Most business owners don’t go looking for a loan when things are calm. They go looking when a big order needs inventory before the customer pays, when the van dies, when the lease on the space next door finally opens up, or when payroll lands two days before the receivables do. That’s when the worst offers find you, because the fastest money is almost always the most expensive.
This year also made the “good” money harder to reach. The SBA tightened its rules twice: once in March, when businesses with any owner who isn’t a U.S. citizen or national lost access to its main loan programs, and again on October 1, with stricter rules for buying a business. The prime rate went back up in September. Banks still approve plenty of loans, but they want cleaner paperwork than they did two years ago. Below, we lay out which loan fits which situation, what lenders actually check, what each option really costs, and how to apply without losing weeks or taking money you’ll regret.
Nine Straight Answers Before You Apply
These are the questions owners ask us most, answered the way a lender would if they had time to be honest.
There’s no single cutoff. Many banks and SBA lenders look for personal scores around the high 600s, while online lenders and microlenders go lower. The SBA dropped its required business credit score screen for small 7(a) loans in March, so lenders now judge your full credit and cash flow instead.
Yes, but expect to put money in. SBA loans for startups generally need a 10% owner injection, a solid plan and relevant experience. SBA microloans (up to $50,000) and CDFIs are the most realistic first stop.
Online lenders and cash advances can fund in a day or two. Bank term loans usually take a few weeks. SBA 7(a) loans commonly take 30 to 90 days, and business purchases run longer.
For most owners, SBA-backed and conventional bank or credit union loans. SBA 7(a) variable rates are capped at prime plus 3 to 6.5 points, which is 10% to 13.5% right now.
Not a 7(a) or 504 loan, as of March 1. Those now require the business to be 100% owned by U.S. citizens or nationals. Conventional bank loans, credit unions, CDFIs and equipment financing are still open to you.
Almost always. SBA loans require one from anyone owning 20% or more, and the Fed’s survey found 59% of small firms with debt had signed one.
Legally it’s usually sold as a purchase of future sales, not a loan, which is why it’s quoted as a factor rate instead of an APR. In our example, a 1.35 factor repaid over about nine months works out to roughly 84% APR.
Prequalification with a soft check won’t. A formal application usually triggers a hard inquiry on the owner’s personal credit. Shopping several lenders within a short window limits the damage.
Yes. Small Business Development Centers and SCORE mentors review plans and loan packages at no cost, and SBA’s Lender Match tool on SBA.gov connects you with lenders interested in your request.
The Main Types of Small Business Loans
There are dozens of product names, but they collapse into about eight shapes. Here’s how they compare on the things that matter when you’re actually deciding.
| Loan type | Best for | Typical speed | Typical cost | Watch out for |
|---|---|---|---|---|
| SBA 7(a) | Business purchase, working capital, refinancing, equipment | 30–90 days | Capped: prime + 3 to 6.5 (10%–13.5%) | Paperwork, guaranty fee, personal guarantee |
| SBA 504 | Buying or building real estate, big equipment | 60–90+ days | Fixed, near 7% on the SBA portion lately | Needs a bank and a CDC; owner-occupancy rules |
| SBA microloan | Startups and small needs up to $50,000 | Weeks | Generally 8%–13% | Can’t refinance debt or buy real estate |
| Bank or credit union term loan | Established firms, planned investments | 2–6 weeks | Lowest for strong borrowers | Stricter on time in business and collateral |
| Business line of credit | Seasonal gaps, waiting on receivables | Days to weeks | Variable; you pay only on what you draw | Annual renewal, can be cut |
| Equipment financing | Vehicles, machines, tech | Days | Moderate; the equipment is collateral | Balloon payments, early payoff terms |
| Online term loan | Speed with modest paperwork | 1–3 days | Often well above bank rates | Weekly payments, prepayment rules |
| Merchant cash advance | True emergencies with strong card sales | 24–48 hours | Factor rates; APRs often far above loans | Daily withdrawals, stacking, renewals |
Two patterns stood out when we lined these up. First, speed and price move in opposite directions almost perfectly. The loans that fund this week cost several times more than the ones that fund next month. Second, the cheapest loans are the ones built around a specific asset or use, like real estate in a 504 or a truck in an equipment loan, because the lender can see exactly what backs the money.
