Lending Library

When your business needs a quick cash infusion to deal with unexpected expenses, seize growth opportunities, or meet urgent operational costs, fast business loans come to the rescue. These loans are designed for swift approval and funding—often within 24 hours—making them an ideal choice for situations where traditional loan processes may be too slow. 

This guide will walk you through the various options for a quick business loan, helping you make an informed decision that suits your business needs.

Fastest types of business loans.

Here are five quick business loans and other financing structures that provide fast approval times, as well as quick funding. The terms and repayment structures vary for each type of loan or financing, so take a look to see which might be the best option for your company.

1. Business term loan

A term loan is a lump sum of cash that is repaid with interest over a set period, typically ranging from one to 10 years. These loans are available through traditional banks, as well as alternative lenders and online platforms. The application process can take anywhere from a few days to several weeks, but certain lenders offer expedited approval and funding for those in need of fast business loans.

Features of a business term loan are as follows:

• Loan amount: $5,000-$2 million
• Loan repayment term: 1-10 years
• Interest rate: 8.49% and up
• Funding time: As soon as same business day

Compare business term loan lenders.

2. Line of credit

A business line of credit is similar to a credit card. You have a credit limit you can draw upon at any time, and you pay interest only on the amount you draw. A line of credit can help cover short-term needs such as paying for inventory or seasonal changes in cash flow.

Features of a business line of credit are as follows:

• Loan amount: Up to $250,000
• Loan repayment term: 6-18 months
• Interest rate: 8% and up
• Funding time: As soon as same business day

Compare line of credit lenders.

3. Business cash advance

A cash advance isn’t a loan but a cash advance based on future sales. This makes qualifying easier since the financing company considers revenue and sales more than your credit history. The repayment is an agreed-upon percentage of your income that comes directly from your bank account each day until your balance is repaid. This type of financing is ideal for companies with stable cash flow.

Features of a business cash advance are as follows:

• Loan amount: Up to $2 million
• Loan repayment term: 3-36 months
• Factor rate: As low as 1.08
• Funding time: As soon as same business day

Compare business cash advance companies.

4. Equipment financing

Equipment financing is an excellent option for businesses that need to purchase or lease new equipment quickly. This type of loan covers a wide range of items like machinery, vehicles, office technology, and more. The equipment itself serves as collateral for the loan, which often results in more favorable terms, since the lender has a secure form of repayment. Depending on the lender, you might be able to finance up to 100% of the equipment cost.

Features of equipment financing are as follows:

• Loan amount: $5,000-$5,000,000
• Loan repayment term: 1-10 years
• Interest rate: 7.5% and up
• Funding time: As soon as same business day

Compare equipment financing companies.

5. Invoice factoring

Invoice factoring allows you to get paid faster for your outstanding invoices. With invoice factoring, the financier will purchase your invoice at a discounted rate, giving you a percentage of the money upfront. Then, after the customer pays the invoice in full to the financier, you receive the rest of the money, minus a fee. Funds from invoice factoring can be available as soon as the same day. Plus, the factoring company handles collecting payment from your customers, freeing up your time and resources for other areas of your business.

Features of invoice factoring are as follows:

• Loan amount: Up to 85% of invoice value
• Loan repayment term: Up to 1 year
• Factoring fee: As low as 3%
• Funding time: As soon as same business day

Compare invoice factoring companies.

When to get a fast business loan.

While speed to funds is one factor to consider when comparing business loan options, it’s important to compare multiple factors when selecting a business loan including the total cost of the loan and the maximum loan amount. In some cases, waiting a few more days or weeks will allow you to work with a lender who can offer more favorable terms.

Some common reasons to get a fast business loan include:

• Immediate working capital needs
• Unexpected business expenses
• You don’t qualify for a traditional bank or SBA loan

Fast Small Business Administration (SBA) loan options.

In some scenarios, the Small Business Administration (SBA) provides expedited loan options that offer both speed and beneficial terms, making them a worthwhile consideration for businesses in need of swift funding.

SBA Express Loans

An SBA Express Loan is a variant of the popular SBA 7(a) loan with a faster approval time. This expedited process, often within 36 hours, offers loan amounts up to $350,000.

Applying for an SBA 7(a) Small Loan with Lendio.

Lendio offers a convenient SBA loan application process. While it might take 30 to 90 days with your local bank, potential borrowers can complete an application and get a pre-approval within 24 hours, and after providing the required documentation, can get funded with a 7(a) small loan in fewer than 30 days.

How to get a fast business loan.

Follow these steps to obtain fast business funding:

1. Determine your needs - Understand the exact amount you require and the purpose of the loan. Make sure a fast business loan is the right choice for your needs.

2. Check your credit score - Lenders will consider your personal and business credit scores when determining approval and rates. Ensure your credit is in good standing to increase your chances of approval.

3. Gather necessary documents - This usually includes business and personal tax returns, bank statements, balance sheets, and a detailed business plan. Having these documents ready can speed up the process significantly.

4. Compare lenders - Different lenders offer different terms, requirements, and rates. Research and compare multiple lenders to find the one that best fits your needs.

5. Submit your application - Complete your loan application with your chosen lender. Be thorough and accurate to avoid unnecessary delays.

Remember, while fast business loans provide quick access to capital, they may come with higher rates and shorter repayment terms. Consider all your options and understand the terms before making a decision.

Pros and cons of fast business loans.

Just like any financial product, fast business loans come with their own set of benefits and drawbacks. Understanding these pros and cons can help you make a more informed decision.

Pros of fast business loans:

1. Quick access to capital - The most significant advantage of fast business loans is their speed. When your business needs funds immediately, these loans can provide cash within one business day, making them an ideal solution for emergencies.

2. Simple application process - Fast business loans typically have a straightforward online application process that can be completed within minutes, without the need for extensive paperwork.

3. Potential for approval with bad credit - Many fast business loan providers are more flexible with credit score requirements, which can be beneficial for businesses with a less-than-stellar credit history.

Cons of fast business loans

1. Higher rates - The convenience and speed of fast business loans often come at a cost. The rates can be significantly higher than those of traditional business loans.

2. Short repayment terms - Fast business loans usually must be repaid relatively quickly, often within a few months to a few years. This could potentially strain your cash flow.

3. Risk of debt cycle - If used improperly or over-relied upon, businesses may find themselves in a cycle of debt, taking out another loan to pay off the previous one.

Before applying for a fast business loan, weigh these pros and cons carefully. Consider how the repayment terms and rates will impact your business's cash flow and growth, and consult with a financial advisor if needed.

How to compare fast business loans.

When you're considering a fast business loan, it's all about striking the right balance between speed, terms, and cost. Here's how to navigate the maze and compare multiple options effectively.

Understand your urgency

Your first step is assessing the urgency of your financial needs. Do you require the funds within 24 hours, or can you wait a week or two? The urgency will narrow down your options and help you focus on lenders who can meet your timeline.

Know your numbers

Financial literacy is non-negotiable in the world of business funding. Calculate exactly how much you need, and more importantly, how much you can afford to repay. Use loan calculators and projections to understand the long-term impact of the loan.

Read the fine print

The devil is in the details. While speed is your priority, don't skim over the terms and conditions. Look for prepayment penalties, additional fees, and any other clauses that could affect your small business negatively.

Review the repayment terms

Fast business loans often come with shorter repayment terms. Ensure you can meet the daily, weekly, or monthly repayments without straining your cash flow. If you can't find a loan with terms that suit your business's financial rhythm, it may not be the loan for you.

