How Easy Is It To Get a Business Loan?

If you ask any business owner who’s sought funding from a traditional bank, they’ll probably tell you it’s easier to win the lottery than to obtain a business loan. This thought is even more terrifying when realizing how crucial a business loan can be for successful operations. 

Luckily, SBG Funding is here to bust some of the myths associated with getting approved for a business loan. In addition to exploring how easy approval can be, we also cover factors financial institutions consider before approving a loan and how to navigate some of the biggest challenges small business owners face.  

What is a Business Loan? 

A business loan is a powerful key capable of unlocking new and exciting doors for your business. Yet many business owners still view loans as the classic, bank-backed lump-sum funding notoriously tied to stringent standards, stuffy bankers, and drawn-out approval processes.

While these bank loans certainly exist, modern companies have access to more creative small-business financing solutions to match their needs. There are an almost countless number of different business loan types, including some of the following: 

• Merchant Cash Advance – Exchange a portion of future credit card sales for up-front lump-sum funds. Repayment can happen daily or weekly until business owners repay the loan amount plus fees and interest. 
• Business Line of Credit – Access to liquid cash up to a pre-determined credit limit. Business LoCs are revolving forms of debt, allowing multiple draws, even after repayment. 
• SBA 7(a) Loan – Small Business Administration (SBA)-backed loans that offer generous repayment terms and large loan amounts. These loans also carry strict qualification requirements. 
• Invoice Financing/Invoice Factoring – Exchange future income from outstanding invoices for upfront funds. Lenders will collect up to 90% of the invoice amount directly from customers/clients, providing flexibility to cover expenses. 
• Equipment Financing – Receive up to 100% of the funds needed to purchase, repair, or maintain the equipment your business owns. Similar to car loans, equipment financing allows businesses funding for a specific purpose while making approval easier. 

The type of business loan you obtain will come with its own set of repayment terms, interest rates, fee structures, and qualification requirements. 

Who Needs a Business Loan?

If business loans are keys, what kinds of doors can they open for business owners? Let’s take a look behind the various doors a business loan can open: 

1. Startup capital to get the next big thing off the ground.
2. Operation expansions to take you to the next level. 
3. Reserve funds to even out cash flow during the slow months.
4. Consolidated debt, making it easier to manage budgets and P&Ls.
5. Investments like real estate or business acquisitions.
6. Shiny new equipment, such as assembly lines, excavators, or industrial-grade mixers. 
7. Inventory stockpiles to prevent interruptions in the supply chain or reach new markets. 

We left several other doors unexplored, but the beauty of having a wide variety of business loans to choose from is their utility. If there’s a business need, there’s a loan to provide funds or financing.  

How Easy Is It To Get a Business Loan?

Traditional banks and the U.S. Small Business Administration have done an excellent job of creating the myth that obtaining a business loan is nearly impossible. Even Hollywood is guilty of perpetrating this myth through countless storylines and plot points surrounding the difficulties of qualifying for a business loan. 

Modern business lenders, like SBG Funding, have found ways to make it easier than ever for businesses to get the working capital they need. Depending on the type of financing you apply for, SBG Funding has more attainable requirements: 

• 600+ FICO credit score
• Six months of business tenure
• Annual business revenue of at least $250K
• The four most recent bank statements or financial statements

In addition to these minimum standards, SBG Funding makes it even easier to apply, using a straightforward three-step process:

1. Fill out an online application.
2. Submit the required documents and sign on the dotted line.
3. Get approved and funded.

SBG Funding can give you approval on the same day and deposit funds as early as the next business day. Comparatively, traditional small business lenders, like banks and credit unions, can leave you on the hook, waiting for an approval decision and funding for months. 

Factors Affecting Loan Accessibility

Despite having many business financing and loan options, barely hitting the minimum requirements will result in less-than-favorable lending conditions. These conditions could be higher interest rates, low lending/financing amounts, and short lending terms. Several factors come into play when building a lending profile, and the better your financial position, the better your lending terms. 

