How Hard Is It to Get a Business Loan?

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Is It Hard to Get a Small Business Loan?

There are several factors to consider when trying to figure out which business loans you qualify for, including your business history, credit report, and annual revenue. Also, each loan has specific requirements that may make it more difficult to qualify for one over another.

For example, SBA loans and traditional bank loans have rigorous standards, while merchant cash advances are quick and accessible. With so many loan options and requirement factors to consider, it’s easy to get confused.

This guide breaks down your various loan options and their respective requirements, so you can determine which loans you might qualify for before applying.

Business Loan Approval Factors

Though the small business lending industry is continuously growing and innovating, the factors that qualify you for a business loan remain consistent. We’ll explain the various business loan requirements that impact your eligibility in more detail below.

Personal Credit Score

From a lender’s perspective, you, the business owner, will be in charge of spending and paying back any of the funds you secure through a business loan. Therefore, lenders reference your personal credit score to predict how responsible you are with your business finances—and your ability to repay a loan. Because of this, many lenders will establish a minimum personal credit score that they’re willing to work with.

Some banks offer credit monitoring for free with your account, but you can also check it for free online. Generally, if your personal credit score is in the high 600s, you should fulfill almost any lender’s minimum FICO score requirement.

Time in Business

When you consider that only a fraction of businesses with employees will survive their first year, it goes without saying that younger businesses are riskier to lend to. As such, lenders will look to your business’s age as an indicator of your business’s likelihood to stay in business and your ability to pay back your debts.

Similar to your personal credit score, many lenders will establish a minimum requirement for business age. Generally speaking, if your business has over two years of business history, then you should be good to go, but it can never hurt to double-check.

Annual Revenue

Just like your personal credit and your business’s age, your business’s revenue is an indicator of whether you can repay the loan amount you’re seeking.  Your annual revenue shows a potential small business lender how much money you’re making per year.

And though different lenders will ask for your business’s revenue within different spans of time—sometimes a monthly revenue, but more often an annual revenue, they’ll always want an idea of how much business you’re doing.

Business Plan

Some lenders will require that you include a business plan for funding with your application. Although this can be extra work, think of your business plan as additional marketing for why you need financing.

It’s your opportunity to outline your financial and business goals. Moreover, a comprehensive business plan shows the lender that you’ve done your homework and that you know the steps you’ll take to grow a successful company.

Loan Purpose

Some lenders are strict about how you will use your funding. For example, equipment financing is used for covering the costs of securing equipment for your company.

Therefore, research your loan options and specify how exactly you will use the funds.

Loan Amount

How much money do you want to borrow from the lender? The amount you will need will narrow your loan options. For example, if you’re seeking less than $250,000, a traditional bank loan might not be the route for you.

Instead, you can seek alternative financing solutions, such as business lines of credit. Also, be realistic about the amount you’ll need—you don’t want to take on more than you can afford to repay.

Disclosure of Other Debt

Lenders are often wary about borrows who already have existing debt. If you’re already repaying other forms of debt, it might affect your ability to meet the repayment terms if you apply for another loan.

Therefore, lenders may request a business debt schedule, a document that lists all the debts your business currently owes. If you’ve taken on too much debt, the lender may reject your application or recommend that you reapply after reducing the amount you owe.

Types of Business Loans and Criteria for Qualifying

Ready to look into how easy each type of business loan is to qualify for?

Here are the different types of business loans, ranked by general accessibility, starting with the easiest type of business loan to qualify for. In addition to these details, we’ll also explore how to apply for each one.

Loan Type  Description Criteria
Merchant Cash Advance
Receive an advance on your future credit card revenues that you repay with a predetermined daily percentage of your business’s credit card sales
  • 5+ months in business
  • 400+ personal credit score
  • $75,000+ in annual revenue
Invoice Financing
Receive financing up to 90% of your outstanding invoice’s value that you repay plus a percentage of interest per week the invoice remains outstanding
  • 6+ months in business
  • $50,000+ in annual revenue
Business Lines of Credit
Receive a line of credit from which you can pull, and you only have to repay the amount you borrow, plus interest
  • 6+ months in business
  • $50,000+ in annual revenue
Short-Term Loans
Receive a lump sum of funding that you’ll pay off, plus interest, over time in weekly or daily payments
  • 1+ years in business
  • 550+ personal credit score
  • $50,000+ in annual revenue
Equipment Financing
Receive financing specifically for securing up to 100% of equipment costs
  • 1-2 years in business
  • 600+ personal credit score
  • $100,000+ in annual revenue
Term Loans
Receive a lump sum of capital that you repay at fixed periods with regular repayments at a fixed interest rate
  • 1+ years in business
  • 600+ personal credit score
  • $90,000+ in annual revenue
SBA Loans
Receive a lump sum of capital that is also guaranteed by the Small Business Administration with favorable terms but high minimum requirements
  • 2 years in business
  • 640+ personal credit score
  • $100,000+ in annual revenue

Merchant Cash Advance

With a merchant cash advance (MCA), a lender will advance your business’s future credit card revenues that you will repay with a predetermined daily percentage of your business’s credit card sales. Technically, this financing option is not a loan—it’s an advance. 

A merchant cash advance’s high accessibility also comes with the highest price tag on this list. The cost is most often expressed as a decimal factor rate which, if multiplied by your loan amount, will show you how expensive your MCA will turn out to be. All that said, an MCA is easy to qualify for—you’ll just need:

  • At least five months in business
  • 400+ personal credit score
  • $75,000+ in annual revenue

When applying, you will need the following documents: driver’s license, voided business check, bank statements, credit score, business tax returns, credit card processing statements.