Evaluate the total cost

The Annual Percentage Rate (APR) is your benchmark for the total cost of the loan. The lower the APR, the cheaper the loan. But also consider the application fees, processing fees, and any other costs that could push the total cost up.

Shop around

Don't settle for the first offer or even the third. Approach multiple lenders and use the competitive landscape to your advantage. You might find that you're eligible for lower rates or better terms than you initially thought.

Secure or unsecured?

Fast loans can be secured against your assets or unsecured, with no collateral required. While secured loans often have lower rates, unsecured loans are quicker and don't put your personal or business assets at risk.

Understand credit score repercussions

Applying for multiple loans can impact your credit score, so be strategic. If your credit score allows, consider pre-qualification offers that give you a rough idea of what you qualify for without a hard credit check.

You might consider an SBA microloan if you’re trying to start or expand a small business.

But how exactly does getting a microloan through the SBA work? What do you need to meet the requirements? What do terms look like? How do you get started with an application?

We’ll answer  all these questions in more in our guide to SBA microloans. We’ll explain how it all works, highlighting requirements, current interest rates, microloan lenders, alternatives, and how you can apply today.

What is an SBA microloan?

The SBA microloan program consists of small loans funded by the Small Business Administration. However, these loans don't come directly from the SBA to the borrower. Instead, the SBA provides the funds to a network of intermediary lenders, such as community based nonprofit lenders.

This network then provides microloans to eligible small businesses and certain childcare centers. Participants in the nonprofit lender network are selected not only for their experience in lending, but in management and technical assistance as well, so that these intermediaries can administer the microloan program effectively.

SBA microloans provide financing to traditionally underserved businesses, such as startups, women-owned companies, and minority-owned businesses.

Eligible businesses can borrow up to $50,000, but according to the SBA, the average microloan is around $13,000.

What can SBA microloans be used for?

Microloans can be used for many purposes, affording small businesses flexibility when needing to rebuild, re-open, repair, or improve their business.

Seeking an SBA microloan might be a solution if you are looking to:

• Access working capital
• Purchase or replenish inventory or supplies
• Replace or purchase furniture or fixtures in your business
• Purchase new machinery, or secure equipment upgrades

However, you can not use an SBA microloan to pay existing debts, settlements of lawsuits, trade disputes, fines or penalties, or purchase real estate. You also can’t use the SBA microloan for personal, non-business use.

SBA microloan requirements

The SBA microloan loan program is geared for early-stage businesses and startups, but all for-profit small businesses and certain nonprofit childcare centers are eligible.

Because SBA microloans target early-stage businesses and underserved business segments, the requirements for qualification are less stringent than other types of traditional loans. Even if you have limited credit history or lower income, you may qualify.

Of course, each intermediary lender will have its own eligibility requirements, but most will ask for some or all of the following:

• Collateral and/or a personal guarantee from the business owner
• Minimum credit score - 620 or higher is good to have, but intermediary lenders may accept lower scores
• Owner’s Personal finance history
• Business finance history, with current cash flow or cash flow projections
• A certain location within the lenders geographic service area
• A minimum amount of time in business

SBA microloan rates, fees and repayment terms.

Although the SBA places certain restrictions on intermediary lenders, such as not exceeding $50,000 in loan amounts, interest rates and fees are up to your specific lender.

The interest rates will vary depending on your lender, but they typically range between 8% and 13%. And repayments terms are available for up to seven years.

SBA microloans also cannot be made as a line of credit - the microloan is structured as a term loan.

Pros and cons of SBA microloans

Pros

• Easier to qualify for: If you’re a startup or don’t have much business history, it can be hard to qualify for a business loan. Microloans, on the other hand, come with less stringent requirements, having been built to provide financing to businesses that traditionally struggle to find funding. 
• Faster funding: If you apply for a traditional SBA loan, the application and funding process can take months to complete. In comparison, you could receive funding through your microloan in just 30 days. 
• Low interest rates: Like all SBA loans, microloans come with low interest rates. The rates will vary depending on your lender, but the average rate is between 8% and 13%.
• Flexible loan terms: SBA microloans come with repayment terms of up to 7 years, so your monthly payments are more affordable. 

Cons

• Small loan amounts: If you need to borrow more than $50,000, the microloan program might not be the best option for you. 
• Spending restrictions: SBA microloans do come with certain spending restrictions. For instance, you can’t use the funds to pay down existing debt or purchase real estate. 
• Lenders may charge fees: The SBA caps its fees, but individual lenders can charge their own fees. For instance, you may have to pay an application fee, loan processing fee, or closing costs.
• Availability is limited: Since SBA microloans are offered by nonprofit intermediary lenders, these loans can be harder to find. These lenders don’t have the resources and staff that larger lenders have, so these loans might not be available in your area.

Finding SBA Microloan Lenders

The SBA has hundreds of lending partners located across the country, and provides a comprehensive list of microloan lenders to help you find a match. 

Most lenders will require you to either speak to a lending specialist over the phone or apply in person. 

The lender you work with will inform you about any necessary paperwork and documentation to apply. In addition, some lenders may require that you complete a workshop or training program as part of the application process. 

As part of your paperwork, you’ll need to provide a range of information, including:

• Proof of identity
• Description of collateral
• Balance sheet data (income and expenses)
• Personal and business tax records
• Business details (industry, licensing, assets, leases, etc.)

Once you’ve submitted all the required paperwork, your application is complete, and your lender will review and process the loan.

Alternatives to SBA microloans

If you’re not sure if an SBA microloan is the right fit for your business, here are some alternatives to consider:

• SBA 7(a) loans: SBA 7(a) loans are a good choice for businesses that need larger loan amounts. These loans are available for up to $5 million, but the qualification criteria are more strict. 
• Business credit cards: A business credit card can be used for any business purchase, and the application process is relatively easy. If you go this route, look for a card with an introductory 0% APR. 
• Invoice factoring: If you have a lot of cash tied up in your unpaid invoices, invoice financing allows you to leverage your outstanding invoices to get access to capital. 

The bottom line

SBA microloans can help startups and small businesses access the capital they need. These loans are a good option for traditionally underserved borrowers, like women and minorities, or low-income community businesses. If you’re interested in exploring your loan options, you can use Lendio to quickly compare loan offers from multiple lenders.

Your small business has limited or no financial history, and you find yourself needing a business loan. With no tax returns on-hand and limited paperwork, what are your options?

As you might imagine, this is a very common question for entrepreneurs and new small business owners. The good news is that there are options.

Here, we’ll walk you through no-doc business loans, as well as some other alternative options that don’t require tax returns, and what you do need to qualify for them.

First off, can I get a business loan without tax returns?

Yes, you can. Many lenders offer business loans without requiring tax returns, typically referred to as no-doc business loans or low-doc business loans (meaning no or low documentation).

Traditional banks often require extensive documentation and financial history. Online and alternative lenders are making it easier to secure funding with minimal paperwork.

If you’re looking for a no-doc business loan, you’re probably in one of the following categories:

• Startup without tax history
• Small business owner with no/fluctuating income
• Entrepreneur prioritizing fast access to funds (regardless of tax history)

What are no-doc business loans?

A no-doc business loan is a type of financing that doesn’t require traditional financial statements like tax returns, profit and loss statements, or detailed revenue reports.

Instead, lenders evaluate eligibility with more day-to-day items, like bank statements, credit scores, merchant transactions, and invoices (both incoming and outgoing).

How do no-doc loans work?

Unlike traditional business loans, no-doc loans prioritize speed and accessibility. They’re typically offered by online or alternative lenders, and less so from traditional banks.