The Federal Reserve’s latest Small Business Credit Survey gives a reality check on who’s applying where. Large banks still draw the most applicants, but online lenders now draw 29% of them, up from 17% in 2020. Small banks reported the highest full-approval rate, at 57%. And among applicants overall, only 42% got everything they asked for.
Which Situation Sounds Like Yours?
The right loan depends more on why you need the money and what your books look like than on the size of the request. Find the card closest to where you are.
Lenders are underwriting you, not the business, so your personal credit, savings and industry experience carry the file. An SBA microloan through a nonprofit intermediary is often the best first loan: up to $50,000, an average of about $13,000, terms up to seven years and rates generally between 8% and 13%. Many intermediaries pair the loan with free coaching. If you need more, SBA 7(a) startup loans are possible, but expect to inject at least 10% of project costs in cash and to show a projection a lender believes. Equipment financing is also easier to get early, because the equipment backs the loan.
Before you take the fastest offer, check whether the problem is really a loan problem. A supplier who’ll extend terms by 30 days, a customer who’ll pay a deposit, or a business credit card you already hold may bridge the gap for far less. If you do need outside money quickly, an online term loan with a clear APR beats a merchant cash advance in almost every case we’ve modeled. Whatever you take, borrow only the gap, and line up a bank line of credit afterward so this is the last emergency you fund at emergency prices.
Bad credit narrows the menu, but it doesn’t empty it. Community Development Financial Institutions (CDFIs) and SBA microlenders weigh your story, cash flow and character more than a score. Equipment and invoice financing lean on the asset or the customer. Write a short explanation of what happened (a medical bill, a divorce, a pandemic-era slump) and what changed since. Lenders see bad years all the time; what worries them is not knowing why.
SBA 7(a) is the workhorse here, and its rules changed on October 1. You’ll need a 10% equity injection that can’t be reduced, and at least half of it must be real cash (savings, gifts or grants with no strings). A seller note can cover the rest only if the seller agrees to take no payments on it for the life of the SBA loan. The business must show 1.25 times debt coverage on its actual past results, not your projections. Deals of $3 million or more need an independent quality-of-earnings report, and prices over $350,000 need a professional valuation. The seller can stay on as a consultant for up to 24 months.
Since March 1, SBA 7(a) and 504 loans require the business to be 100% owned by U.S. citizens or nationals, and even a small indirect stake held by someone else disqualifies the application unless it’s fully divested before the SBA loan number is issued. Lender guidance on the October rules indicates permanent residents generally can’t serve as guarantors either. Your realistic paths now are conventional bank and credit union loans, CDFIs, equipment financing and lines of credit. Ask microlenders directly about their current rules before you apply.
Look at the SBA 504. A bank typically lends about half, a Certified Development Company (CDC) lends up to 40% through an SBA-backed debenture with a long fixed rate, and you put in as little as 10%. Recent 504 debenture rates posted by CDCs have been just under 7% for 20- and 25-year terms. The building generally has to be at least 51% occupied by your business. If you rent out more than half, a conventional commercial mortgage is the better fit.
For loans approved from October 1, the SBA charges no upfront guaranty fee on 7(a) loans of $700,000 or less to manufacturers, certain food supply chain businesses and businesses in rural areas. On a $500,000 loan, that’s about $11,250 you don’t pay. Veteran-owned businesses using SBA Express also pay no upfront fee. Ask the lender to confirm your eligibility in writing before you sign the term sheet.
Stop adding more. Stacking a second advance to cover the first is the most common way a short cash crunch turns into a business-ending one. Active MCAs can’t be refinanced with an SBA 7(a) loan, though the October rules opened a narrow path for some MCA debt that’s been converted into qualifying term financing. Call your current funder about a reconciliation or lower daily amount if your sales have dropped, since many contracts tie payments to revenue. A bank or CDFI term loan to pay it off is worth chasing if your cash flow can carry it.
SBA Loans: What Changed and What They Cost Now
The SBA doesn’t usually lend directly. It guarantees part of a loan made by a bank, credit union or other approved lender, which lets them say yes to deals they’d otherwise pass on. That guarantee comes with rules, and the rules got stricter this year.
