How to Get a Small Business Loan (Step-by-Step Guide)

In today’s guide, I’m going to teach you how to get a small business loan. So in article, we’re going to cover the different types of business loan, where you go to get a small business loan, what you need to qualify, how much that you qualify for, and how to increase your chances of approval.

So let’s start with this very important question: which small business loan or financing is the best for you.

To answer that, you must be aware of the most popular forms of small business financing. So there’s the Term Loan, SBA loan, a business line of credit, equipment financing, Revenue based financing, micro loans.

These are the most popular ones. Of course there are others as well. But each of these has their pros and cons, and some may be better for certain situations or Industries. But listen, regardless of the type of loan, always check the terms for fees, guarantees, collateral, and early repayments among other things.

Types of Small Business Loans

1. Small Business Term Loan

With a Term Loan, you receive a lump sum of cash, and you repay the loan with a fixed monthly payment for a certain period of time, and the interest rate is fixed.

Pros of a Business Term Loan:

• They’re typically lower interest rates.
• Term loans will have higher borrowing amounts compared to other types of small business loans.

Cons of a Business Term Loan:

• They’re going to be more difficult to qualify for.

So we’re talking about being based off your personal credit score, your business, and history of revenues.

2. SBA Loan

Now let me tell you about SBA Loans. A small business administration loan or SBA loan is a small business loan that’s partly guaranteed by the SBA, which is a government agency. So I want to be very clear about this: the SBA does not give the loan. The SBA just guarantees a part of the loan to the lender. And I want to point out that an SBA loan can have a fixed or variable interest rate. It depends on the type of SBA loan.

Pros of an SBA Loan:

• They’re going to be among the lowest of interest rates.
• Longer repayment terms.
• SBA Loans are considered long-term business financing, which means that the repayment period is typically longer.

Cons of an SBA Loan:

• It’s the application process. It’s a long one. I mean it could be as short as 10 days to get funding or it could be as long as 90 days.
• SBA Loans are going to be more difficult to qualify for.
• So for example, higher credits score requirements. You know most lenders they want to see a minimum personal credit score of around 620 but they’re typically looking for 690 or up.
• And you also must show a strong business history, about cash flows.

3. Business Line of Credit

Now let me tell you about a business line of credit. So a business line of credit works like a credit card. You borrow when you need to. You only pay interest on the money that you’ve borrowed. So let’s just say that you get a $50,000 line of credits. That means you can borrow up to $50,000 whenever you please.

You can think of that $50,000 in this example like your credit card’s borrowing limits. In this example if you draw $20,000 from your line of credits then you’ll start getting charge interest on the $20,000 that you borrow, and you’ll have to make payments based on only the amount that you borrow. Again like a credit card. And if you pay that money back then you stop getting charged interest.

Pros of a Business Line of Credit:

• They give you flexibility.
• They also give you revolving access to funds.

Cons of a Business Line of Credit:

• You have to watch out for the fees. We’re talking about maintenance fees, annual fees, draw fees. Etc. Please watch out for those.
• You may have a variable interest rate, which means that your interest rate may change. So there’s some uncertainty there.
• Another con of a business line of credit is that there are stricter requirements.

Read: Construction Loan Requirements 2025 – Build Your OWN House

4. Equipment Financing

Now let’s move on to equipment financing. Equipment financing is used to acquire business equipment, which can be pretty broad. So this includes office furniture, Machinery, commercial kitchen equipment, medical equipment, industrial equipment. Etc.

In equipment financing, the interest rate is typically fixed, and the equipment becomes collateral. So a pro tip is that it’s easier to get financing for equipment that retains value. It’s much more difficult to get financing approved for equipment that does not hold resale value.

Pros of Equipment Financing:

• It allows you to keep cash on hand.
• It allows you to own the equipment instead of renting it.

Cons of Equipment Financing:

• This type of financing it’s of course limited to equipment.
• It may require down payments but not in all cases.

5. Revenue Based Financing

Now let’s cover Revenue based financing. Revenue based financing is alternative financing that’s difference from a traditional loan. This type of financing has no interest rate. Instead there’s a factor rates. So here’s how it works.

Let's just say that you request $100,000 but the deal is that you will have factor rates of 1.15. In this case you would need to pay back $115,000. With Revenue based financing, you can determine the frequency of your payments. You can choose to make your payments monthly, weekly, or even daily. However most people choose weekly payments, and typically there are discounts for early repayments.