Instead of tax returns, lenders assess:

• Business bank statements (typically 3–12 months)
• Personal or business credit score
• Merchant processing statements (for businesses with credit card sales)
• Outstanding invoices (for invoice financing options)

As is the case for any alternative or fast loan options, no-doc business loans typically come with higher interest rates, lower funding amounts, and less favorable repayment terms. 

Personal and business credit scores, the steadiness of your business (revenue and spending), and collateral will typically be the biggest determinants of the terms you qualify for.

No-doc business loan options

As discussed above, no-doc loan options don’t require the same level of paperwork as traditional loans.

Most no-doc lenders still require business bank statements, credit scores, outstanding invoices, and proof of ownership (business info like EIN, entity type) and a voided check.

No-doc loans do not require:

• Tax returns
• (Some) Financial statements
• Business plans
• Personal collateral

1. Revenue-based financing (Business cash advance / Merchant cash advance)

Outside of specific no-doc loans, you still have a selection of options that won’t require a tax return. A business cash advance, for example, is an advance based on the future sales of your business.

How does it work?

A lender provides a lump sum upfront. For business cash advances, daily or weekly repayments are determined based on your cash flow. With MCAs, repayment is based on a percentage of your daily credit card transactions. Because repayment is based on sales, it’s a good option for business with strong, steady revenue.

Want to learn more? Read about your options for revenue-based financing.

When you shouldn’t use a business cash advance:

1. If you have tight profit margins. Repayments come daily/weekly, which can drain cash fast.
2. If you’re not as familiar with factor rates - these rates are expressed differently than typical interest rates and require some additional calculation to understand the total cost of your loan.
3. If you’re looking for long-term growth capital. Cash advances are for short-term growth, not strategic scaling.

2. Business lines of credit

A business line of credit works like a personal credit card, allowing small businesses to draw funds as needed up to a set limit. Unlike traditional loans, a line of credit is not delivered as a lump sum, but can be accessed as needed at any time (so long as the amount stays within the credit limit).

A business line of credit serves as a great safety net for different types of small businesses.

When you shouldn’t use a business line of credit:

1. If your startup is brand new. Lenders typically want 6–12+ months in business.
2. If you need a lump sum of cash upfront.
3. If you need money yesterday. LOC approvals can take a few days.

3. Invoice financing & factoring

Invoice factoring allows businesses to get an advance on unpaid invoices.

Lenders front a percentage of the invoice amount, giving small businesses access to immediate capital, instead of having to wait for customers to pay in-full. Repayment happens when the customer pays their invoice.

When you shouldn’t use invoice factoring:

1. If you don’t have invoices to factor (i.e. consumer retail, restaurants, etc.)
2. If you have low-margin invoices. Factoring fees can eat into profits.
3. If you don’t want clients to know you’re factoring (some lenders notify your customers during the process).

4. Short-term business loans

Short-term small business loans give you access to a lump sum upfront, with fixed repayment over a short period (usually 3 to 24 months, though sometimes up to 36).

Payments are daily, weekly, or monthly, depending on your terms. Like no-doc business loans, short-term loans require little documentation, but come with higher interest rates compared to traditional loans.

When you shouldn’t look for a short-term business loan:

1. If you have tight cash flow. Daily or weekly repayments can get rough fast
2. If you’re looking for long-term, low-cost funding. You’ll get a better deal with SBA or term loans.
3. If you don’t have revenue. You likely won’t qualify.

Feature comparison of small business loans that don't require tax returns

Qualifying for a no-doc business loan

Even without tax returns, lenders still need to evaluate the financial health of your business. So, even if you’re looking for a no-doc or low-doc business loan option, you should still be prepared with:

• A Strong Credit Score: No-doc lenders often rely heavily on personal or business credit scores.
• Bank Statements: Demonstrating steady cash flow helps prove repayment ability.
• Proof of Revenue: Alternative documentation, like merchant account statements or invoices, can replace tax returns.‍
• Collateral (Optional): Some lenders offer secured no-doc loans if you can provide business assets as collateral, which will help you qualify for more favorable terms.

Explore your options

Not having tax returns shouldn’t stop you from securing the funding your business needs. By exploring alternative financing options like no-doc loans, BCAs, and short-term loans, you can find something that works for you, and works for you now.

If you’re ready to explore your options, Lendio can connect you with lenders offering business loans without tax returns. Get started today!

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Launching a startup business is exciting, but it can also be stressful if you need external money to keep the momentum going. While the U.S. Small Business Administration offers several small business loans for established companies, there are also some loan options available to new ventures. This guide will cover SBA funding for startups, as well as how to apply. We’ll also cover the SBA loan requirements for startups, and alternatives for capital if these loan types won’t work for your business.

SBA Loans For New Startups

While there’s no specific SBA startup loan, there are two financing options available to newer businesses: the SBA microloan and the SBA Community Advantage Program. Each one has its own loan terms and eligibility requirements, and can help serve brand new businesses that are just starting out.

SBA Microloan

An SBA microloan for startups allows businesses to borrow up to $50,000. The average loan size, however, is much smaller at $13,000. The maximum loan term is seven years. These smaller loans are geared towards early-stage businesses, so have less strict eligibility requirements than other SBA loans and traditional loan options.

Ideal for: Managing a new business and providing working capital.

Can be used for: Working capital, inventory, supplies, equipment, furniture or fixtures.

Cannot be used for: Paying existing debt, settling lawsuits, trade disputes, fines, penalties, or purchasing real estate.

Eligible businesses: For-profit small business or nonprofit child care center.

Application Process: Even when choosing to use an SBA loan to start a business, you’ll still need to apply directly through a lender. Lenders typically require collateral and a personal guarantee in order to get approved for a microloan. Read our guide to learn more about applying for an SBA microloan.

SBA Community Advantage Program

Historically underserved communities may be eligible for the Community Advantage Program for a SBA loan for their startup. It’s specifically designed to help new entrepreneurs in underserved markets obtain working capital. You can borrow up to $350,000 over the course of 10 years through Community Advantage Small Business Lending Companies (CA SBLCs)  Originally begun as the Community Advantage Pilot program that sunsetted September 30, 2024, the Community Advantage Program is now a permanent part of the SBA 7(a) loan program, through new licenses issued to previous lenders in the program who can now issue 7(a) loans to traditionally underserved businesses.

Ideal for: New businesses located in low-to-moderate income communities that are less than two years old.

Can be used for: Purchasing commercial real estate that the owner occupies, leasehold improvements or renovations, purchase of inventory, equipment, furniture, fixtures, working capital, business acquisition, or debt refinance for any of the above.

Cannot be used for: Illegal businesses or businesses that do not meet the eligibility requirements, delinquent taxes, investment real estate, or personal use.

Eligibility requirements: Eligible businesses must be part of an underserved market. There are several ways to qualify for this designation, such as:

• Businesses located in Low-to-Moderate Income Communities, Empowerment Zones and Enterprise Communities, Historically Underutilized Business Zones, Promise Zones, Opportunity Zones or Rural Areas
• New businesses that have been operating for less than two years
• Veteran-owned businesses that are 51 percent or more owned and controlled by one or more veterans
• Businesses where more that 50% of the full-time workforce is low-income or resides in LMI census tracts.

Interested in exploring loan options, including SBA loan products like microloans and 7(a) loans, for your new business? Compare loan offers from multiple lenders with Lendio. Applying is free, and won’t impact your credit. Apply now! 

SBA Loans For Established Startups 

Once your startup has reached two years old, the options for SBA loans expand. The following options have their own eligibility requirements.

