill out the entire application online. But some banks and credit unions might ask you to stop by a branch to fill out the rest of the application in person. Some might also ask business owners to go in for an interview.

After you submit your initial application, your lender might ask you to submit additional documents.

Step 6: Review and sign your loan documents

Take a close look at the terms and conditions before signing off on your loan. If there’s anything you don’t understand, ask your lender or an expert to explain what it means. That way, you won’t be hit with any surprises down the road.

Compare business loans

Use our curated list of business loan providers below to help narrow down your options. You can sort the table by interest rate, loan term or minimum credit score required. You can check the compare box below two or more providers to compare their features side-by-side.

Name Product Interest Rate Min. Loan Amount Max. Loan Amount Loan Term Minimum Revenue Min. Credit Score Filter Values
SharpShooter Funding Business Loan
Fee based, Prime pricing starting at 9.00%
$1,000
$300,000
6 months - 5 years
$4,166 /month
500
SharpShooter Funding offers loans up to $300,000 for small business owners who have been business for at least 100 days and can show a minimum of $4,166 in monthly deposits ($50,000/year).
Loans Canada Business Loan
Prime Pricing from 9.00%, Long term financing from Prime + 2.00%
$2,000
$350,000
3 months - 5 years
$4,166 /month
410
Loans Canada connects Canadian small business owners to lenders offering up to $350,000. Borrowers must have been in business for at least 100 days, have a credit score of 410+ and show a minimum of $4,166 in monthly deposits ($50,000/year).
OnDeck Business Loan
8.00% – 29.00%
$5,000
$300,000
6 - 18 months
$10,000 /month
600
OnDeck offers loans up to $300,000 for small business owners working in approved industries who have been in business for at least 6 months with a minimum monthly revenue of $10,000.
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Compare up to 4 providers

6 steps to take before applying for a business loan

Even if you’re sure your business needs funding, a business loan may or may not be the best solution. These steps can help you decide if it’s the right choice — and help you know what features to look for as you shop around.

1. Determine why your business needs financing

There are some situations where a loan might be expensive and risky. For example, startups looking for seed money might not be able to find a loan. Even if you do, you may not be able to pay it off if your business doesn’t meet its financial projections. And since you’re it could be extremely expensive. Some other options to consider are investors, crowdfunding and other startup-friendly options.

Knowing why your business needs money can help you decide what type of business loans to apply for. If you need money for a one-time project or expense, a term loan could be the way to go. If you need something ongoing, consider taking out a line of credit.

2. Check your business’s financial health

Taking a close look at your business’s finances can help you decide if taking on debt is the right move. It can also give you an idea of what types of loans your business might be eligible for. There are a few key numbers to know, including your business’s current ratio and debt service coverage ratio (DSCR).

  • Your business’s current ratio is its assets divided by its liabilities.
  • Its DSCR is its annual net operating income divided by its debt obligations for the year.

Both can give you a sense of whether or not your business can take on more debt. If your business has a current ratio below 1.2 or a DSCR below 1.25, you might have trouble handling repayments on a new loan.

3. Know your personal credit score

Lenders tend to consider the personal credit score of all owners with a significant stake in the company more often than they look at your business’s credit score. They do this partly because personal credit scores are more standardized than business credit scores.

Generally, you and all other business owners need to have a personal credit score above 680 to qualify for a loan and excellent credit to be eligible for the largest amounts and lowest rates. However, it’s possible to get a business loan with a score as low as 580 with some alternative lenders — though it will likely be much more expensive.

4. Calculate how much your business needs to borrow

Knowing how much you need to borrow helps you decide where to start looking. Online lenders typically offer financing between $5,000 and $300,000, depending on the type of financing. Banks can finance your business with millions of dollars. Microlenders offer small-dollar financing as low as a few hundred dollars.

5. Schedule time to apply

Having a realistic understanding of how much time you and your employees can spend on an application could help you decide what type of lender to go with — or if a loan is even worth the time.

Applying for a loan with an online lender could take anywhere from minutes to days, whereas applying with a bank could take months. You might also get your funds sooner with an online lender, but the rates are usually higher than you could get with a bank loan.

Online lenders also don’t typically offer loans in amounts as high as banks and other traditional lenders. And those that do, often require extra documentation and have a longer underwriting process. If you’re looking for a $500,000 business loan or higher, expect to invest a significant amount of time in the application.

6. Understand the loan options in your industry

Even if your business is in perfect financial health and you have excellent credit, you still might have trouble qualifying for a loan if you’re in a high-risk industry or are a nonprofit. But in general, your business may qualify for one of these 6 common types of business loans:

  • Term loans lines of credit. Business loans and lines of credit are two of the most common forms of financing. These give your business flexible access to capital that can be used to fund a variety of major and minor expenses.
  • CSBFP loans. The Canada Small Business Financing Program (CSBFP) Loan is a government-backed loan offering up to $1,000,000 in funding and some of the most competitive interest rates. To apply, you’ll need to head to your local bank, credit union or registered financial institution and ask if they offer CSBFP loans. While government-backed, the decision to approve your loan ultimately lies with the financial institution.
  • Equipment loans. An equipment loan can be used to cover the cost of equipment or machinery. These are secured by the asset your business purchases, which means you may have access to a lower interest rate than with an unsecured term loan.
  • Working capital loans. Working capital loans can be used to cover the cost of day-to-day business. These tend to have short terms and are for smaller amounts.
  • Invoice financing. You can use your invoices to finance a loan. Rather than waiting for a client to pay you, you borrow an advance against a future invoice for a small fee — usually around 3% of the invoice amount.
  • Business credit cards. While not technically a loan, a small business credit card can be used to fund short-term expenses. Interest rates tend to be high, but they can help build your business’s credit history while giving you access to quick funding.

What happens after you apply for a business loan

Here’s what you can generally expect after submitting your application.

Getting approved

Some business lenders offer quick approval decisions based on preliminary information. These lenders tend to require authorized connection to your bank accounts in order to see proof of your revenue and evaluate your cash flow.

If the lender doesn’t offer this kind of preapproval, you’ll likely be contacted by a loan officer to discuss your application in more detail. At this point, you may be asked to submit additional documentation such as tax returns.

Getting your money

How long it takes to receive your funds varies depending on your lender. Many online lenders can transfer the funds to your business’s bank account as soon as the next day. Banks and credit unions can take anywhere from a few days to around a month to release funds.

How you use the money from your loan is just as important as getting it in the first place. The best ways to make the most out of your loan include buying new equipment, expanding your marketing reach and covering cash flow halts.

Repaying your loan

With a business term loan, your business is responsible for making full repayments on principal and interest until it’s fully paid off. With a line of credit, your business can withdraw from the credit line as it needs. Some lenders turn each withdrawal into a short-term loan, while others add it to your balance and require a minimum monthly repayment — similar to a credit card. Other types of financing have different repayment methods.

If it’s possible, consider signing up for automatic repayments — often called autopay or auto debit. That way, you won’t have to take time out of your day each month to make repayments.

Paying your loan back early

If your business can afford to, consider paying your loan back early to save on interest. However, some lenders charge early repayment penalties, so you might not save any money by paying your loan off early. You also can’t save with certain types of loans that come with built-in fees, like merchant cash advances.

Bottom line

Knowing what to expect during the business loan application process can help you cut down on the time and stress of applying. It can also help you decide if a loan is the right move for your business and for your time.

Learn more about how it all works and compare lenders with our business loans guide.

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