How To Apply for a Business Loan in 6 Steps

1. Choose the Right Type of Small Business or SBA Loan

Do you need working capital to cover day-to-day operations? Are you looking to buy new equipment and expand? Assessing your business’s financial needs will help you determine how much funding you need and which types of loans to consider.

Below are the most common types of business loans and lending options to compare interest rates, terms, repayment structures, and additional offerings:

• Short-term business loans: Those with short repayment periods, typically six months to two years. Once approved, you receive a short-term loan in a lump sum to repay as fixed payments.

• SBA loan: One from an SBA-approved lender, where the U.S. Small Business Administration (SBA) pays the lender the guaranteed amount. SBA loans tend to have lower interest and longer repayment periods, making them ideal for small business growth.

• Small business loans: Available financing specifically to companies that qualify as small businesses. This funding can be short term or long term, accessible through SBA loans, lines of credit, and equipment financing.

• Working capital loans: Provide the funding you need to cover day-to-day operations for your business. These loans can take multiple forms, such as a business line of credit or merchant cash advance, and can be used for operating expenses, payroll, or inventory.

2. Determine Your Eligibility

Though eligibility requirements may differ, here are what most lenders look for when reviewing applications:

Length of Time in Business

Lenders may require you to be in business for at least six months prior to applying for a small business loan or other business financing options. Your business history and financial statements are used to determine your creditworthiness and loan eligibility. The longer you’ve been in business, the lower your risk is considered and the better your chances of loan approval.

Annual Revenue

Most lenders want proof of consistent, substantial business income beforehand. We recommend that your business has an average annual income of $120,000 ($10,000 monthly) for the best odds of approval.

Credit Score

Most lenders require a credit score of at least 550 for approval, which helps them determine your creditworthiness. You can pull and monitor your business credit score from credit reporting agencies, like Experian, Equifax, and Dun & Bradstreet.

Ability To Repay

Lenders want to make sure you can afford to repay the loan. They will factor in your income, assets, and liabilities to determine how much you can repay each month. A good rule of thumb is to have an income of at least 1.25 times the total expenses and the repayment amount combined.

3. Compare SBA, Online, and Bank Business Loans

Vet different lenders, as one may provide better offers based on your unique business needs. Also, ask for recommendations from other business owners, especially if you’re unsure if different lenders/applications will perform a soft or hard credit check.

Banks

Most traditional banks, like Bank of America, offer a wide range of financing options, including term loans, SBA loans, and business credit cards. You can expect banks to have stricter criteria and a longer application process.

• Recommended for: Businesses with excellent credit scores and in operation for at least two years.

Government Lenders

The SBA provides several programs and loans to support small business owners, accessible through banks and SBA-approved lenders. These loans generally require a borrower contribution or collateral. The most common loan is the SBA 7(a), which offers up to $5 million.

• Recommended for: Businesses with good credit scores that can provide at least a 10% down payment of the total loan amount.

Online Lenders

Also known as alternative lenders, online lenders usually provide fast funding to small business owners who were previously denied a bank loan. While interest rates tend to be higher, online lenders typically have fewer restrictions and criteria than banks.

• Recommended for: Businesses with average credit and looking for the fastest possible funding.

See Loan Options

4. Prepare Your Loan Application Documents

Before applying for a loan, gather and prepare all of the information lenders will likely require. The most common documents you’ll need include:

• Business Information: Such as your Employer Identification Number (EIN), tax ID, and credit score.

• Business License(s): Requirements for these differ state by state, so you’ll want to make sure these are up-to-date before applying for funding.

• Financial Statements: Tax returns and any income or cash flow statements, like balance sheets and profit and loss statements.

• Articles of Incorporation: Any bylaws or operating agreement, such as your building lease, required within your business entity.

Since a business plan typically covers and includes all of the above, preparing one can work in your favor.

5. Complete and Submit Your Application

You’re ready to apply once you’ve compared lenders and have your documentation prepared. Most lenders provide applications at your convenience. Applications generally require your business name, the desired loan amount, annual revenue, and the last 4 months of your bank statements as proof of income.

After submitting your application, your Clarify advisor will call you to learn more about your business. You can often get approved and funded within 24-48 hours.

6. Review the Loan Agreement and Accept Funding

Once approved, your lender will send you the loan agreement to review and sign. Be sure to thoroughly review the terms and conditions, repayment schedule, and interest rate, noting anything unclear that you’d like to discuss. After you sign the agreement, your lender will disburse the funds.

Alternative Funding Options

If you are denied the loan, consider exploring other funding options. One option is crowdfunding, which involves raising money from a large number of people. A second alternative is a small business grant, such as those available through the U.S. Small Business Administration.

Frequently Asked Questions

Shop Around for the Best Loan Rates

Searching and applying for the right business loan can be stressful and time-consuming, especially when unsure of your eligibility. With Clarify Capital, our in-house account managers connect borrowers with lenders nationwide.

Try our easy application process to help you qualify and match with the best business loans for your needs.