SBA 7(a) Loan

SBA 7(a) loan funds can be used for a number of purposes. The maximum loan amount is $5 million, and any loan amount over $25,000 requires collateral. Loan repayment terms can vary depending on what the loan is used for, but the repayment period is usually 10 years.

Ideal for: Businesses who have reached the growth stage.

Can be used for: Working capital, equipment, supplies, real estate, debt refinancing and ownership changes.

Cannot be used for: illegal or unqualified business as defined by the SBA, delinquent taxes, investment real estate or personal use.

Eligibility Requirements: Each SBA lender's criteria may vary for an SBA loan. For example, some may require a higher credit score than other lenders. However, at minimum you must have owner equity and engage in for-profit operation in the U.S. or its territories. Read our guide for more information about SBA 7(a) loan requirements.

SBA 504 Loan

The SBA 504 loan is designed to help small businesses make major investments. Funds can be used for long-term assets such as real estate (including updates), land, equipment, machinery, or improvements to land, parking lots, and utilities. You can’t use the funds for working capital or inventory. If approved, you could borrow up to $5 million over a period of 10 or 20 years. 

Best For: Purchasing or upgrading major fixed assets for your business.

Can be used for: Real estate, land, equipment, machinery, or improvements to utilities, parking lots, and the above.

Cannot be used for: Working capital or Inventory purchase.

Eligibility Requirements: Like 7(a) lenders, 504 lenders may set more stringent criteria to access an SBA 504 loan. In most cases, you will need strong credit history, finances, and multiple years in business to qualify. Read our guide for more details on SBA 504 loan eligibility requirements! 

Explore Lendio to find the right SBA loan option for your startup, so you can start making the business moves you need to succeed.

How to Get an SBA Loan for Startups

In order to pursue an SBA loan for your startup and increase your chances of receiving a loan, you’ll want to do some preparation first. Here are the steps to take to prepare and submit an application for an SBA loan.

1. Calculate your Startup Costs

Knowing how much you need to borrow is your first step. Pull together the costs of starting your business, including one-time costs for permits, licenses, equipment, furniture and fixtures. You’ll also need to calculate recurring expenses, such as payroll, rent, and inventory for at least your first year in business. 

Calculating your business startup costs will give you an idea of how much money you will need to get your business off the ground.

2. Write Your Business Plan

Many lenders will want to see your business plan, including research on target market, pricing structure, marketing costs, challenges, and your industry competition. Your startup costs calculation also belongs in your business plan, as well as projected income.

Without multiple years of profits to lean on in your application, you’ll need to use these tools to show that your business will be a success, so spend some time writing a business plan to help you secure funding.

3. Review SBA Loan Qualifications

All your hard work will be for nothing if you start the loan application process only to realize you won’t qualify. First, review the standard SBA loan requirements. You’ll need to:

• Be a for-profit business operating in the U.S.
• Meet the Small Business Administration’s definition of a small business.
• Be able to show your ability to repay the loan.
• Have tried to find alternative forms of funding before trying to get an SBA loan.

Because SBA loans are issued through lenders, you’ll also need to review common requirements for underwriting loans to improve your chances. Your personal credit score and business credit score should be improved as much as possible before pursuing a loan, and you’ll need to gather cash flow, sales projections and any available collateral you may have for the loan.

4. Choose a Loan and Lender for Your Startup

After reading some of the available options above, you probably have an idea of which SBA startup loan option will meet your needs. From there, you’ll need to find the best SBA lender for your startup..

The SBA provides a Lender Match tool to help you find a bank, credit union, or community-based lender that participates in your chosen loan program. You can always double check with a financial institution you’ve previously had a relationship with to see if they participate in the loan program you’re searching for.

You can also apply through Lendio to be matched with funding options that best suit your business needs. It takes 15 minutes to complete the application, and you’ll be put in front of 75+ lenders, including those who offer SBA loan options.

5. Prepare Your Loan Application

After you’ve chosen a lender, you’ll be ready to start your SBA loan application. You’ll need a lot of documentation to support your application, but there may be some variations on specific documents you need based on your loan program and lender.

Prepare all your business and personal documentation, including tax returns, financial statements, certificates and licenses, business history, business plan, contracts and more. 

You’ll also need to complete some SBA forms, such as SBA Form 1919 Borrower Information Form, SBA Form 912, Statement of Personal History, and SBA Form 413, Personal Financial Statement.

Thankfully, your lender will be able to help you through the application process and make sure you have all the required documentation.

Online Business Loans

Many online lenders have flexible qualifications and multiple loan products for startups. If you’re looking for funding fast, exploring these options can be a great way to get funding, sometimes in as little as 24 hours. Curious what kind of loan options might be best for your business? Visit the Lendio Industry funding resource center to select your industry and see loan type recommendations for your business.

Small-Business Grants

Grants for small businesses are a way to avoid accumulating debt by offering capital that you don’t have to repay. The application process may be time-consuming, but if you can secure funds this way it may be worth it for your business.

Business Credit Cards

If you need help with everyday expenses while launching your business, business credit cards for startups are a great way to build your business credit score with responsible management and earn rewards that benefit your business.  

Get Funding for Your Startup

Now that you know the SBA loan options for your startup, as well as how to apply and some alternatives to consider, it's time to figure out which loan option you’re going to pursue. Let Lendio take some of the guesswork out of funding your startup with the Lending Marketplace.

Simply fill out an application, and receive offers from our network of 75+ lenders to compare your funding options. There’s no impact to your credit score, and once you accept an offer, you could receive the funds you need for your startup in as little as 24 hours.

If you're a small business owner looking for financing options, you may have come across the term “SBA loan.” But what exactly is an SBA loan?

In this blog post, we’ll dive into the details of what SBA loans are, the pros and cons, and how to apply, while helping you understand if getting an SBA loan is the right option for your business.

SBA Loans

1. What is an SBA loan?

2. How do SBA loans work?

3. Types of SBA loans

4. Pros of SBA loans

5. Cons of SBA loans

6. What is required to get approved for an SBA loan?

7. Is it hard to get approved for an SBA loan?

8. How long does it take to get approved for an SBA loan?

9. How to get an SBA loan

What is an SBA loan?

Small Business Administration (SBA) loans are government-backed loans designed to help small businesses access the funding they need to start, grow, or expand their business.

SBA loans are partially guaranteed by the SBA, making them less risky for lenders, and therefore, more accessible to small businesses. These loans are not directly provided by the SBA, but rather through participating lenders such as banks and credit unions.

What does SBA stand for?

SBA stands for the Small Business Administration, a U.S. Government agency that supports small businesses by giving them access to capital, counseling, and other community resources.

How do SBA loans work?

Unlike traditional loans where the lender assumes all the risk, an SBA loan is backed by the government.

This means that if a borrower defaults on their loan, the SBA will partially reimburse the lender for their losses.

This guarantee reduces the risk for lenders and encourages them to provide loans to small businesses, even if they have lower credit scores or less established financial histories.

What can you use an SBA loan for?

Types of SBA loans

There are several types of SBA loans available, each designed for different purposes and needs of small businesses. Here are the most common types:

SBA 7(a) loans

SBA 7(a) loans are the most common and flexible type of SBA loan. They can be used for a wide range of purposes, including working capital, equipment purchases, real estate, and refinancing existing debt.

Visit the SBA website to read more about SBA 7(a) loans.

SBA 504 loans

SBA 504 loans are specifically designed to help small businesses purchase major fixed assets such as machinery or real estate. These loans are provided through Certified Development Companies (CDCs), private, nonprofit corporations set up to contribute to the economic development of their communities. 