Although merchant cash advances are the easiest type of “business loan” to qualify for, it can take longer than a week to fund. That’s because they rely on either verifying or setting up merchant services, which will slow down the funding process.

Merchant cash advances are one of the best options for under-qualified businesses in need of funding. However, before you agree to this financing product, make sure your business can sustain the high interest rates. Otherwise, you may find yourself stuck in debt you can’t pay off.

Invoice Financing

With invoice financing, a lender can advance your business up to 90% of your outstanding invoice value. But this advance doesn’t come free—they’ll charge you a certain percentage of interest per week that the invoice is outstanding. So the further away you are from your invoice’s fulfillment day, the more expensive your invoice financing will be.

Since invoice financing is self-secured business funding, it’s relatively easy to qualify for. Invoice financing comes with these general minimum requirements:

  • At least six months in business
  • $50,000+ in annual revenue

During the application process, you will likely need to supply the following items: driver’s license, voided business check, bank statements, credit score, and outstanding invoices. Invoice financing is quick and efficient—you can secure funding within the same day of applying.

Business Lines of Credit

A business line of credit basically works like an intangible credit card—your business will be extended a line of credit from which you can spend, and you only have to pay back however much you spend, plus interest. Business lines of credit are often relatively easy to access, with general minimum requirements that are fairly easy to fulfill:

  • At least six months in business
  • $50,000+ in annual revenue

The application process can be swift and you can sometimes receive funding one day after applying. However, a business line of credit typically requires more documentation:

  • Driver’s license
  • Voided business check
  • Bank statements
  • Balance sheet
  • Profit and loss statements
  • Credit score
  • Business tax returns
  • Personal tax returns

Short-Term Loans

A short-term loan will function a lot like a condensed version of a traditional term loan—you’ll receive a lump sum of funding that you’ll pay off, plus interest, over time.

Short-term loans generally offer smaller loan amounts, higher APRs, and shorter repayment terms. Instead of scheduled monthly payments, you’ll likely pay scheduled daily or weekly payments. Some short-term loans even express their rates in factor rate instead of APR—an indicator of high-cost financing. 

Still, a short-term loan is typically more accessible than its longer-term counterparts, with lower requirements:

  • At least one year in business
  • 550+ personal credit score
  • $50,000+ in annual revenue

The application process is speedy and you can secure your financing within one day. You will need the following documents ready during your application: driver’s license, voided business check, proof of ownership, bank statements, credit score, and personal tax returns.

Equipment Financing

Equipment financing is a form of business loan used for acquiring equipment. If you qualify for equipment financing, you’ll be able to finance up to 100% of a piece of equipment’s value.

The equipment serves as collateral for the loan, decreasing the risk for the lender and increasing affordability for the borrower. However, equipment financing does have moderately high requirements: 

  • One to two years in business
  • 600+ personal credit score
  • $100,000+ in annual revenue

With a funding speed of as little a two days, equipment financing can be a quick financing option. Plus, you’ll only need to compile the following documents for your application for equipment financing: driver’s license, voided business check, bank statements, credit score, business tax returns, and your equipment quote.

Term Loans

A business term loan is a lump sum of capital that you receive and repay plus interest with scheduled monthly payments. A term loan is a straightforward and affordable financing solution with long repayment terms. However, term loans have minimum requirements that can make them difficult to qualify for:

  • At least one year in business
  • 600+ personal credit score
  • $90,000+ in annual revenue

You can potentially receive funding in as little as two days after applying. However, you will need to compile an extensive list of documents before applying:

  • Driver’s license
  • Voided business check
  • Bank statements
  • Balance sheet
  • Profit and loss statements
  • Credit score
  • Business tax returns
  • Personal tax returns

SBA Loans

SBA loans are business loans guaranteed by the Small Business Administration. They are the cream of the crop of small business loans, but are also the least-accessible option on this list.

SBA loans typically feature low down payments, long payment terms, and reasonable interest rates. Also, you can use SBA loans for nearly any purpose—from purchasing inventory to refinancing other debts. As you might expect, the minimum requirements present some entry barriers:

  • At least two years in business
  • 640+ personal credit score
  • $100,000+ in annual revenue

Since SBA loans involve a government entity, some bureaucracy might slow things down—it can take at least three weeks to process and fund. Also, the SBA loan application requires a substantial stack of documentation:

  • Driver’s license
  • Voided business check
  • Bank statements
  • Balance sheet
  • Profit and loss statements
  • Business tax returns
  • Personal tax returns
  • Business plan
  • Business debt schedule: at the very least, 3 weeks
  • SBA forms

Frequently Asked Questions

Your Next Steps

With the question, “Is it hard to get a business loan?” answered, what’s your next move?

It’s time to think about where your priorities lie.

As you’ve probably gleaned from this article, the types of business loans that are the easiest to get are quite often the most expensive. On the other hand, the types of business loans that are the hardest to get are often worth the effort due to the ideal terms they offer.

Lucky for you, there are tons of resources out there to make your journey toward funding your business a smooth one. And you’re already on the right path by consulting this guide.

The way we see it, the types of business loans that are hard to get, like term loans and SBA loans, are worth the effort it might take to apply or even to improve your business’s credentials in order to qualify. And you can use a resource like Fundera to make the application process as smooth as possible.

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Vice President and Founding Editor at Fundera

Meredith Wood

Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. She launched the Fundera Ledger in 2014 and has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and her advice has appeared in the SBA, SCORE, Yahoo, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, and more. Email: meredith@fundera.com.
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