How To Get a Business Loan in 7 Steps

Securing a business loan is crucial for entrepreneurs and small business owners aiming to start, expand, or sustain operations. Understanding the loan process can significantly impact financial health and growth. While some businesses may need to follow the full loan process step-by-step, established companies can benefit from SBG Funding’s simpler approach, with fewer requirements and approvals in as little as 24 hours.

Below, we walk through the traditional loan acquisition process to ensure you’re fully prepared—whether you’re navigating it for the first time or evaluating faster options.

Step 1: Evaluate Your Credit Score

Evaluating your credit score is a foundational step in securing a business loan. Lenders assess both personal and business credit to determine financial reliability, with personal scores often carrying more weight for startups or businesses without an established credit profile. A strong credit score increases your chances of approval and unlocks better loan terms, including lower interest rates and more flexible repayment schedules. For businesses without much credit history, personal credit becomes especially important, as many lenders rely heavily on FICO scores to gauge risk.

Start by obtaining your personal and business credit reports from agencies such as Equifax, Experian, and TransUnion. Regularly reviewing these reports helps identify errors or signs of fraud, which you should dispute promptly to ensure your score accurately reflects your financial standing. Maintaining good credit practices, such as making timely payments and managing debt levels, builds a solid financial foundation for future borrowing. This is especially relevant when establishing business credit.

If your score falls below optimal levels, focus on strategies such as consolidating debt, reducing balances, and setting up payment reminders. A FICO score above 700 unlocks better loan terms, while scores below 650 may result in higher interest rates or stricter repayment conditions. Strengthening both personal and business credit ensures you are well-positioned to secure the financing your business needs.needs. You can shape the lending to fit the use rather than trying to shape the use to match the lending.  

Step 2: Create a Business Plan

A business plan is essential for securing a loan, serving as both a roadmap for your business and a tool to demonstrate your vision and strategy to lenders. A well-prepared plan convinces lenders of your business’s viability by detailing your goals, operations, market opportunities, and financial projections.

Start with a detailed business description, outlining your products or services, the industry you operate in, and your target market. Highlight what makes your business unique, as this can help lenders understand your competitive edge. Including thorough market research—such as identifying trends and competitors—provides further insight into your ability to navigate industry challenges.

Financial projections are a crucial element of the plan. Forecast your business’s performance with income statements, cash flow projections, and balance sheets covering at least the next three to five years. Clear, realistic financials help lenders assess your ability to manage loan repayments and sustain growth.

Include an overview of your organizational structure, showcasing key team members and their relevant expertise. Lenders appreciate knowing who will lead the business to success.

Defining how much funding you need and how it will be used is equally important. Be transparent about your repayment plan and explain how the loan fits within your financial strategy. Together, these elements create a compelling case for lenders while giving you a framework to guide your business toward growth.

Step 3: Determine Loan Type and Amount

Determining the right loan type and amount is essential for securing financing that aligns with your business needs. Start by assessing whether you need funds for operational expenses, business expansion, equipment purchases, or refinancing debt. Here’s a breakdown of the most common business loan options:

• Term Loans: A lump sum loan repaid over a fixed period, usually with monthly payments. Term loans are ideal for long-term investments, like purchasing equipment or funding expansion. Banks and online lenders offer these loans, but traditional banks often require stronger credit and a longer business history.
• Business Lines of Credit: This flexible option allows you to borrow up to a set limit, similar to a credit card, and only pay interest on the amount drawn. It’s particularly useful for managing cash flow or covering unexpected expenses.
• SBA Loans: These government-backed loans, such as the SBA 7(a) or 504 loans, offer low interest rates and long repayment terms. They are ideal for working capital, real estate, or equipment purchases but require more documentation and a longer approval process.
• Equipment Financing: Designed to help businesses acquire machinery or technology, the equipment itself serves as collateral. This option suits industries with significant equipment needs, like construction or manufacturing.
• Invoice Financing (or Factoring): Provides immediate cash by leveraging outstanding invoices. Invoice financing helps businesses maintain liquidity while waiting for customers to pay, particularly those with long payment cycles.
• Merchant Cash Advances (MCA): A lump sum provided in exchange for a percentage of future credit card sales. MCAs offer fast access to cash but come with higher fees, making them best suited for businesses with fluctuating or seasonal revenues.
• Microloans: Small loans offered by non-profits or government programs, typically under $50,000. Microloans are useful for startups or small businesses needing modest capital without stringent credit requirements.
• Commercial Real Estate Loans: Used to purchase or refinance property for business purposes, with the property itself as collateral. This option provides long repayment terms and suits businesses investing in physical spaces.
• Business Acquisition Loans: Designed to facilitate the purchase of an existing business or franchise. These loans require detailed due diligence and are ideal for entrepreneurs seeking growth through acquisitions.
• Peer-to-Peer (P2P) Lending: An alternative financing option where businesses borrow from individuals via online platforms. It offers more flexible terms but may come with higher interest rates than traditional loans.

After selecting the right loan type, calculate the exact amount you need by reviewing your financial statements and cash flow projections. Be precise—overestimating can lead to unnecessary debt, while underestimating may leave you without sufficient capital. Including a buffer for unforeseen expenses ensures your financing aligns with your business strategy.