The benefit of an SBA 504 loan is that it offers long-term, fixed-rate financing, making it a more affordable option for businesses looking to make major investments.

Read more about SBA 504 loans here.

SBA microloans

The SBA microloan program provides smaller loan amounts for businesses that need just a small injection of funds. These loans are designed to help startups, microbusinesses, or non-profit child care centers with their various needs, whether it's working capital, inventory, supplies, or equipment. The maximum loan amount under the microloan program is $50,000, but the typical loan size is much smaller, often averaging around $13,000. 

The exact terms of the loan depend on how much you borrow, what you'll use the loan for, and your own financial circumstances. This type of SBA loan is unique in that it is provided through non-profit community lenders who also offer business training and technical assistance, making it a comprehensive package for first-time entrepreneurs and small business owners.

Learn more about microloans and see a list of microlenders here.

SBA disaster loans

SBA disaster loans are designed to provide financial support to businesses, homeowners, and renters affected by declared disasters. Unlike other types of SBA loans, disaster loans are directly funded by the SBA, not through lenders. They offer low-interest, long-term loans for physical and economic damage caused by a declared disaster. 

Businesses of all sizes, homeowners, and renters can apply for a physical disaster loan to repair or replace damaged property, while businesses and non-profit organizations can apply for an economic injury disaster loan to help meet working capital needs caused by the disaster. The SBA will determine the loan amount and term based on each borrower's financial condition.

Read more about SBA disaster loans here.

SBA loans vs. conventional loans

Since SBA loans are government-backed, there are a few specific differences to call out relative to conventional loans.

1. You can qualify with a much younger, riskier business profile. Conventional loans typically require at least 6 months of time in business, whereas SBA loans work with eligible startups. Since lenders shoulder less risk from the actual loan, they’re willing to take on more risk from the lender.
2. SBA loan amounts are capped at $5.5 million. Conventional loans don’t have defined limits, and can vary more greatly.
3. SBA loans have a longer approval time. Since you have to meet requirements for both the lender and the government, approval can take more than 30 days. For conventional loans, approval can happen in just a few days.
4. SBA loans have capped interest rates. While SBA loans may not offer the lowest possible interest rates, they keep the ceiling of interest lower than conventional loans. See current SBA loan rates here.

Eligibility requirements for an SBA loan

Is it hard to get approved for an SBA loan?

Given the combination of personal and business requirements, it’s moderately difficult to get approved for an SBA loan—not easy, but not overly difficult. A large part of the approval process revolves around your personal history and available financial resources.

To qualify for an SBA loan, you must meet the following requirements:

• Your business must operate in the US and be legally registered
• Your business must fall under the SBA's definition of a small business
• You must have invested your own time and money into your business before seeking outside funding
• You need to have a good credit score (typically above 680) and a solid financial history
• Collateral may be required, depending on the type of loan you apply for

Pros and cons of SBA loans

Application process for an SBA loan

Applying for an SBA loan requires you to know a lot about your business, and requires a combination of personal and business-specific paperwork to submit successfully.

1. Understanding the numbers behind your business:

To qualify for an SBA loan, it’s important to note that your business should have been operational for a reasonable period of time. Many lenders prefer businesses to have been in operation for at least two years.

This is to ensure that your business has a proven track record and demonstrates stability and the ability to generate consistent revenue.

In terms of credit score, a personal score of at least 680 is generally preferred by most lenders. This high credit score showcases your reliability and ability to repay the loan.

Otherwise, you need to know your business down to the dates and dollars its comprised of. Are you able to prove profit and loss and cash flow for your business? Can you show both historical numbers and future projections to prove you’re generating revenue?

You should be prepared to show all money in and out, taxes, and any existing debt.

2. Making sure you have the proof:

Do you have all the documentation needed to prove the dates and dollars mentioned above?

This includes fundamental business and financial documents, such as your business plan, personal and business income tax returns, personal and business bank statements, and a balance sheet. You’ll also need to provide financial projections, ownership and affiliations, business license, loan application history, and business lease.

3. Finding an SBA-approved lender in your area:

Your next step is to find an SBA-approved lender in your area. This could be a traditional bank, a Community Development Company (CDC), or a microlender, depending on your needs.

The SBA has a free online Lender Match tool that can connect you with participating SBA-approved lenders within 48 hours. They also provide lists of CDCs and microlenders.

When choosing a lender, consider factors such as their SBA loan expertise, the types of businesses they typically work with, and their understanding of your industry. Building a relationship with your lender can be beneficial, as they could provide valuable guidance throughout the loan application process.

4. Submitting your application.

After you’ve gathered all necessary documentation and found an SBA-approved lender, you’ll need to package your paperwork together alongside SBA forms 1919 and 413.

Your lender will guide you through the application process and help you submit all required documents.

How long does it take to get approved for an SBA loan?

The timeline for approval can vary depending on the type of loan you apply for and the lender's processing times.

Typically, the application process can take anywhere from one to three months (30 to 90 days), while the funds can take an additional one to two weeks to be disbursed.

What happens to an SBA loan if your business closes?

Sometimes it happens—your business closes. In that case, what happens to your SBA loan?

Like any other loan, you need to continue making payments, or else you’ll go into default, where lenders can begin to seize collateral.

The SBA does compromise in some cases. Via their Offer in Compromise (Form 1150), businesses that default on their loan are able to apply for a settlement of a lower amount if paid in full more immediately. In this case, the loan is considered paid off.

Generally, the most important thing to keep in mind—you’re responsible for the money owed to the lender no matter what.

SBA loans can be an excellent financing option for small businesses looking to grow or sustain their operations. With an understanding of your requirements, you can begin to search for an SBA lender today.

When it comes to small business loans, the US Small Business Administration (SBA) isn’t just a federal agency. It’s an institution. For example, in 2017 the SBA helped connect entrepreneurs with 68,000 loans through the 7(a) and 504 loan programs alone. These two programs provided a total of $30 billion to American small businesses.

SBA loans are highly sought after because of their favorable rates and terms. An SBA loan is on par with the most lucrative financial products from big banks but is easier to acquire and more compatible for those beginning in business. The reason for this is that banks will want to see an established track record before approving a loan, while that’s not necessarily an SBA loan requirement.

This entrepreneur-friendly approach is no accident. The federal government set up the SBA to help more small businesses get up and running, which, as any entrepreneur knows, is a challenging thing to do. So the SBA serves as a spark plug for small businesses, which in turn strengthens our national economy.

How SBA Loans Work

With a traditional loan, you directly approach a lender and request financing. If the lender approves, they’ll give you the money. The SBA, on the other hand, serves as a mediator between you and a lender. You’ll work through the SBA to find a potential lender, who will then consider your request.

The kicker is that once you’re approved, the SBA guarantees a sizable portion of the loan, reducing the lender’s risk. Because they know they’ll get paid even if you were to default, lenders are much more willing to be generous with you. The SBA’s incentive means lenders will even compete for your business.

Because SBA loans are so beneficial for borrowers, they’re increasingly popular with entrepreneurs. Securing a loan with monthly payments, fixed interest rates, and generous repayment terms is rare indeed. And the process of paying off an SBA loan builds your credit, which improves your options when you need to pursue additional financing in the future.