The volume tells the story. In the fiscal year that ended September 30, the SBA backed 56,130 7(a) loans worth $32.4 billion, a double-digit drop in both count and dollars from the year before. A 43-day government shutdown last fall froze approvals for a stretch, but tighter underwriting and the new citizenship rule mattered too. Lenders we follow say demand is still strong; they’re just turning away more incomplete files.
The 7(a) basics. Loans go up to $5 million. The SBA guarantees 85% of loans up to $150,000 and 75% above that. SBA Express loans go up to $500,000 with a 50% guarantee and faster lender decisions. Small 7(a) loans up to $350,000 no longer depend on the FICO SBSS business score the SBA used to require; since March 1, lenders do a full credit analysis instead, including at least 1.10 times debt coverage and two months of business bank statements.
The guaranty fee you’ll actually pay
On top of interest, 7(a) loans carry an upfront guaranty fee figured on the guaranteed portion, not the full loan. For loans approved from October 1, it’s 2% on loans of $150,000 or less, 3% up to $700,000, 3.5% up to $1 million, and 3.5% on the first $1 million guaranteed plus 3.75% on the guaranteed amount above that. There’s also an annual service fee of 0.55% of the guaranteed balance, which lenders usually build into what you pay. Most borrowers finance the upfront fee into the loan.
| SBA program | Maximum | Rate | Term | Notable rule now |
|---|---|---|---|---|
| 7(a) Standard | $5 million | Prime + up to 3%–6.5% | Up to 10 yrs (25 for real estate) | 100% citizen/national ownership |
| 7(a) Small | $350,000 | Same caps | Same | Full credit analysis; 1.10x coverage |
| SBA Express | $500,000 | Same caps | Same | 50% guarantee; faster decisions |
| 504 | $5M SBA portion ($5.5M for some manufacturing and energy) | Fixed; recent CDC rates near 7% | 10, 20 or 25 yrs | Owner-occupied real estate, big equipment |
| Microloan | $50,000 | Generally 8%–13% | Up to 7 yrs | No real estate, no debt refinancing |
What $50,000 Really Costs, Three Ways
Quotes come in different languages: an APR, a “simple interest” rate, a factor rate. The only fair comparison is dollars out of your account, so we put the same $50,000 need through three common offers.
The headline isn’t only the total. It’s what each option does to your bank account every month. The SBA loan’s total interest is the largest because you keep the money for seven years, but its payment is about $923 a month. The online loan runs about $2,796 a month for two years. The cash advance pulls roughly $357 every business day, around $7,500 a month, and on our math its cost works out to about 84% APR.
That’s why the Fed survey result matters: 60% of online lender borrowers said their actual costs were higher than they expected, compared with 37% at small banks and 32% at large banks. When we read through sample online and MCA contracts, the surprises usually came from origination fees taken out of the funded amount, weekly or daily payments that made the budget tighter than the rate suggested, and renewal offers that rolled the old balance into a new one.
Small Business Loan Calculator
Enter the loan you’re considering and your business’s yearly cash flow. The tool shows the payment, total interest, the SBA guaranty fee if it applies, and the debt coverage ratio lenders will check. The defaults are a $250,000 SBA 7(a) loan.
The loan
Your business
Calculating…
Debt coverage, or DSCR, is the number that quietly decides most applications. It’s your yearly cash flow divided by all your yearly loan payments, including the new one. SBA small loans need at least 1.10, standard 7(a) loans generally 1.15, and business purchases 1.25 under the October rules. Many conventional banks want 1.25 or higher. When we ran the default numbers through the calculator, the business cleared 1.25 comfortably; cut its cash flow to $60,000 and it slips to about 1.09x, under even the SBA small-loan minimum. That’s the point where lenders start asking for a smaller loan, a longer term or more collateral.
