Small Business Loans

Small business lending is a different world than consumer lending. Lenders evaluate the business and the owner, the numbers are harder to game, and documentation requirements are significantly higher. Here's what you need to know.

Types of small business financing

• SBA 7(a) loans — the workhorse SBA program. Up to $5 million, terms up to 25 years for real estate, 10 for equipment, 7 for working capital.
• SBA 504 loans — for purchasing fixed assets (real estate, major equipment). Structured as a partnership between a bank and a Certified Development Company.
• SBA Microloans — up to $50,000, administered by nonprofit intermediaries. Good for startups and very small businesses.
• Business term loans — traditional bank loans, shorter terms (1–5 years), faster approval than SBA.
• Business lines of credit — revolving credit you can draw against as needed. Best for managing cash flow.
• Business credit cards — easiest to qualify for, useful for building business credit history.
• Equipment financing — the equipment itself secures the loan, making approval easier.
• Invoice financing — borrow against outstanding invoices. Fast, expensive, sometimes the only option for B2B businesses.

What lenders want to see

• 2+ years in business. Many bank and SBA programs require this. Exceptions exist but are harder.
• Revenue floor. Most bank lenders want at least $100K/year revenue; SBA 7(a) typically wants $250K+.
• Personal credit 680+. Owners with 25%+ ownership typically need to personally guarantee the loan.
• Business credit. Tracked by Dun & Bradstreet (PAYDEX), Experian Business, and Equifax Business. Not required for first loans but helps rates.
• Clean financials. P&L statements, balance sheet, tax returns, bank statements — typically 2–3 years' worth.
• Debt service coverage ratio (DSCR) — the business needs income after expenses to cover the loan payment roughly 1.25x or better.

SBA loans — the realistic picture

SBA loans are not loans from the SBA. The SBA guarantees a portion of the loan (up to 85%) to a participating lender. The lender still underwrites, still sets criteria, and still decides.

Advantages:

• Longer terms than conventional business loans
• Lower down payments
• Competitive rates (capped by SBA)
• Available for acquisitions, real estate, equipment, and working capital

Disadvantages:

• Slower — approval can take 60–90 days
• Paperwork-heavy
• Personal guarantee required for 20%+ owners
• Collateral typically required for loans over $50K

When to skip traditional financing

Some businesses can't wait 60–90 days for an SBA approval. Alternatives:

• Online lenders — approvals in days, but rates can be significantly higher (15%+ APR common, sometimes much higher).
• Merchant cash advances — avoid unless absolutely necessary. Effective APRs often exceed 50%.
• Business credit cards — for short-term needs you can pay off quickly.

Building business credit before you need it

1. Form an LLC or corporation and get an EIN.
2. Open a business bank account in the business's name.
3. Get a DUNS number from Dun & Bradstreet (free).
4. Open net-30 trade accounts with vendors who report to business credit bureaus (e.g., Uline, Grainger, Quill).
5. Get a business credit card and use it responsibly.
6. Pay everything early — business credit rewards paying early, not on-time.

Before you apply

1. Organize the last 2 years of tax returns, P&L, balance sheet, and bank statements.
2. Calculate your DSCR — does the business genuinely have cash flow to support the new debt?
3. Check your personal credit and business credit.
4. Prepare a current business plan with projections.
5. Shop at least 3 lenders: one SBA-preferred bank, one credit union, one online lender.

Last reviewed: January 2026 · SBA programs subject to regulatory change.