Step 4: Research Potential Lenders

Researching potential lenders is essential for securing a business loan with favorable terms. Start by identifying the types of lenders available, including traditional banks, credit unions, online lenders, and alternative financing companies. Each lender offers unique advantages: banks typically provide lower interest rates but stricter requirements, while online lenders offer faster approval with more lenient criteria.

When evaluating lenders, it’s important to consider factors such as interest rates, fees, and repayment terms. For example, some lenders may offer lower rates but charge higher origination fees, while others might provide flexible repayment options that suit businesses with seasonal revenue.

It’s also helpful to look at lender specializations. Some lenders focus on specific industries, such as healthcare or retail, which can result in more tailored loan products. Checking eligibility requirements, such as credit score thresholds or revenue minimums, ensures you don’t waste time on options you might not qualify for.

Reading online reviews and testimonials from platforms such as Trustpilot gives additional insights into customer experiences and lender reliability. Recommendations from other business owners or industry associations can also point you toward reputable lenders.

Once you have a list of promising lenders, review their application process—some may offer a fully digital experience, while others require in-person meetings. Staying informed about the latest trends in business lending, such as the growing role of fintech lenders, ensures you have access to the most relevant options.

Thorough research positions your business to secure the best loan terms, giving you a solid foundation for success.

Step 5: Gather Required Documentation

Gathering the necessary documentation is crucial to streamline the loan application process and improve your chances of approval. Organized paperwork demonstrates to lenders that you are prepared and serious about securing financing. While specific requirements vary by lender and loan type, the following documents are commonly requested:

• Financial Statements: Up-to-date profit and loss statements, balance sheets, and cash flow statements provide a clear picture of your business’s financial health.
• Tax Returns: Lenders typically request two to three years of business and personal tax returns to assess profitability trends and financial responsibility.
• Bank Statements: Most lenders require at least the last three to six months of business bank statements to verify cash flow.
• Debt Schedule: If your business has existing loans or financial obligations, you’ll need to provide a list of outstanding debts, including payment amounts and due dates.
• Business Licenses and Registrations: Proof of business ownership and legal compliance may include licenses, registrations, or articles of incorporation.
• Personal Identification: A driver’s license or other government-issued ID is often required for identity verification.
• Collateral Documentation (if applicable): If the loan requires collateral, lenders may ask for descriptions, appraisals, or other proof of ownership.
• Resume or Business Experience Summary: For some lenders, particularly with SBA loans, a resume or summary of the owner’s business experience is requested to gauge management capability.

Being proactive with these documents not only makes the process smoother but also demonstrates your readiness to manage the loan effectively. It’s helpful to consult your lender for a specific checklist, as additional documents might be required depending on the loan type and lender policies.

Step 6: Submit Your Loan Application

Once you’ve gathered the necessary documentation, it’s time to submit your loan application. Accuracy and completeness are essential—double-check all details to avoid delays or rejections. Some lenders may allow online applications, while others might require physical submissions. Following the lender’s specific instructions ensures a smooth process.

After submission, keep communication lines open with your lender. Respond promptly to any requests for additional information or clarification. It’s also a good idea to retain copies of your application and supporting documents for reference, as well as records of any correspondence with the lender.

If you’re working with multiple lenders, tracking each application’s status will help you stay organized and prepared for next steps. Some lenders may offer preliminary approval within days, while others could take longer, depending on the loan type and complexity.

Staying proactive throughout the application process demonstrates commitment, enhancing your chances of success.

Step 7: Review Loan Agreement Terms

After receiving a loan offer, carefully review the agreement to ensure it aligns with your business needs and financial strategy. Pay special attention to interest rates, determining whether they are fixed or variable. Fixed rates provide stability, while variable rates may change over time, potentially affecting your cash flow.

Evaluate the repayment schedule to confirm that it fits with your expected revenue patterns. For businesses with seasonal income, more flexible terms might be necessary to avoid cash flow issues during slower periods. Additionally, review any associated fees—such as origination fees or prepayment penalties—which can impact the overall cost of the loan.

Be mindful of any conditions the lender may impose. These requirements—such as maintaining a certain revenue level or keeping a specific debt-to-income ratio—could lead to penalties or even loan default if violated.

If any terms are unclear, consult with a financial advisor or attorney to gain clarity. It’s also wise to compare the offer against other loan options to ensure you’re getting the best possible terms.

Thoroughly understanding your loan agreement prevents unexpected surprises and ensures that the financing arrangement supports your business’s growth and sustainability.

SBG Funding’s Simplified Application Process

Many lenders require business owners to jump through hurdles, hindering legitimate businesses. SBG Funding takes a different approach by streamlining the process, with fewer documents and approvals in as little as 24 hours.

Our 3-step process:

• Fill out our online application.
• Sign your application and e-documents.
• Upload required documents and get funded.

We typically need only:

• Four months of bank statements
• Driver’s license (ID)
• Voided check

SBG Funding typically approves businesses with a FICO score of 600+, six months in operation, and $250,000 in annual revenue.