What Lenders Actually Check
Every lender has its own scorecard, but the questions underneath are the same. If you can answer these five before you apply, you’ll get a faster, better answer.
| What they look at | What “good” looks like | What to bring |
|---|---|---|
| Cash flow | Coverage of 1.25x or better on past results | Two years of business tax returns, year-to-date profit and loss |
| Personal credit | No recent late payments or collections; scores often in the high 600s or better at banks | Explanation letter for any past problems |
| Time in business | Two years is the common bank threshold | Formation documents, licenses |
| Existing debt | Clean history, no stacked advances | A debt schedule listing every loan, lender, balance and payment |
| Your stake and collateral | Cash in the deal; assets that back the loan | Personal financial statement, bank statements, asset list |
The debt schedule is the document most owners skip. It’s a simple table: every loan, card and advance, who it’s with, the original amount, current balance, monthly payment, rate and maturity. When we put together a sample package for a hypothetical landscaping company, building the schedule took twenty minutes and answered half the questions a loan officer would otherwise have emailed about. Lenders compare it against your bank statements; anything missing from the schedule that shows up as a withdrawal looks like you were hiding it.
Your tax returns are the truth to a lender. If you minimize taxable income aggressively, your returns may show a business that can’t afford the loan you’re asking for. Lenders will add back depreciation, interest and some one-time costs, but they can’t add back cash you didn’t report. If you plan to borrow in the next two years, talk to your accountant about the trade-off now.
Your stake matters more on SBA deals now. Startups and business purchases generally need a 10% cash injection. For acquisitions under the October rules, at least half must come from cash you didn’t borrow, and seller financing only counts if it sits on full standby.
How to Get a Small Business Loan, Step by Step
The owners who get good loans quickly aren’t luckier. They show up with a complete file. Here’s the order we’d work in.
Write down the exact amount and the exact use
“Working capital” is vague. “$85,000: $60,000 for two refrigerated display cases and $25,000 for three months of added payroll while the new location ramps up” is a loan request. Lenders price and structure loans by use, and a specific number shows you’ve done the math.
Pull your credit and clean up what you can
Check your personal reports for free at AnnualCreditReport.com and dispute errors. Pay down card balances if you can before applying; utilization is one of the quickest scores to move. Look up your business credit profile too, since some lenders and suppliers use it.
Build the package once
Two years of business and personal tax returns, a year-to-date profit and loss and balance sheet, three to six months of business bank statements, your debt schedule, a personal financial statement, ownership documents and licenses. For a startup or purchase, add a business plan with a 12-month cash flow projection. Save everything as clearly named PDFs.
Start with lenders who already know you
Your own bank or credit union sees your deposits every month, which is the best underwriting data there is. Then try SBA’s Lender Match on SBA.gov, which sends your request to participating lenders who can reply within a couple of days. A local SBDC adviser can review your package before you send it, at no cost.
Compare offers on the same yardstick
Ask every lender for the APR, all fees, the payment frequency and amount, the term, prepayment rules and collateral. If a lender won’t give an APR, convert it yourself with the calculator above. In about nine states, including California and New York, many commercial financing offers now come with a required cost disclosure; use it.
Read the closing documents before closing day
Look for the personal guarantee, any lien on all business assets, cross-default clauses, covenants such as minimum coverage ratios, and what happens if you sell the business. Ask for the documents a few days early. A good lender won’t mind; a pushy one will.
If Your Loan Application Is Denied
A no is information. Most denials come down to a handful of fixable reasons, and the fix usually takes months, not years.
Ask the lender for the specific reasons in writing. Under federal fair lending rules, business credit applicants can request a statement of reasons for a denial. Then match the reason to the fix: thin cash flow means a smaller request, a longer term or waiting for another strong quarter; weak credit means paying down balances and letting a few months of on-time history build; not enough time in business means a microloan or equipment loan now and a bank loan later; too much existing debt means consolidating first.
Two lenders can look at the same file differently, so a denial at a large bank is a good reason to try a small bank, a credit union or a CDFI. CDFIs are certified by the Treasury Department specifically to serve borrowers traditional lenders miss, and many pair their loans with free coaching. What we wouldn’t do after a denial is jump straight to whatever online offer arrives that afternoon. Lead-generation sites sell your application data, and the offers that follow a denial are rarely the cheap ones.
Month one: get the denial reasons in writing, pull your credit, and meet with an SBDC adviser or SCORE mentor. Month two: fix the biggest issue the lender named, and rebuild your package with the debt schedule and a short explanation letter. Month three: apply to two lenders of a different type, such as a CDFI and a community bank, within the same couple of weeks.
