How to Get a Small Business Loan

small business loan

Do you want to obtain funding your start-up with a small business loan? You aren’t alone! Every year, millions of people dream of owning their own company. Fortunately, there are many kinds of small business loans available, depending on your needs and goals.

Is it Hard to Get Approved Small Business Loan in 2024?

Traditional banks generally provide the most competitive business loans, though they can pose challenges for qualification, particularly for newer businesses. However, certain banks, particularly local or community institutions, may exhibit more flexibility with their criteria, especially if you maintain an existing relationship with them.

What Credit Score Is Required for a Small Business Loan?

While the Small Business Administration does not impose an official minimum credit score requirement, lenders typically establish their own minimum credit score criteria for both personal and business loans. A Small Business Scoring Service (SBSS) score ranging from 140 to 160+ or a personal credit score of 620 to 660 or higher are often necessary for qualification.

For people seeking a small business loan with bad credit, there are hard money loans for business start-ups if you have sufficient collateral.

What Types of Small Business Loans Are Available?

The most common types of small business loans are detailed below. Talk to one of our loan professionals if you need help with funding for your business.

Small Business Administration (SBA) Loans

An SBA loan is a small business loan that is backed by the Small Business Administration. The loans are offered through banks and various lenders.

There are several kinds of SBA loans, with the SBA 7(a) loan being the most common. SBA loans are available to provide working capital, expansion of business, commercial real estate purchases, and equipment. They can range from $15,000 for a microloan to over $5 million for a 504 loan.

SBA loan rates are some of the lowest in the country and repayment can be between 10 and 25 years. However, the loan application process for an SBA loan is difficult and complicated. Everyone who has a 20% or greater stake in the business must offer a personal guarantee for the loan.

Personal Loans

A personal loan can be a good fit for certain types of small businesses, especially if you have a high credit score. These loans are unsecured and usually can be approved fairly quickly. However, personal loans for business often are for higher amounts that for conventional personal loans, so it could be harder to qualify for those large amounts. If you are interested in a personal loan for business, our loan advisors can help you. We will find out about your goals, credit score, and finances, then recommend the best personal loan for business options.

Home Equity Line Of Credit (HELOC)

If you want to start or expand a small business, tapping your personal equity in your home could be a low-interest way to fund it. Homeowners are sitting on trillions in equity in their homes in 2024, and those funds can be tapped with a home equity line of credit (HELOC) or home equity loan.

A HELOC is a second mortgage line of credit with a variable interest rate. The credit line will be based on your credit score and amount of equity in the home. Many lenders will loan up to 80% or 85% of the home’s value, minus what is owed on the first mortgage. You pay interest only during the five- or 10-year draw period, and then principal and interest after the draw period is over.

Interest rates on HELOC are generally under 10% but are higher than they were a few years ago. Still, a HELOC can be an affordable way to get funding for your business. Be sure that you are pulling money out for a good reason and that the business funding will be worth it. If you don’t end up making money in your small business, you will still have to pay back the HELOC. Taking out a second mortgage for business purposes can be a wise move, but it puts your home at risk, so tread cautiously.

Our lending professionals can help you find the best HELOC loan for your needs and budget.

Business Line Of Credit

A business line of credit is a revolving credit line that gives your business access to funds up to a certain limit. It is similar to a business credit card and you only pay interest on the money you take out. After you repay the funds, you can use the credit line again.

A business line of credit may be offered by a bank, online lender, and others. Banks usually have more difficult qualifications and lower rates. Online lenders may have lower requirements but higher rates.

Equipment Loans

An equipment loan is kind of small business loan that is made to finance equipment. It can be used for commercial vehicles, office furniture, appliances for an office, and more. Equipment financing is often easier to apply for than other small business loans; the equipment serves as collateral. But your terms and rates will depend on your personal credit and business financials.

Business Credit Card

A business credit card is a revolving line of credit, and you can draw from and repay the balance as needed. Like a personal credit card, you have to make minimum payments and cannot exceed your credit limit.

A business credit card is usually unsecured, so no collateral is needed. Interest rates can be high in 2024 on business credit cards if you don’t pay the balance each month. Rates depend on your personal credit, and some cards offer generous rewards for your purchases.

Invoice Factoring

Invoice factoring, which is also called accounts receivable factoring, is not exactly a small business loan. The practice lets you sell your unpaid customer invoices for cash. If your application is approved, the factoring organization will provide a percentage of value to your unpaid invoice. Then, it takes over collecting money from the client or customer. When the payment is received, the factoring company gives you a percentage of the value, minus the fee it charges.

Invoice factoring is popular to cover cash flow gaps to buy inventory and pay for labor costs. But you will need to give up control of invoices. The factoring company may also need to ask about a customer’s personal credit and finances.

Invoice Financing

Accounts receivable financing or invoice financing involves using your unpaid invoices as collateral to obtain a cash advance. You keep control over your invoices and still have the responsibility of collecting from your customers. It works similar to invoice financing and funds quickly so you can cover any short-term gaps in your cash flow. However, invoice financing can be expensive and may trap you in a costly borrowing cycle.

Remember When You Apply for a Small Business Loan

Small business owners needing funding to start or expand their business have many attractive options. Consider one or more of the options mentioned here and speak to one of our loan professionals if you want to apply.


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