General SBA Loan Qualifications

Since the SBA was created to serve a specific purpose, there are certain eligibility requirements a business must meet. These include:

• Be a for-profit business
• Operate within the United States or its territories
• Be unable to secure financing through other non-government means, excluding personal funds as of Aug. 1, 2023.
• Have sufficient equity to invest
• Meet size requirements for a "small business" as defined by the SBA
• Be in an eligible industry
• Demonstrate ability to repay the loan through a combination of credit score, earnings, and equity or collateral

To calculate your estimated monthly payment, visit our SBA loan calculator.

Your business won’t qualify if it’s involved in loan packaging, investment or lending, multi-sales distribution, speculation, gambling, or if the owner is on parole. Other excluded businesses include dealers of rare coins and stamps, charitable or religious nonprofits, and government-owned corporations.

Lender-Specific Requirements

In addition to the eligibility requirements outlined by the SBA, lenders will have their own requirements to qualify for an SBA loan. While these requirements will vary, minimum requirements generally start at:

• Minimum two years time in business
• Credit score of 650+
• Varying monthly revenue requirements
• Varying down payment requirements

Required Documentation

• Six months of business bank statements
• Driver's license or state ID
• Voided check from your business account
• Month-to-date transactions
• Two years of business tax returns
• Two years of personal tax returns from any owners with 20% or more ownership
• Debt schedule
• Year-to-date profit and loss statement
• Year-to-date balance sheet

SBA 7(a) Loan Requirements

In the world of SBA financing, these loans are the rockstars. Because these loans have remained popular for decades and have actual worth, they’re much more like the Eagles than Nickelback. Each year, more entrepreneurs use the 7(a) program than any other offering from the agency.

These loans are tailor-made for those who have been turned down for loans in the past, providing generous rates and terms. Another benefit is their flexibility, as they can be used for diverse purposes, including purchasing machinery, working capital, or buying real estate. As of May 2023, a 7a loan can also be used for a partial change of ownership. In this scenario, the original owner must stay on as an owner, officer, employee, or stockholder of the business.

The good news is that most small businesses meet the SBA 7(a) loan requirements:

• General qualifying criteria as listed above
• Collateral must be provided for loans greater than $50,000
• 10% equity injection (down payment) for 7(a) loans above $500k that will be used for complete changes of ownership
• Down payment requirements based on the lender's criteria for similarly-sized loans
• For partial changes of ownership, the applicant's debt-to-worth ratio can't exceed 9:1

SBA Express Loan Requirements

While 7(a) loans offer many stellar benefits, there are times when they’re not quite fast enough for your needs. As stated earlier, SBA loans are like the molasses of the financial world. So if you need capital fast, they’re probably not a good fit for the situation.

The SBA is aware that small business moves fast, so they’ve created the SBA Express Loan to better fill that void. These loans are part of the 7(a) program but are on a streamlined timeline. Less paperwork is needed and the waiting period is shorter. As is often the case with expedited loans, the maximum dollar amount is lower than with other programs and the SBA only guarantees up to 50% of the loan.

Of course, this loan is still through the SBA, so don’t be overly optimistic and think the money will appear in your bank account overnight. If approved, it’ll still probably take a month or so for you to receive the money.

SBA Express Loan Requirements Include:

• Maximum loan amount of $500,000
• Follow lender's existing collateral policy for loans over $50,000
• No collateral requirements for loans up to $50,000

To meet the SBA loan requirements for usage, you’ll need to apply the funds toward increasing working capital, financing equipment, or debt consolidation. As long as your plan lines up with those uses and adheres to the program’s other requirements, you should be in great shape.

SBA 504 Loan Requirements

These loans are intended for small business owners who want to expand their operations. In a nutshell, 504 loans (aka Certified Development Company loans) are 7(a) loans that are laser-focused on real estate.

Here are the uses approved for an SBA 504 loan:

• Purchasing existing buildings
• Purchasing land and land improvements such as grading, street improvements, utilities, parking lots, and landscaping
• Constructing new facilities
• Modernizing, renovating, or converting existing facilities
• Purchasing long-term machinery
• Refinancing debt as part of an expansion of your business through new or renovated facilities or equipment

The terms for these loans depend on what you’ll spend the money on. If you are purchasing land or structures, the term will be in the neighborhood of 20 years. If it’s machinery or equipment you’re buying, the term will often be half that.

To qualify, your business must have a tangible net worth of less than $15 million. Additionally, you’ll need to prove that in the past 2 years, you’ve had an average net income of $5 million or less after federal income taxes. If your business is engaged in nonprofit, passive, or speculative activities, you probably won’t qualify. And, as always, use the SBA’s size standards to ensure you are eligible.

SBA Disaster Loans

An SBA disaster loan is a low-interest way to recover from the physical and economic damage caused by declared disasters. These loans are open to a more diverse range of businesses than other SBA programs. There are no size restrictions, and private nonprofit organizations, homeowners, and renters can qualify.

You can use a disaster loan for repairing or replacing personal property, real estate, equipment, machinery, inventory, and business assets. Basically, these loans are meant to help you get your operation back where it was before the disaster struck. You’re not allowed to use the funds to try expanding your business beyond where it was pre-disaster.

Here are the 4 main types of disaster loans:

1. Home and Personal Property Loans
To qualify for one of these loans, you aren’t required to own a business. Instead, this program is meant to help a wide variety of victims of a disaster.

2. Business Physical Disaster Loans
For times when a business or organization sustains damage during a disaster, these loans offer up to $2 million to assist in replacing and restoring damaged property. To qualify, you must live in the declared disaster area.

3. Economic Injury Disaster Loans
Not all damage from disasters is of the physical kind. These loans are meant to assist those who may not have experienced physical damage but have still been negatively impacted. If you qualify, you’ll get as much as $2 million to pay for expenses you would’ve been able to handle if not for the disaster.

4. Military Reservists Economic Injury Loans
These loans are meant for business owners who are employing one or more military reservists called to active duty. The SBA provides financing that makes it possible to continue your business operations.

If you have questions about whether or not you are in a presidential and SBA-declared disaster area, you can search by state and territory with the SBA’s online database. Common examples of disasters added to the database include fires, tornadoes, flooding, earthquakes, and drought.

For those who qualify, it’s important to follow the SBA loan requirements as carefully as possible. The first step is registering with the Federal Emergency Management Agency (FEMA). You can do this by calling FEMA at 1-800-621-3362 or visiting DisasterAssistance.gov. Once you’ve received a FEMA registration number, you’ll be eligible to fill out the SBA online application.

Before starting the application, make sure you have this additional information on hand:

• Contact information for all applicants
• Social Security numbers for all applicants
• Employer Identification Number for business applicants
• Deed or lease
• Insurance information
• Business income
• Business account balances
• Business monthly expenses

Once you’ve clicked submit on the application, you’ll need to sit back and wait for the SBA to review your documents and dispatch an inspector. Following an on-site evaluation from the inspector, the SBA will have an estimate for the cost of your damage. You should know that the SBA considers disaster loans a priority, so if you qualify, you’ll get the good news in as little as 3 weeks.

SBA Express Bridge Loans (EBLs)

The Express Bridge Loan (EBL) Pilot Program was created to complement the other disaster loans provided by the SBA. It empowers 7(a) lenders to provide financing on an emergency basis. Of course, the only way to qualify is if the need is tied to a disaster-related purpose.

The key words in the name are “express” and “bridge.” Essentially, these loans provide expedited money to businesses hurt by presidentially-declared disasters. These loans are smaller than most, tapping out around $25,000. The idea is that they help you bridge the gap between the disaster and the arrival of more substantial loans.

This SBA loan program requires that you are located in a primary county or contiguous county that’s been presidentially-declared a disaster area, your business had established a banking relationship with the lender as of the date of the disaster, the funds are used for the survival or reopening of your business, and that the application process must be concluded within 6 months of the qualifying disaster.

