Small business owners often think that applying for a loan is a complex and daunting task full of applications, gathering information, and a mountain of paperwork.

But the process doesn’t have to be overwhelming. So, how hard is it to get a small business loan? These eight simple steps can help you figure out how to get a small business loan and choose the right funding option for your business.

Step 1: Create a business plan

If you’re wondering how to get a loan for your small business, consider how you will use it. Starting the loan process with a business plan ensures you’ll have a set strategy to manage and effectively use the funds once you receive them.

Making a business plan can also help organize your ideas and pinpoint your opportunities. Many lenders want to see a business plan before they authorize a loan to make sure that you, well, mean business.

Step 2: Know what you want to borrow and why

Your lender’s most significant questions will revolve around how much you want to borrow and how you will earmark the funds.

If you’ve developed your business plan, you’ll already have a good idea of how to use the money. Some common options include:

  • Purchasing equipment
  • Boosting inventory
  • Increasing sales and marketing efforts
  • Developing new products and technology
  • Devoting funds to new research
  • Hiring new workers
  • Expanding your footprint/territory
  • Enhancing technology/member experience

Lenders may favor companies that can show how borrowing money will contribute long-term value to the business — including purchasing equipment, machinery or real estate.

Step 3: Evaluate your risk and standing

The borrower’s credit and risk profiles are the key factors lenders rely on when deciding whether to approve a small business loan. They look at:

  • Credit score/credit report — Review your personal and business credit reports for inaccuracies before applying for a loan. By doing so, you may be able to boost your scores and earn better loan rates. If your credit score falls in a lower range (score from 530 to 670), you may be able to apply for a “bad credit business loan,” which can get you the money you need but may also include less favorable terms.1
  • Current loans and debt – Lenders will examine your outstanding loans and debt to calculate whether your company’s cash flow will cover existing obligations and new loan payments.
  • Income – In line with reviewing your debt, lenders will check business income and cash flow to assess your business’s performance and profitability.
  • Assets — Lenders will evaluate current assets, including cash and accounts receivable, to determine whether there’s sufficient collateral to claim in the event of a loan default.
  • Corporate history — Lenders prefer to lend to companies that are well established and have been in business for several years.
  • Financial statements — Lenders will scrutinize your financials, so consider working with an accountant to ensure your books and documents will pass muster.

You may also see these items referred to as the five Cs: capacity, capital, character, conditions and collateral.2

Step 4: Research your financing options

To get the best loan for your small business, you need to know which options are available. Some options include:

  • Traditional bank loans — A traditional loan from a bank or a credit union is a great fit for business owners with good credit or a history of successful business dealings.
  • SBA loans — How easy is it to get a small business loan from the government? SBA loans are loans of $500 to $5.5 million guaranteed by the U.S. Small Business Administration. The SBA works directly with lenders who, in turn, provide financing to small business owners. If you’re considering a bank or credit union loan, ask about these options, as SBA loans have similar rates/fees to non-guaranteed loans. They also include special features like continued support for entrepreneurs, lower down payments and flexible overhead and collateral requirements. Potential downsides include long wait times for application processing and review.
  • Alternative lenders — Alternative lenders focus specifically on new small businesses or those with poor credit. Many allow you to apply online with no upfront costs. These lenders are more likely to set high-interest rates to offset their risk.
  • Crowdfunding and P2P lending — If a traditional lender isn’t an option, some businesses succeed with crowdfunding and peer-to-peer lending. These sources rely on social media, viral content and the ability of your business and product to create awareness.
  • Accounts receivable financing — Accounts receivable financing enables companies to obtain loans on their outstanding invoices, where the invoices become collateral for the cash advance. The accounts receivable company provides funds based on the money owed to a company after providing products or services to a customer.
  • Microloans — Microloans are relatively small, short-term loans with generally low-interest rates. These loans are usually less than $50,000 and are given to self-employed individuals, startups with low capital requirements or small businesses with only a few employees. The most common microlenders are nonprofit organizations that have a mission to lend to women, minorities and under-resourced entrepreneurs. The SBA offers microloans of up to $50,000, with an average loan amount of $13,000.3

Step 5: Gather your documents

It’s all in the details. As you prepare to submit your application, these steps can make the small business loan process easier:

  1. Register your business and obtain an official tax ID.
  2. Make sure your business has its own accounts and credit card, so you can start building a positive business credit history.
  3. Know your credit score. A higher credit score can qualify you for better terms and lower rates. If it’s below 670, work to improve it by making loan/credit card payments on time.
  4. Gather the personal and business documents required to complete an application, including:
    • Personal financial statements
    • Business financial statements
    • Business projections
    • Ownership information, affiliations and owner information (including resumes and conflicts of interest for each owner)
    • Federal personal and business tax returns
    • A business history, overview and plan

Step 6: Decide whether to offer a security interest

To improve the chances of receiving their desired loan, a borrower can provide a security interest to the lender on company assets such as corporate equipment, property or accounts receivable. A security interest gives the lender a legal claim on the collateral if the borrower defaults on the loan.

If you choose to offer a security guarantee, use a business asset to secure it rather than putting both business and personal assets at risk.

Step 7: Doublecheck and apply

It never hurts to ask for a second opinion. Once you feel ready to apply for your small business loan, ask a mentor to review your application materials and give feedback to help you get the best outcome. You can also access free resources from:

  • SBA — The U.S. Small Business Administration works with lenders to provide loans. The agency has at least one branch office in each state and provides free assistance and resources to business owners.
  • Small Business Development Centers — With 900 locations across the country, U.S. Small Business Development Centers provide free business resources and professional guidance for business owners.
  • SCORE — SCORE offers a network of business mentors who provide guidance at no cost. You can tap into an expert in your field and learn from their experience.

Once they’ve given you a thumbs-up, you can feel confident that you’ve put yourself in the best possible position for success.

As you start applying, be organized and ensure you’re giving each lender exactly the information they require. That will cut down on back-and-forth and make the process more streamlined.

Also, just because you’ve researched a wide variety of lenders, you don’t have to apply to all of them. Completing each application is time-consuming, and every credit check can potentially impact your credit score.

Step 8: Compare your offers

After you begin receiving loan offers, compare your options and see which is most favorable. Factors to consider include:

  • The interest rate and whether it’s fixed or variable
  • How often interest payments are due
  • Other costs such as underwriting fees, administration fees and loan processing fees
  • Whether you can pay off the loan’s balance can early to avoid a penalty

If you have a preferred lender, but their terms don’t come out on top, ask if they’ll consider matching another more favorable offer.

What happens if you don’t get an offer at all? If you’re turned down for your loan, inquire about how you can improve your chances next time. You have the opportunity to improve your business’s position. Research alternative lending resources and find an option better suited to your business’s circumstances.

Build a business worth protecting

The best way to obtain a business loan is to get all the pieces in place ahead of time, so you have a good chance of getting your financing when you really need it.

Taking time to prepare might mean improving your credit or cash flow before completing a new application and getting all the business stars aligned, including insuring your business against any unforeseen circumstances.

Support and project your newly funded business with Thimble’s Small Business Insurance. Don’t worry; it’s not another cumbersome series of forms to fill out. Download the Thimble mobile app or click “Get a Quote” and fill out a few questions and you can be covered in minutes.


  1. U.S. News & World Report. Bad Credit Loans for Small Businesses. 
  2. U.S. News & World Report. What Are the 5 C’s of Business Financing? 
  3. U.S. Small Business Administration. Microloan Program.