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There are many ways to finance a business. Some small business owners use their savings and credit cards to purchase initial assets. Others bring on business partners or borrow money from loved ones to meet their startup business needs. Another prevalent business financing option is a bank or credit union loan.

In 2021, the Small Business Administration (SBA) granted more than $44.8 billion in loans to American businesses. That’s not considering all the loans provided by banks, credit unions, or online lenders that the SBA doesn’t back. While a lot of money was being given out, receiving a working capital loan wasn’t easy.

The approval percentage for a business loan in the second quarter of 2021 was less than 25%. Alternative lenders led the way with an approval rating of 24.5%, which was higher than institutional (23.8%), credit unions (20.5%), small banks (18.9%), and big banks (13.6%). You should mentally prepare yourself for rejection as it’s more likely than acceptance. 

What do you need to take out a business loan? 

It’s notoriously challenging to have your business loan application get accepted. The approval rates listed above should be no surprise to anyone trying to take out a business loan. You will have to work hard to get approved for a business loan.

Personal loans are straightforward and rely primarily on your income and credit score. It’s a bit more complicated for a business loan as there are tons of reasons why your application might be rejected. There is a lot of money at stake for a loan lender, and they want to be 100% sure that you’ll be able to repay the loan.

Here is a list of everything that you’ll need for the business loan application process:

  • Personal and business credit scores. The exact requirements will vary based on the lender. However, the higher your credit score, the more likely your loan will be granted. Higher scores can also help you receive a lower interest rate on your loan and save you money, whereas bad credit can bar you from eligibility entirely. 
  • Annual revenue. Most lenders won’t consider your application unless your business generates at most minuscule six yearly revenue figures. A lender might be willing to concede on that requirement if you’re making much more money than you’re borrowing.
  • Years in business. Funding options are more limited for a start-up or first-year business. You’ll need to be in business for at least two years to apply for a business loan. Some lenders might accept a loan request from a younger company, but it’s likely to come with higher interest rates or more severe penalties. 
  • Business plan. Nearly all lenders will require a highly detailed business plan outlining the goals of your business, how you intend to attain them, and an anticipated time frame. A high-quality business plan can help you sell the idea of your business to a lender. A solid enough program can help overlook some of the other requirements. 
  • Collateral or personal guarantee. Offering business assets as collateral will secure your loan and increase the odds of being accepted. Alternatively, you can provide a personal guarantee where you’ll legally promise to repay the loan. Not all loans will require these guarantees, but they won’t hurt your acceptance chances. 
  • Various documents. You’ll need to provide many documents for your loan, including income tax returns, income statements, balance sheets, bank statements, identification, permits, licenses, and articles of incorporation. Each lender will have a different set of requirements for these documents.

Which business loans are best?

Not all business funding loans are the same. Everyone knows about traditional loans offered by banks, but their one-size-fits-all approach doesn’t always work best. More specific options are available to you, and you should look for a loan that fits your needs.

Here is a list of five different business loans that you should consider first:



Learn MoreOn OnDeck’s Website

OnDeck is the best option on this list for a short-term business loan. You can request a business loan between $5,000 and $250,000. The average APR ranges from 29.90% to 97.30%, and term lengths are available from three to 24 months. These loans can help to build up your credit, require minimal documentation, and you’ll receive your funding within three business days.

Here is a list of requirements necessary to request an OnDeck loan:

  • A minimum credit score of 600
  • Pay a maximum origination fee of as high as 4% of the loan principal.
  • Must have at least $100,000 in annual revenue
  • Daily or weekly repayment schedule 
  • Requires a business lien and personal guarantee
  • Must be in business for at least a year
  • Not available in Nevada, North Dakota, or South Dakota

Funding Circle

Learn MoreOn Funding Circle’s Website

Funding Circle is the best option on this list for a long-term business loan. You can request a loan between $25,000 and $500,000. The average APR ranges from 10.64% to 31.85%, and term lengths are available for up to seven years. This loan has no minimum revenue requirements, and you can expect your funding within three days of being accepted.

Here are the additional requirements necessary for a Funding Circle loan:

  • A minimum credit score of 660
  • Must be in business for at least two years
  • No bankruptcies within the last seven years
  • Requires a business lien and personal guarantee
  • Pay an origination fee that ranges from 3.49% to 6.99% of the approved loan amount
  • Not available in Nevada

National Funding

Learn MoreOn National Funding’s Website

National Funding is the best option on this list for equipment financing. You can request equipment financing up to $150,000, with a term of up to five years and APR starting at 4.99%. The equipment will be used as collateral and can be seized if you were to default on your payments. Paying the loan within 100 days of signing the contract will net you a 6% early payoff discount. No down payment is required, and you can expect your funding to arrive within three business days.

Here are the requirements for getting equipment financing with National Funding:

  • A minimum credit score of 575
  • Must be in business for at least six months
  • A daily or weekly repayment schedule
  • Must have at least $250,000 in gross annual sales
  • Pay a fee that’s 1% of the cost of the equipment


Learn MoreOn BlueVine’s Website

BlueVine is the best option on this list for a business line of credit. Credit limits reach as high as $250,000, depending on your qualifications. APR starts at 4.8% with a 1.7% weekly or 7% monthly charge for a line of credit draw. BlueVine is especially friendly to startups looking for revolving credit during their early years. You can expect to have your funding between 12 to 24 hours after being accepted. BlueVine is not available in North Dakota, South Dakota, or Vermont. 

Two lines of credit are available with BlueVine: Flex 6 and Flex 12. Each option has its unique characteristics and requirements:

Flex 6

  • A minimum credit score of 600
  • Weekly payments for 26 weeks
  • Must be in business for at least six months
  • Must have $10,000 in revenue per month or $120,000 annually
  • Must be registered as an LLC or Corporation
  • No bankruptcies within the previous year
  • Requires a personal guarantee

Flex 12

  • A minimum credit score of 650
  • Monthly payments for a year
  • Must be in business for at least two years
  • Must have $10,000 in revenue per month or $120,000 annually
  • Must be registered as an LLC or Corporation
  • Requires a personal guarantee


Learn MoreOn SmartBiz’s Website

SmartBiz is the best option for finding an SBA loan lender. Technically, SmartBiz is not a lender itself but rather an online marketplace that connects borrowers to lenders. You enter your details, and SmartBiz will match you with a lender that offers an SBA-backed business loan. SBA loans are notoriously slow to get approved and received. However, SmartBiz shortens the process, and you can have your funds in as little as a week. 

The details of loans can vary significantly based on the lenders. Here are a few possible loans that you could receive:

  • A loan amount between $30,000 and $5 million
  • An APR between 6.25% to 7.25%
  • A loan terms between 120 months and 300 months

 The minimum credit score requirements can vary and typically range somewhere in the 600 range. You will need to make a down payment and show at least two years of operating history to receive a loan. SmartBiz charges fees up to 3.5% of the loan if it’s less than $1 million and up to 3.75% if it’s more than $1 million.

Use a business loan to help expand your business

Approaching a lender with the intent of requesting a loan can be very intimidating. The lender has all of the leverage and holds the fate of your business in their hands. You’ll need to be prepared for anything when you make your initial request. Knowing the exact requirements for a loan will significantly increase your odds of having your application gets accepted.

It’s important to remember that rejection isn’t the end of the world. You still have plenty of other options at your disposal. Everyone would be doing it if owning and operating a business were easy. You might need to apply for several of the above loans before being accepted. But it will be worth it whenever you finally get funding and take your business to the next level.

Information provided on Entrepreneur Guide is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, we do not recommend or advise individuals to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results

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