SBA Loans Aren’t Your Only Option

While SBA loans are undeniably great, always account for the fact that they take extra time and effort to obtain. You can’t simply stroll along and expect positive results. Do your homework to find the best option, then meticulously gather all the required documents.

Ultimately, the biggest SBA loan requirement is patience. If time is limited and you don’t want to wait for the lengthy SBA approval process, there are other excellent loans you may want to consider. These alternatives include short-term loans, cash advances, equipment financing, and accounts receivable financing.

Each loan product has its pros and cons, which is why it can be helpful to get an expert’s opinion. For questions about a broader range of loan products, including short-term loans and other non-SBA options, feel free to talk to the experts at Lendio. We can answer any questions you have and guide you to the best choice for your needs.

As a small business owner, financing backed by the U.S. Small Business Administration (SBA) represents some of the most affordable types of business loans available. SBA loans are a popular option for both startups and established businesses alike. These loans tend to feature low interest rates, higher loan amounts, and generous repayment terms compared to other business loan options. 

At the same time, understanding how to apply for an SBA loan and qualify for this type of financing can be complicated. The SBA loan application process can be tedious, and if you don’t complete it properly, you could hurt your chances of getting a loan approval. 

That’s why Lendio has put together a complete guide to applying for an SBA loan, including types, requirements, the application process, and how to improve your chances of approval.

Step 1: Decide which type of SBA loan you need.

There are several different types of SBA loans available to small businesses. With SBA loans, your business may be able to borrow up to $5 million and repay those loans over a period of 10 to 30 years. (Repayment terms can vary.)

You can find SBA loans to help you finance many different aspects of your business needs. Whether you need startup funding, working capital, equipment financing, inventory financing, or funding for some other type of business need, you may be able to find an SBA loan to support your goals. 

First, Ask yourself a few key questions about your business needs to find the right SBA loan program for your needs, like:

• How much funding do I need?
• What will I use the funding for?
• What is the minimum repayment term I need to work with?

Once you figure out the type of SBA loan you want, you can determine if your business is eligible for the loan program. 

Step 2: Check eligibility requirements

The specific eligibility requirements that your business needs to meet in order to qualify for an SBA loan will vary based on a few factors. First, each SBA loan program has unique requirements you must meet to qualify. In addition, you may need to satisfy additional loan requirements that your SBA-approved lender requires from small business borrowers. 

The minimum requirements for most SBA loans are as follows. 

• Be an operating business
• Operate for profit
• Be located in the U.S. or in U.S. territories
• Can meet SBA “small business” size requirements 
• Not be a type of ineligible business
• Be creditworthy and demonstrate reasonable ability to repay the loan
• Collateral to secure a large percentage of the loan
• Unable to access business financing through non-government means (not including personal funds)

If you meet these requirements, then the next step is confirming that you qualify with an SBA lender, and this is where it can get complicated. Let’s go over some major eligibility requirements with most SBA-approved intermediary lenders as lender standards vary.

Creditworthiness Requirements

SBA 7(a) loans and SBA 504 loans are issued by traditional lenders, so they will have more stringent credit criteria than other loans, like microloans.

Most lenders for these loans will want to see a FICO® credit score of 650 or above.

On the other hand, SBA microloans have less strict credit criteria, and you may be able to qualify with limited credit history.

Time in Business Requirements

Like credit criteria, SBA 7(a) loans and SBA 504 loans will require more time in business and proof of revenue than microloans.

Most lenders will want to see at least two years in business for 7(a) and 504 loan applicants. In contrast, lenders may not require as much time in business for the microloan program, with some lenders only requiring six months in business.

If you meet these eligibility requirements, the next step is to gather all the documentation you will need for the application process.

Step 3: Prepare documentation for SBA loan application

Before you apply for an SBA loan, it’s important to gather the documentation your lender will request on your application. The time it takes to move through the SBA process from application to funding will vary.

While it might take 30 to 90 days with your local bank, Lendio, on average, can close an SBA 7(a) small loan in less than 30 days. Having your documents prepared ahead of time may help improve your chances of approval and could help you move forward through the SBA loan process at a faster pace.

Below is a list of the documents you should prepare for your SBA loan application:

• Six months of business bank statements (connect account or manually upload images)
• Copy of your driver’s license or state ID
• Voided check from your business account
• Month-to-date transactions
• Two years of business and personal tax returns (for all business principals with 20% or more ownership)
• Debt schedule
• Year-to-date profit and loss statement
• Year-to-date balance sheet
• Cash flow projections
• List of collateral
• Business certificates or licenses
• Loan application history
• Business owner resume(s)
• Business plan
• Business lease, if applicable

Additional SBA loan application requirements.

In addition to the documents listed above, you should be prepared to include more information on your SBA loan application. Details you may need to provide include: 

• The amount of money you want to borrow.
• The purpose of the loan and how you plan to use the proceeds if approved.
• Assets you need to purchase and the name of your business suppliers.
• When your business started.
• General information about your business (owners, affiliations, etc.).
• Your birthday and your Social Security number
• Details regarding other business debts and your creditors.

Anyone who owns 20% or more of the business will generally need to fill out an SBA loan application form, as the SBA requires that anyone with 20% or more ownership in the business provide an unlimited personal guarantee.

Owners with less than 20% ownership can provide full or limited guarantee. Owners will also need to complete a personal financial statement, called SBA Form 413. SBA uses the personal financial statement to assess risk and help determine an applicant’s ability to repay as promised. 

Here's a list of SBA-specific forms to include in your application package:

• SBA Form 1919 - Borrower Information Form
• SBA Form 912 - Statement of Personal History
• SBA Form 413 - Personal Financial Statement
• SBA Form 148 - Unconditional Guarantee (or lender’s equivalent to this form.)
• SBA Form 148L - Limited Guarantee (or lender’s equivalent) for owners with less than 20% ownership

Step 4: Find an SBA-approved lender

You can use an SBA loan to support your small business in many different ways. Once you feel ready to begin your SBA loan application, you can start by choosing an SBA lender to guide you through the process. 

Depending on the type of SBA loan program you are applying for, you might have a few different options for finding an intermediary lender. Since SBA 7(a) loans and SBA 504 loans lenders are more traditional financial institutions, you can try reaching out to a bank you have a previous relationship with.

The SBA also offers a few resources for finding active certified development companies (cdcs) and active microlenders on their website.

If you would like to connect with lenders directly, you can use the SBA’s lender match system. You’ll fill out a questionnaire about your business, and in two days, you’ll receive an email with possible lender matches. 

Lendio offers a convenient SBA loan application process. Potential borrowers can complete an application and get a preapproval within 24 hours, and after providing the documentation listed above, can get funded with a 7(a) small loan in less than 30 days.

Step 5: Submit your SBA Loan Application Package

Once you’ve prepared your loan application package, it’s time to submit it to the lender. Don’t be surprised if they may follow up with questions, or request for additional documents. Every lender has different requirements, so work with your contact to provide everything they need to begin the initial underwriting process to review your application.

If your lender decides to move forward, you can expect a “loan proposal” or “letter of intent” to follow. This document will detail your request, loan terms, and deposits, fees and/ or closing details.

If you accept and sign the proposal, you’re not out of the woods yet. Your lender will begin a formal underwriting process, in which both the lender and the SBA review your application, documentation and credit history thoroughly.

If you are approved after this process, you will be notified and provided a letter of commitment. You must accept it in order to receive closing documents and start the closing process. Once everything is signed and the process is complete, your money will be disbursed.

