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How to get a business loan

The best lender for you depends on your business type

by Kate Williams, Ph.D. ConsumerAffairs Research Team
business men loaning money

Over 99 percent of all business entities in the US are small businesses, according to “The SBA Loan Book.” These businesses represent over half of the private workforce and the private-sector output and over 40 percent of all private commercial sales in the United States.

How do so many small businesses get started? It all begins with the right type of financing. Whether you're just starting up or you're expanding your existing business, you need money to get rolling.

Methodology: I consulted with experts who have a wide range of experience with funding businesses including Jared Hecht, CEO of the online lending website Fundera, David J. Hall from the Small Business Administration, Hal Shelton who is a SCORE mentor and author of “The Secrets to Writing a Successful Business Plan” (Summit Valley Press 2014) and Larry Conley, Senior Vice President and Specialty Finance National Manager for Chase bank. I took a free three-hour online course called “Finding Money for Your Business,” which walked me through the process of finding money to start a small business. I also read 17 articles and studies on funding small businesses.

Steps to getting a business loan

Before you can get a business loan, you need to convince your lender that your business is worth their investment. To do that, you need a solid business plan, some upfront capital and a budget.

  1. Clarify why you need a loan
    Your answer needs to be more detailed than simply “I don’t have any money.” What specifically will you be using the loan for? Startup? Day-to-day management? As a safety net? To answer this question, figure out your budget along with the amount of money you realistically can put up as capital. Take your time with this step since it will have a big impact on whether or not you actually get a loan that can cover your expenses.
  2. Know which kind of loan you need
    Your answer to the first step will determine what kind of loan you need. If you are an established business that needs money to manage your day-to-day expenses (payroll, rent and other bills), you can take out a line of credit, a short-term cash flow loan or accounts receivable financing.
  3. Determine what you qualify for
    According to Hecht, online lenders, along with banks, tend to stay away from lending to startup businesses: “The longer you’ve been around, the easier it is for you to get funding from an online lender.” A lot of lenders require that businesses be established for at least six months before they can qualify for a loan. Some businesses require an even longer history, sometimes up to two years.
  4. Find a business lender that fits your situation
    Shop around for a business lender that has the terms you’re looking for and accepts your qualifications. Be very selective. Every time you apply to a lender formally, they pull your credit report. When your credit report gets a lot of inquiries, your credit score lowers, making it more unlikely that you will get a loan. You should apply to one (two at the most) lender at a time and only move on to another lender if you get rejected.
  5. Get your documents together and apply
    Most business lenders have online applications that are simple to fill out and fast to submit, as long as you have of your documents in order. Once you apply for a loan, it can take anywhere from a few days to 90 days to finalize, depending on the lender and the type of loan.
LabelCompany nameLogoContactSummary
Best for large loansNational Business CapitalRead Reviews
  • Loan terms from 6 months–10 years
  • Loans from $10,000–$5 million
  • Startup, commercial mortgage, doctors and dentists, franchise, equipment, small business and account receivable financing
LabelCompany nameLogoContactSummary
Best for short-term loansHeadway CapitalRead Reviews
  • Loan terms from 12–24 months
  • Loans from $5,000–$100,000
  • SBA loans, merchant cash advance, term loans, invoice factoring and lines of credit available
business women discussing

Small business loans for women and minorities

SCORE.org conducted research in 2015 that studied business growth in the United States between 1997 and 2014. They found a 67.8 percent increase in the number of women-owned businesses, compared with a 34.4 percent increase in men-owned businesses. The study also found a huge growth in the number of businesses run by women of color, up an incredible 215.7 percent, with revenues increasing by 193 percent. Latino-run small businesses also saw a massive increase, with small business ownership growing at a rate of double the national average.

If you are a member of a minority group, you might be eligible to seek financial help from one of these five places that specifically help minority-owned businesses get started.

  • Minority Business Development Agency (MBDA)
    The MBDA does not directly loan money, but it does provide resources for members of minority groups who are trying to start a business. They have business centers around the country where entrepreneurs can seek mentorship and guidance as they start their business. These business centers are located in areas with a high amount of minority-owned businesses and can help with everything from writing a business plan so you can apply for funding to marketing your business.
    • Best for members of minority groups who need guidance with small business financing and startup.
  • SBA’s 8(a) business development program
    The SBA is not a direct lender but rather sets guidelines for loans made by their partners. The SBA guarantees loans for select businesses, meaning they agree to pay the loan off if the owner defaults, which makes it easier for entrepreneurs to get funding.

    One of their loan programs is the SBA 8(a) business development program, which is specifically dedicated to providing business assistance to entrepreneurs who are members of a socially and/or economically disadvantaged minority group who need help accessing mainstream economic capital. This program is divided into two sections and requires a nine-year commitment. The first four years are dedicated to development, and the remaining five years are a transition stage.

    Small business owners who participate in the program benefit by receiving mentorship, marketing assistance, specialized business training, access to high-level executive development and access to a number of funding opportunities including access to surplus government supplies and property, SBA guaranteed loans and bonding assistance.

    • Best for entrepreneurs who are members of socially and/or economically disadvantaged groups.
  • USDA Rural Development loan program
    The USDA’s Rural Development loan program helps businesses in rural areas get started and grow. Like the SBA, this loan program does not lend directly but rather guarantees loans, which allows entrepreneurs access to a larger line of credit than their personal credit would allow so they can successfully build their business.

    Eligible funds received through this program can be used for business conversion, repair or enlargement; the purchase and development of land or buildings; the purchase of equipment; debt refinancing as long as new jobs will be created as a result; and/or business and industrial acquisitions when the loan will save and/or create jobs and/or the loan will keep the business open.

    Funds cannot be used for lines of credit, owner-occupied housing, projects involving over $1 million and include relocating at least 50 jobs or agricultural production. Funds also cannot be used to fund certain businesses including golf courses, casinos/racetracks, churches or church-controlled businesses, fraternal organizations or lending/investment companies.

    • Best for farmers, Native American tribes, cooperatives, companies, public bodies and non-profit agencies run in a rural area.
  • Plum Alley
    Plum Alley is a unique investment platform with investors who are dedicated to investing in women-centric businesses. They help women gain access to the capital they need.

    To ensure success for both entrepreneurs and investors, Plum Alley requires businesses that crowdfund to secure at least 30 percent of their goal during a one-week “private” campaign before opening the crowdfunding to the public. This ensures investors that the business already has some financing, making it more likely they will reach their goal since research indicates that businesses who get 30 percent of their funding goal within the first 48 hours of crowdfunding have the most success.

    • Best for women entrepreneurs; businesses that include women in the C-suite and/or as founders.
  • StreetShares
    StreetShares helps U.S. military veteran entrepreneurs get funding for their small business ventures. It’s free to see if you qualify for a loan, which is offered in terms of three months to three years, for up to $100,000. Businesses must be at least one-year-old or have at least $100,000 in revenue to qualify. You also must be a U.S. citizen and have decent credit.
    • Best for veterans of the United States military.

Bottom line

Starting a business involves a lot of moving factors, but the most important one is financing. From traditional banks to online lenders, there are a lot of companies that are ready to help your business grow, no matter what stage it’s in.

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by Kate Williams, Ph.D. ConsumerAffairs Research Team

As a member of the ConsumerAffairs Research Team, Kate Williams, Ph.D. believes everyone deserves easy access to accurate and comprehensive information on products and businesses before they make a purchase. She spends countless hours researching companies and industries before writing buyers guides to make sure consumers have all the information they need to make smart, informed buying decisions.