How Hard Is It to Get a Small Business Loan

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Oct 17, 2024

How Hard Is It to Get a Small Business Loan

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If you want to start your own business, get a new space for it, or update the one you currently have, you'll need money to get it done. However, unless you have the money saved and are ready to go, you will need a business loan.

If that is the case, you must be wondering how hard it is to get a business loan. Well, you're in luck; here, we will discuss the types of loans, what they are best used for, and how difficult it is to get them.

In this article

What is a business loan, and how does it work?

As the name suggests, a business loan is a loan you take out for your business, right?

Business loans work similarly to personal loans, although there are some major distinctions between the two — like interest rates, documentation needed to secure the loan, and time required to pay it back. In order to secure a loan, bigger businesses have more negotiating power than smaller ones, which means it is much easier for them to secure more beneficial loans.

Some business loans are secured, and some are unsecured. Secured loans require an asset — collateral, if you will — that can get repossessed if you fail on payments. The collateral can be anything from real estate to equipment or investments.

Let’s now explain how a business loan works. After the negotiation ends and the loan terms are finalized, the lender provides the funds. This can happen either as a one-time payment or through a line of credit. The terms will outline the total amount to be repaid, the repayment schedule, and the interest charges. The loan will be paid off if you make all your payments on time. However, failing to do so may result in financial penalties and repossession of your collateral and may hurt your chances of securing a loan in the future.

Getting a business loan

Now that we've covered the basics, let's dive into the details of what exactly needs to be done to get a business loan and how hard it is to secure one. What we will cover next will be all the factors that contribute to successfully securing a business loan.

Annual revenue

As you might imagine, your annual revenue is going to play a big part in how easy/hard it will be for you to secure a business loan. When looking to get a business loan, most providers will have a minimum you'd have to earn a year for them to consider giving a loan to you. This minimum is usually in the range of $100,000 to $250,000, and of course, the more you earn, the likelier you are to get a business loan.

Your personal credit score

This may seem like something that would be insignificant to a lender, but they will sometimes want to see your credit score or credit report to see how you've managed to pay back debts in the past.

Some loan providers will require you to have a good credit score in order for them to give you a loan. Usually, anything above a 670 credit score is sufficient to secure a business loan. However, there are lenders who will provide business loans to people with credit scores as low as 500. You should be careful, though, as these loans may not be worth getting.

Funding What’s Next

Fast and flexible financing for your business

Running a business takes everything you have. Getting fast and easy funding doesn't have to.

Apply Online In Minutes
Decision as fast as 24 hours
Receive between $25k-$6m

Apply for a Business Loan

Your business credit score

This one is a bit more obvious, isn't it? A lot of loan providers will need to know your business credit score. This will give lenders all the information they need about your past debts, how you settled them, and if you were on time with payments, and it will show them if you are likely to avoid defaulting on loans.

Business tenure

Your time in business is also significant to most loan providers. The longer you are in business, the better your chance of securing a loan. For lenders, your time in business shows how stable your business is and that you can make payments if your business is doing well. Usually, most lenders want your business to be at least one year old.

A solid business plan

A comprehensive business plan will show loan providers you are serious about your business. Your business plan needs to include market analysis, competitor research, and a summary of your products and or services. It also needs to have an assessment of your strengths, weaknesses, opportunities, and threats.

Loan providers want to work with businesses that are thriving, so showing exactly how you do that will make it easier for you to acquire a loan when you need it.

Offering collateral for a loan

As we said above, collateral can be real estate, equipment, or investments. When using collateral, if you default or miss a payment on your loan, you risk getting your collateral repossessed. Having collateral means that your loan is a secured one. When collateral is involved, and the loan is secured, the interest rates are sometimes lower because the loan provider faces less risk when giving you a loan. This is because if you fail or are unable to pay, the lender can recover at least some, if not all, of their losses.

Funding What’s Next

Fast and flexible financing for your business

Running a business takes everything you have. Getting fast and easy funding doesn't have to.

Apply Online In Minutes
Decision as fast as 24 hours
Receive between $25k-$6m

Apply for a Business Loan

Types of business loans

Now that you know how to get a business loan and what you'll likely need to make it easier to secure it, here’s a quick look at what types of business loans exist:

SBA (Small Business Administration) loans
Term loans
Merchant cash advance
Equipment financing loans
Business lines of credit
Invoice factoring
Working capital loan
Crowdfunding
Business grants

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