Credit Score Requirements

Lenders consider credit score or creditworthiness to determine how likely they are to receive their money back on time. Lower business credit scores and even bad personal finances can be signs of elevated risk. Good credit means a track record of on-time repayment and no defaults.

Aim for a higher score before applying to improve your chances of approval and secure low interest rates, longer repayment terms, and higher lending amounts. SBG Funding recommends a minimum credit score of at least 700 for the best odds. 

Business Health and Documentation

Like personal loans, lenders factor income or revenue heavily in their decisions. A healthy revenue tells lenders that your business can handle the monthly payments. While SBG Funding recommends a minimum of $250K in revenue for approval, revenue of $1 million improves your approval odds and estimated repayment terms. 

Additionally, traditional lenders, like banks and credit unions, often require extensive documentation to qualify. These documents include business plans, P&L statements, credit reports, and tax returns. 

While SBG Funding doesn’t require the extensive documentation other lenders do, it’s still a good idea to compile these documents and include any new debt into your plans. Staying organized will keep you from falling behind on your obligations and improve your odds of better lending terms in the future.

Industry and Risk Assessment

There’s a reason why the house always wins in casinos—gambling is a risky business. That level of risk made mobsters some of the only people who could stomach the idea of losing millions of dollars in an instant. 

Because some industries are inherently more risky than others, lenders tend to shy away from lending to business owners and entrepreneurs in various sectors. Some lenders may even consider the idea of opening a restaurant just as risky as owning a casino, meaning your industry could work against you when looking for financing. 

SBG Funding proudly supports a diverse range of industries, including but not limited to manufacturing, food and beverage, construction, medical, and retail. 

While we acknowledge that certain industries may carry different levels of risk, our evaluation for business loans is comprehensive. Factors such as time in business, FICO scores, annual revenue, and particularly cash flow are crucial in our decision-making process. 

To gain a thorough understanding of your business’s financial health, we request the four most recent business bank statements as part of our assessment.

How to Prepare for a Business Loan

So far, we’ve managed to dispel some of the myths surrounding small business loans. Now, it’s time to look at some steps to prepare yourself for your next business funding application. We recommend following these steps:

1. Align your business goals with your need for funding. Answer the questions: “Why do you need to take on debt?” and “What is the business purpose for this funding?”
2. Find out how much capital you need with SBG’s Funding Calculator tool.
3. Decide which financing option works best for the funds you need.
4. Prepare your financial documents and business plan to include loan payments.
5. Submit your online application with SBG Funding. 

In some instances, taking on smaller loans with short repayment periods could be a stepping stone into more significant lending options. And as we mentioned before, staying organized throughout the process is essential.  

Navigating Challenges in Business Loan Applications 

Although business loan eligibility is easier than ever, some challenges can still result in the dreaded rejection notice. These challenges could be:

• Bad credit history – Credit scores that are too low will result in rejection. Work on your repayment, outstanding debt, and personal credit scores. 
• High debt levels – A bad debt-service coverage ratio (DSCR) or high debt-to-income (DTI). Lower your current outstanding debt balances before applying. 
• Low annual revenue – Income levels that are too low make it hard to repay loans. Try taking out a business credit card until you build up enough annual revenue. 
• Too short of time in business – Startup capital is notoriously difficult to obtain for new businesses. By extending business tenure by even six months, borrowers can significantly improve their chances of loan approval. 

It’s easy to feel discouraged when seeing a rejected notice, but a change in lending type could be just what you need. For instance, SBA loans have strict requirements, but a short-term loan may give you the chance to overcome some of these challenges.

Empower Your Business with SBG Funding

A business loan is a key to many doors that can bring considerable improvements to your company. There’s a business loan for every scenario, from buying new equipment to smoothing out cash flow. 

With clear expectations and minimum requirements, business loans and financing are also easier to get. While lending from traditional sources can still be daunting, alternative and online lenders are more forgiving with their application process. 
Ready to explore your next business loan? Get in touch with SBG Funding for a personalized consultation, or fill out an application to get started!