How To Get a Small Business Loan With Good & Bad Credit

Find Out How to Qualify For a Small Business Loan

Small businesses are the backbone of the American economy, making up almost half of the private workforce and creating two out of every three new jobs. Funds are necessary to keep operations running smoothly. A business loan can provide the funds needed to expand operations, cover day-to-day expenses, or purchase equipment/inventory. With so many financing options, it can be hard to decide which is best for your situation. Below, we’ll cover the basics of a business loan, how it works, what’s available, and how to get a business loan. We’ll even offer some insight as to how to get a startup business loan with no money. Let’s dive in.

What is a business loan?

A business loan is simply borrowed capital that companies can use for various reasons. Whether they cannot pay for an expense or investment with personal cash or simply prefer not to for various reasons, business loans can come into play. Business loans include startup costs, commercial real estate purchasing/remodeling, cash flow for everyday expenses, equipment or inventory purchases, business expansions or acquisitions, marketing and advertising, and refinancing.

How do business loans work?

Generally, business loans come in one of two flavors – either as a lump-sum payment or a credit line. In most cases funds will be extended by a financial institution that will profit from the loan, as they deserve to for taking the risk. In exchange for the money, the borrower or business will agree to repay the money borrowed with interest and fees (is applicable). Depending on the lender, you may repay daily, weekly, or monthly until the amount is fully repaid.

 A loan or line of credit can be secured or unsecured. Secured loans require collateral to back the loan, like real estate, equipment, cash, or investments. Unsecured loans do not require collateral.  

Why should you get a business loan?

You might get a business loan for seven common reasons:

There are a few key factors that can impact the average rates for a business loan.

1. To start a business
2. To expand a business
3. To buy equipment or inventory
4. To pay off debt
5. To finance a business acquisition
6. To fund a marketing campaign
7. To cover unexpected expenses

What credit score is needed for a business loan?

A lender typically checks both your business and personal credit scores. Since so many types of loans are available for your business on the marketplace, it’s hard to pinpoint the exact number you should be aiming for, but the higher, the better. A score of 680 is typically required to qualify for an SBA or traditional bank loan, and a 630 for equipment financing or business lines of credit. While we can’t give a firm answer on what credit score you’ll need, we can offer you a secret to help you qualify for the best rate possible. At mySMBscore, you can access key lending metrics, score components, and other valuable insights to give your business a strategic advantage. Before applying for any kind of loan, we encourage small and medium-sized business owners to visit mySMBscore. . . especially if they care about saving money.

Can I get a business loan with bad credit?

Yes, but you should try to improve your score first. A low credit score can make qualifying for a traditional business loan difficult, but it isn’t impossible. Some ways that you can increase your chances of favorable loan terms include:

• Clearly demonstrate your businesses ability to earn revenue and make loan payments on your business plan
• Find a co-signer with a higher credit score
• Provide the lender with valuable collateral
• Increase the health of your credit score by checking that the reports are accurate at Experian, TransUnion, and Equifax, paying all of your bills on time, keep your credit utilization below 30%, and give the process time. To access credit data to help you qualify for a business loan, visit mySMBscore. 

Can I get a business loan for my startup?

It can be challenging, especially if your startup has no money. Because startups don’t have long business histories, finding lenders that deem your business eligible is critical. Startups most commonly turn to the U.S. Small Business Administration (SBA) for term loans, but startups can also opt for business credit cards or less traditional alternatives like crowdfunding.  You’ll need to gather the following documents to complete an application: personal credit score, tax returns, additional financial records, a business plan, business license, registrations and legal documents, and banking information. To better understand what you’ll need to qualify for a loan, visit mySMBscore. 

What size business loan can I get to start a business?

Business loans come in all sizes. According to Forbes Advisor’s “Best Startup Business Loans of December 2022,” loan amounts range anywhere from $500 to $5 million. According to the latest data from the Federal Reserve, the average small business loan amount was around $66,300. 

What types of business loans are available?

There are several different types of business loans available on the market. Below is an outline of some main options:

1. Term Loans: Term loans come in three flavors: long-term, intermediate-term, and short-term. Long- and intermediate-term loans are favorable thanks to their relatively low-interest rates and longer repayment terms, ranging from a few years up to 10 years. However, they usually require businesses to have strong revenue and a couple of years in business. There are also short-term loans, which often appeal to newer business owners with less time in business, smaller credit histories, and the need for immediate cash. These loans are typically due within the year and charge high-interest rates. Because of the high-interest rates and fees, short-term loans can cost the business owner a lot in the long run.
2. SBA Loans: Many small businesses around the U.S. enjoy the benefits of SBA Loans. With nine to choose from (SBA 7(A) loans, Express loans, 504 loans, Microloans, Disaster loans, Community Advantage loans, Export Working Capital loans, Export express loans, and international trade loans), you are certain to find the right program for you. Small businesses that use SBA loans enjoy lower interest rates, longer repayment terms, more flexible eligibility requirements, no collateral required, and a government guarantee on a portion of the loan. The downside is that they are hard to qualify for and can take months to fund. 
3. Business Lines of Credit: A business line of credit is a great way to access financing on an “as needed" basis rather than receiving a lump-sum payment. This is a great option for businesses that need to manage cash flow, buy inventory, or pay for unexpected expenses. Further, you only pay interest on the amount you use, not the full approved credit line.
4. Business Credit Cards: Business credit cards can get a great financing source, with perks like rewards, introductory 0% APR promotions, and more. They can be a great idea as long as they are used responsibly. For example, you will want to pay off the card on time in full each month. If you can do this, you’ll get all the benefits of the card without paying any interest at all.
5. Trade Credit: Trade credit allows businesses to arrange credit payments with vendors or suppliers. So, instead of paying cash on delivery, trade credit allows you a set grace period to repay the invoice without interest being charged. Typically, the period is 30 days. 
6. Invoice Financing: This type of financing involves using an accounts receivable invoice as collateral for funds. Invoice financing generally allows businesses to borrow up to 80% or 90% of the invoice amount, although amounts can vary depending on the lender. 
7. Merchant Cash Advance: An MCA is a straightforward type of “financing” to get, but it can be costly. Simply put, merchants can borrow against future debit and credit card sales. The debt can be repaid as a percentage of future sales instead of equal monthly installments. 
8. Equipment Financing: Businesses that need heavy machinery or expensive equipment may want to try equipment financing. Typically, the equipment or machinery will be used as collateral to secure the loan, thus making it easier to qualify. 

What do I need to get a business loan?

To get a business loan, you’ll typically need the following:

• Time in business. At least two years in business for a bank loan and at least six months in business for an online business loan.
• Credit score. Good personal credit or excellent business credit score. View your business credit through the lens of a lender to identify necessary improvements at mySMBscore. 
• Minimum monthly or annual revenue. Requirements can vary depending on the lender. If you lack revenue or profit, you may need to consider alternative financing options like invoice factoring.
• Business plans are usually required. Business plans are often requested to explain how the money will be used. They can also demonstrate the ability to repay. 
• Collateral may be required depending on the loan. 
• Documentation. As a business owner, you must also have your documents organized. The financial and legal documents you may need for a loan include personal and business income tax returns, balance sheet and income statements, personal and business bank statements, driver’s licenses, commercial leases, etc. 

Is it worth getting a loan for a business?

Although it is ultimately up to you and your business to determine if it is “worth it” to get a business loan, it could be considered worth it if a loan can keep your business from shutting its doors. In addition to keeping your business afloat, you might consider a business loan “worth it” if it finances your growth. Growth can be expensive, and you might need to purchase equipment, buy inventory or real estate, or hire new staff. Business loans can add to expenses, but they can also create opportunities to open new doors in the future. Business loans can help grow your credit history, which will improve your financial position down the road.

How do you get a business loan?

Learning about how to get a business loan can be important for your business. The following steps are recommended to ensure a positive financing outcome:
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1. Define your needs to justify financing. Understanding why you need financing can help you determine how much you need. It can also help the lender make a clear loan decision. Ask yourself questions such as will the funds improve your competitive advantage? Can you make it without the loan? Can you handle the expense of the loan? 
2. Check your eligibility. Requirements will vary depending on the lender and the type of loan. Before applying for a loan, you should learn about basic requirements. For valuable credit data insights to help you understand eligibility, visit mySMBscore. 
3. Invest time comparing options. Taking the time to improve your financial position and shop offers can save you money in the long run. 
4. Gather the required documents. It’s almost guaranteed that a lender will request documentation regarding legal and financial aspects. Prepare these to ensure the information you submit is accurate and can be proven. 
5. Submit your application. When ready, start applying for the loan of your choice. 

How can I get approved for a business loan without collateral?

Not all business loans will require collateral. Also known as unsecured loans, loans without collateral can be a good option for your business even though they typically come with higher interest rates and shorter repayment terms. If unsecured loans are your best option, you might consider the following:

1. SBA 7(A) loan under $25,000
2. Online business term loans
3. Merchant cash advances
4. Unsecured lines of credit
5. Business credit cards

How can I get a business loan with no money?

You’re likely pursuing a business loan because you're low on or out of cash. While you’ll need to demonstrate the ability to repay to qualify for financing, there are ways to get a business loan with no money. Consider the following options:

• Business credit cards 
• Equipment financing 
• Invoice financing 
• Microloans 

Considering a business loan? The SMBscore was developed to create an industry-specific, tailor-made risk assessment that can be used to determine the financial stability of small and medium-sized businesses (SMBs). It allows business owners to review their finances through a similar lens that a lender will. At mySMBscore, you can view insights that lenders look at to approve your financing. Our platform can help you determine areas of improvement so that you can be as prepared as possible before applying for a loan. We can even help connect you to lenders that you have the best chance of qualifying for. Our goal is simple - to help businesses prosper. 

Increase your chance of qualifying for a business loan. Check your SMBscore now!