How to Apply for a Small Business Loan: A Step-by-Step Guide

Updated on:
April 3, 2024

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Applying will not affect your credit score

Whether you’re operating an established business or a fresh startup, applying for small business financing can be daunting, especially for new business owners. However, following a step-by-step guide can increase your chances of successfully securing the funds you need. In this guide, we’ll walk small business owners through the process of applying for small business financing and provide tips for navigating the application process.

Step 1: Assess your business needs and determine the type of financing you require

Before you start the application process, evaluating your business’s financial needs is essential. Determine the amount of money you need and what the funds will be used for, such as purchasing equipment, leasing real estate, or increasing working capital.

Different industries can have specialized financial needs as well:


Renovating a restaurant can lead to a better customer experience, higher retention, and increased revenue. Meanwhile, expanding the menu and offering catering services can attract a wider customer base and create additional revenue streams.

Trucking Companies

Expanding a trucking company’s fleet allows for more clients and higher revenue, while upgrading to fuel-efficient vehicles reduces operating costs and improves profitability. A modern fleet can enhance competitiveness and service reliability.

Home-Based Businesses

Effective digital marketing strategies are essential for home-based businesses to build brand awareness and drive customer engagement. Investing in a professional website and robust e-commerce platform can help reach new markets and generate consistent revenue streams.

Liquor Stores

For liquor stores, inventory expansion caters to diverse preferences and attracts more customers while offering exclusive items drives impulse purchases. Store renovations and optimized layouts contribute to building a strong brand image and customer loyalty.

This information will help you identify your business’s most suitable financing option, such as a small business loan, business line of credit, or merchant cash advance.

Step 2: Research potential lenders and financing options

Once you’ve determined your business’s financial needs, research various lenders and alternative funders to explore financing options. Are you best served with a bank or credit union? What about an online alternative funder?

Types of business loans include bank loans, U.S. Small Business Administration (SBA) loans, microloans, while online financing often comes from alternative funders. Each type of lender or funder has its own eligibility requirements, factor or interest rates, and repayment terms*. Be sure to compare these factors to find the best fit for your business.

Step 3: Check your credit scores

Your personal and business credit scores are critical for the loan application process. Funders use these scores to assess your creditworthiness and determine the cost of the financing be it in the factor rates or interest rates they will offer. Good credit means better terms, while bad credit can mean higher rates and difficulty qualifying for the funding options that might fit your best.

Obtain your credit reports and scores from the major credit bureaus and review them for accuracy, including your personal credit score. The three main business credit bureaus are Dun & Bradstreet, Experian Business, and Equifax Business.

  1. Dun & Bradstreet (D&B) is a leading business credit bureau that provides business credit reports and scores, commonly known as the D&B PAYDEX Score. D&B assigns businesses a unique D-U-N-S Number that helps track company information and credit history.

  2. Experian Business provides credit reports and scores for businesses, including the Experian Intelliscore Plus score. This score predicts the likelihood of a business becoming delinquent on its financial obligations.

  3. Equifax Business offers business credit reports and scores, such as the Equifax Business Credit Risk Score and the Equifax Business Failure Score. These scores help assess the risk of business delinquency and failure.

If you have bad credit or are a startup business with a limited credit history, consider taking steps to improve your scores before applying for financing.

Step 4: Prepare a comprehensive business plan

A well-crafted business plan is essential when applying for small business financing. Your business plan should include detailed information about your business, such as its mission and goals, target market, competition, marketing strategy, and financial projections. This document demonstrates to funders that you have a clear vision for your business and a plan for achieving success.

Step 5: Gather the necessary financial documents

Providers will require various financial documents to assess your business’s financial health and determine your eligibility for financing. They want to see a track record of strong annual revenue, so prepare the documents that’ll prove that the loan is in good hands. These may include:

  • Personal and business tax returns

  • Bank statements for your business bank account

  • Balance sheets and income statements

  • Profit and loss statements

  • Cash flow projections

  • Accounts receivable and payable aging reports

Ensure that all your financial documents are accurate, up-to-date, and well-organized.

Step 6: Complete the loan application

Once you’ve chosen a financial institution, the right loan option or financing option, and gathered your financial documents, it’s time to complete the business loan application or alternative financing application. Each funder’s application process will vary, but you’ll generally need to provide information about your business, its owners, and its financial history. Be thorough and accurate in your responses, and be prepared to provide additional documentation upon request.

Step 7: Offer collateral or a personal guarantee, if required

Many bank lenders may require collateral or a personal guarantee from entrepreneurs to secure financing. Collateral can include real estate, equipment, or accounts receivable, while a personal guarantee is a promise by the business owner to repay the loan personally if the business defaults. Offering collateral or a personal guarantee can increase your chances of approval and result in more favorable interest rates but is not required for all types of financing.

Step 8: Submit your application and await a decision

After completing your loan application, submit it to the lender and await their decision. The approval process can vary in duration, depending on the type of loan, loan amount, and lender. Some online funders may provide a decision within hours, while banks and SBA loans may take several weeks or months.

Step 9: Review the loan terms and accept the offer

If your application is approved, the lender or funder will provide you with a loan offer outlining the financing terms and conditions and how much money they’re willing to dole out. Review these terms carefully, including the interest rate which will include the annual percentage rate, repayment schedule, fees, and any prepayment penalties. Ensure that you understand and agree with all the terms before accepting the offer.

Step 10: Sign the loan agreement and receive funding

Once you have accepted the loan offer, the funder will require you to sign a formal loan agreement. This document outlines the terms and conditions of the loan and your responsibilities as the borrower. After signing the agreement, the lender will disburse the funds to your business bank account. The timeframe for receiving the funds can vary, depending on the lender and the type of loan.

For alternative financing, you can expect a similar process for the funding, just generally in a much shorter time.

Step 11: Manage your loan and make timely repayments

After receiving the funds, it’s crucial to manage your loan responsibly. Make sure to use the funds according to your business plan and track your business expenses. Set up a system for making timely repayments, as late or missed payments can negatively impact your credit score and future borrowing ability. Contact your lender to discuss potential solutions if you encounter any issues or anticipate difficulty making payments.

If you are working with an alternative funder, you may be able to set up ACH payments so that they happen automatically ensuring that you don’t miss any repayments.*

Step 12: Monitor your business’s financial health

As you repay your loan, continue to monitor your business’s financial health, including its cash flow, profitability, and debt levels. Regularly review your financial statements and track key metrics to ensure your business continues toward growth and success.

Final Thoughts

Applying for small business financing requires thorough preparation, research, and persistence. By following this step-by-step guide and understanding the various types of business loans, eligibility requirements, and application processes, you can increase your chances of securing the financing your business needs to thrive.

To learn more about financing solutions and answer FAQs, continue reading as we’ve outlined many common question on our blog.

*Repayment in this context describes the process of repurchasing a merchant cash advance. It does not describe the process of repaying a loan. MCAs are legally distinct from loan products.

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