Pros of Revenue Based Financing:

• It’s easier to get approval compared to a traditional loan.
• Fast funding compared to a traditional loan.

Cons of Revenue Based Financing:

• It can be a higher cost of financing.

6. Microloans

Now let’s cover microloans. Microloans are business loans that offer financing for smaller amounts, and we are generally talking about from $500 to $50,000. So these types of loans they’re generally a good fit for businesses that need smaller amounts of financing.

Some microloans may have variable interest rates but most microloans will have fixed interest rates with fixed payments. Now I want you to be aware that microloans you know as you can imagine they’re not big money makers for large Banks because they’re dealing in smaller amounts right. So it may be more difficult for you to get a microloan.

Pros of a Microloan:

• They can get you smaller financing amounts that large lenders are not willing to offer you.
• They can help build your credits.

Cons of a Microloan:

• Micro loans typically have higher interest rates compared to other loans because they’re considered higher risk.
• There are fewer lenders you know that offer micro loans compared to other loans.

Where to Get a Small Business Loan?

Now let’s talk about where you go to get a small business loan.

You can get a small business loan from banks, credit unions, online lenders, or from the SBA. Getting a loan from banks, credit unions, or an online lender that’s pretty straightforward but i want to clarify with the SBA.

So this is straight from the SBA websites. The SBA partners with lenders. It’s not the SBA that’s giving you the loan. Again the SBA is simply guaranteeing a part of your loan to the lender.

If you visit the sba’s website which is at sba.gov then you’ll see here that you can find lenders on the sba’s websites. So once you click that that will take you here to where you can get connected to a lender.

What You Need to Qualify for a Small Business Loan?

Now let’s answer this question: what do you need to qualify for a small business loan. The answer is that it depends on what type of small business loan that you’re looking for. But here’s a general guideline of what lenders will have as a requirements.

Regarding your credit score: All loan types will take into consideration your credit score. At a bare minimum you need to be in the 600 plus range.

Regarding collateral: So most SBA Loans require collateral. There are some exceptions of course. For equipment financing the equipment will become the collateral. So you don’t need collateral for term loans, a business line of credit, or micro loans. However if you offer collateral then you can get a lower interest rate. No collateral is needed for Revenue based financing.

Regarding the minimum age of your business: Generally there is a requirement of course yes there are some exceptions but generally they want to see at least 12 months.

In terms of Revenue requirements: Generally yes there are Revenue requirements of course there can be exceptions but lenders will request your previous few months of banking activity.

So not only will these factors be used to approve or deny you but these factors will also determine your interest rates. However if you’re lacking in one area A lender may still approve you if you fulfill or exceed in another area.

How to Increase Your Chances of Approval?

Now how do you increase your chances of approval or your funding amounts. The stats on whether your small business loan requests will be approved or not vary greatly. It depends on the source. But regardless of what source that you’re pulling from they all show the same thing that large banks are less likely to approve you compared to a smaller bank or a credit union. And that small Banks and Credit Unions they’re less likely to approve you compared to an online lender.

So many people like to start at a large bank because they may already have a relationship at that bank. But if you get rejected by a large Bank try a smaller bank or a credit union. And if you get rejected by a smaller bank or a credit union then try an online lender.

Ultimately to increase your chances of approval try smaller banks, credit unions, or online lenders. And just so you know online lenders they’re growing in popularity. So if you look back at 2019 19% of all small business loans came from non-bank lenders. In 2025 that’s increased to 25% of all small business loans. And of course go with the option that offers a competitive interest rate, good terms, and the type of financing that best suits you.

And to improve your chances of getting a small business loan you essentially need to reduce the risk of the lender. So essentially you got denied because you’re classified as a higher risk because either your credit score is too low, you don’t have enough cash flow, or you don’t have a sufficient history to their liking.

So you can improve your odds by,

• One of the quickest ways to boost your credit score is to fix any credit report errors. So personally I did this and my credit score jumped by 100 points practically overnight.
• Also by applying for the right amount so you want to request the loan amount that is aligned with your revenue.
• So for example the industry standard is five negative ending days. Five Neds will get you denied or severely hurt your chances.
• Also paying down your pre-existing debts, which lower your debt to income ratio.
• Offering collateral is always an option and improving your financials by increasing your revenues or profitability.

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