What to do if your SBA Loan application is denied

Although it's not the outcome you want, only about one-third of SBA loan applicants were fully approved in 2023. A decline is not uncommon, so knowing your options if this happens will help you plan for your next steps.

If your application is denied, your lender will provide you with a letter explaining the reason you were denied, and may provide some options for you after that. You may be able to appeal the decision, for example, and your lender can provide insight.
Read our guide on common reasons why your SBA loan application may have been declined, and what to do next.

Alternatives to SBA Loans

If you aren’t able to find a workaround in the event that your SBA loan was declined, or if you aren’t confident you meet the eligibility requirements, here are some other alternatives to consider:

• Equipment financing- if new equipment upgrades, repair or replacement is what you need, consider exploring term loans or leases for equipment.
• Term business loans - If you don’t qualify for an SBA loan, you may still be able to obtain a business loan paid off with equal payments at a fixed rate through other lenders.
• Business lines of credit- Opening a line of credit enables you access to funds that you can borrow anytime up to your credit limit.

Every small business owner looking for financing should understand the fundamental differences between a business line of credit and a term business loan. 

Both types of financing can be useful, but they do serve slightly different business needs. Applying for the right type of capital at the right time ensures that you don’t run into any problems down the road—or create more problems down the road.

Here, we’ll look at term loans and lines of credit, the requirements, benefits, and drawbacks of each, to help you determine which is the right option for your small business.

What is a business term loan?

A term loan is a fixed funding transaction. It is a one-time loan based on the current cash flow of your business (often plus collateral that you pledge to secure the loan). 

With a term loan, all of the proceeds are available at the time of closing. The lender bases your payments, interest, and principal on the amortized loan terms. For example, your business might take out a $100,000 loan at an 8% fixed interest rate over a 5-year term. Interest rates and monthly payments on term loans are generally fixed for the life of the loan. 

If your term loan is secured (many are), the bank will assume an ownership position on the collateral you offer. This means you cannot transfer or liquidate the collateral you use to secure the term loan until you make the final loan payment.

The typical use for a term loan is to finance a major expenditure. However, it can also be used to cover daily cash flow expenses.

What is a business line of credit?

A business line of credit (LOC) is like a cross between a short-term business loan and a business credit card. When you open a business LOC, the lender approves you for a credit limit on the account. This credit limit represents the maximum amount of money your business can borrow at a given time. 

As your business uses its credit limit, less money is available to borrow in the future. But your business can repay the money it borrows (plus interest) and regain access to the same credit line—as long as the business LOC remains in good standing. 

As you borrow against the available credit limit, you accrue interest charges each month. You’ll only pay interest on the amount of money withdrawn.

A line of credit has the potential to be a great cash flow management tool. A study by Intuit found that 61% of small businesses face cash management challenges.

Smart uses for a line of credit include stocking up on discounted inventory, financing for marketing campaigns, covering temporary payroll needs, and more.

Making the choice: Term loan or line of credit?

To determine which option is better for your business,start by answering the following questions:

• Why does your business need financing? How do you plan on using the capital?
• What type of products or services do you offer (and what is the life of those goods)?
• Is your business able to satisfy stricter lender borrowing requirements (with regard to credit, revenue, and time in business) or do you need a more lenient approval process?
• Are your capital needs long-term or short-term?
• What is your standing as a borrower (i.e. credit score, time in business, revenue, etc.)?

Based on the answers to these questions, you can decide whether a loan or line of credit is more appropriate.

If you have great credit, along with sufficient revenue and time in business and you want to borrow money to expand your business, a business term loan would be a solid choice. However, if you have credit problems, your business is relatively new, or you need repeated access to a cash flow financing solution, a line of credit is likely better for you.

Differences between business lines of credit and term loans

A term loan can be an attractive financing solution due to its competitive interest rates and borrowing terms. That said, lender qualification criteria for a business term loan can be more challenging to satisfy compared to other types of financing for small businesses.

A business line of credit is a flexible funding resource that can be useful for many small businesses. Interest rates may be higher with LOCs compared to some term loans and other business financing options, but lender qualification standards are often more forgiving as a tradeoff.

The key differences generally lie in what costs are included, and how you're required to repay your loans.

Lender requirements

Ideally, in either case, you’ll have a credit score above 700, annual revenue that exceeds $100,000 and have been in business for at least 2 years. Depending on the lender, however, these levels may vary. There are always options.

The recommended minimum requirements for each are generally as follows:

Repayment structure

Term loans offer many benefits to small businesses, including the fact that borrowers can often repay the funds they borrow over a longer period of time. Lenders typically require borrowers to make monthly (sometimes bi-weekly) payments with term loans. Longer repayment structures with less frequent payments can be friendly for investments in business growth that take time to provide returns. 

Lines of credit allow business owners fast access to capital during a time of need. 

As a tradeoff for speedy and flexible financing, business owners must often repay the money they borrow over a shorter period. In addition to expedited repayment terms, the payments themselves may also occur on a more frequent basis. Some lenders may require borrowers to make weekly payments toward the money they borrow from their LOC, though others may offer a less demanding payment structure.

Interest rates and fees

Term loans often feature lower interest rates than other types of business financing, including lines of credit. At the time of writing, you might find interest rates as low as ~6% with a business term loan, depending on your creditworthiness and other factors.

In addition to the interest rate a lender charges on your loan, it’s also important to factor in additional fees that could increase your overall costs. That might include origination fees, application fees, late fees, and prepayment penalties, as well as factoring fees and factor rates.

If you’re comparing term loans from multiple lenders to search for the best deal available, this free business term loan calculator from Lendio can help you crunch the numbers. 

Lines of credit often feature higher interest rates compared to business term loans and other sources of financing. Interest rates commonly range between 8% and 24% on business LOCs.With lines of credit, many lenders also charge annual fees, origination fees, maintenance fees, late fees, and other expenses. So, read the fine print before you sign any financing agreement. You can also use this free line of credit calculator from Lendio to compare the cost of multiple business LOC options. 

When should you apply for a business term loan?

If your business needs financing for any of the following reasons, a term loan is likely the better fit.

• Opening a new location - Expanding to a new business location requires a sizable upfront investment that might take time to produce a profit. A term loan can help you amortize the investment over several years.

• Hiring new employees - A term loan is a great way to handle the upfront costs associated with bringing on new staff and can provide a cash cushion for your business to manage increased payroll expenses.
• Renovations and capital improvements - A term loan can stretch out upfront renovation costs, enabling your business to continue to run without a sizable cash outlay.

When should you apply for a business line of credit?

The following situations are examples of when a business line of credit could be helpful to a business. 

• Cash flow management - Many small businesses struggle to bridge the gap between accounts payable and accounts receivable. With a line of credit, a business can use this resource to pay its vendors and repay the funds it borrowed once its customers pay their invoices.
• Seasonal sales cycles - Businesses that have a busy season could use a line of credit to ensure a cash cushion during slower months.
• Inventory purchases - A business can draw on the line of credit to purchase inventory and pay it down when it sells the inventory at a later date.

The last thing to keep in mind– term loans and business lines of credit are not your only two options. Although these are two of the most popular and useful small business funding resources available, there are other types of small business loans you can consider if you feel like your business needs alternative financial resources.

The information in this blog is for informational purposes. It should not be used as legal, business, tax, or financial advice. The information contained in this page is Lendio’s opinion based on Lendio’s research, methodology, evaluation, and other factors. The information provided is accurate at the time of the initial publishing of the page (December 13, 2022). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.