Merchant Cash Advances, Brokers and Loan Scams
Fast money isn’t always bad money. But this corner of small business finance is where the most owners get hurt, so it’s worth knowing the rules of the road.
The funder buys a slice of your future sales for a fixed amount, say $67,500 of future receipts for $50,000 today, and collects through daily or weekly withdrawals. Because it’s structured as a purchase rather than a loan, many state lending laws and interest caps don’t apply. Most contracts should adjust payments if your sales fall; ask how that “reconciliation” works before you sign, and keep proof of your revenue if you ever need to use it.
A growing group of states, including California, New York, Utah, Virginia, Florida and Georgia, require commercial financing providers to disclose costs in a standard format for many offers. Texas went further: its law makes confessions of judgment in these contracts void, requires cost disclosures on offers under $1 million, and requires brokers and providers to register with the state’s Office of Consumer Credit Commissioner by December 31.
An upfront “insurance,” “processing” or “guarantee” fee before funding. A promise of approval regardless of credit. Pressure to sign today. A lender that can’t give a physical address or state license where one is required. Anyone claiming to be “from the SBA” offering a loan by text or phone; the SBA mostly guarantees loans made by private lenders and doesn’t cold-call to offer them. Report these to the FTC.
A good broker can save weeks by matching you to lenders that fit. Many are paid a commission by the lender, sometimes several points of the loan, which can be built into your cost. Ask in writing how much they’ll be paid and by whom, and whether the lender charges you anything on top. If a broker asks you to pay them before you have an offer, walk away.
Which Small Business Loan Should You Get?
You have two years of returns that show profit, your coverage ratio clears 1.25, and the need can wait a month. That’s a bank, credit union or SBA loan, and the savings over its life will often run into the tens of thousands of dollars.
You’d need the loan to make the payments on another loan. Your sales are falling and you don’t know why yet. The payment only works if a big new contract comes through. Or the only offers you’re getting are quoted as factor rates with daily withdrawals.
Questions people still ask
How much can I borrow for my small business?
It depends on cash flow more than anything. A rough check: take your yearly cash flow before debt, divide by 1.25, subtract your current yearly loan payments, and what’s left is about the most new yearly payment most lenders will accept. The calculator above does this for you.
Can I use a personal loan for my business?
You can, and some lenders allow it, but you’ll be personally liable for the full amount, it won’t build business credit, and some personal lenders prohibit business use. A business loan or SBA microloan is usually the better first choice.
Do I need collateral?
Not always, but most bank and SBA loans take whatever business assets are available, and larger SBA loans may take a lien on personal real estate if the loan isn’t otherwise fully secured. Lack of collateral alone isn’t supposed to be the reason an SBA loan is declined.
How long does an SBA loan take?
Plan for 30 to 90 days from complete application to funding, longer for business purchases and real estate. Lenders with delegated SBA authority can approve faster than those who must send files to the SBA.
Are there small business grants instead of loans?
A few, but far fewer than ads suggest. Most are competitive, industry-specific or local, run by states, cities and nonprofits. Anyone charging a fee to get you a “guaranteed grant” is running a scam.
Can a new LLC get a loan with no revenue?
Yes, from microlenders, CDFIs, some credit unions and equipment lenders, usually backed by your personal credit and a cash injection. Most conventional bank term loans want at least two years of history.
How this page was checked. SBA program limits, rate caps, guaranty fees and eligibility rules come from SBA program notices and its standard operating procedures, including the changes effective March 1 and October 1. Microloan terms come from SBA.gov. Application outcomes and lender comparisons come from the Federal Reserve Banks’ Small Business Credit Survey. SBA lending volume comes from American Banker’s reporting on fiscal-year data. The prime rate reflects the Federal Reserve’s September decision. Recent 504 rates come from posted CDC rates. Texas rules come from the state’s bill analysis. All cost examples, charts and calculator results are our own calculations.
This page is independent and not affiliated with any lender, broker or app. It is general information, not legal, tax or financial advice. Rates and program rules change; confirm current terms with your lender before you sign.
Key sources: U.S. Small Business Administration · Federal Reserve Banks’ Small Business Credit Survey