How Hard is It to Get a Small Business Loan?

If you have a small business or you are thinking about starting one, you might need to look into a loan. There are some small businesses that you can start without any financial investment, but in most cases, this is simply not true. So excited entrepreneurs might want to look into getting a small business loan. The question is, however, how hard is it to get a small business loan?

Is It That Hard?

It would be really nice if we could simply say getting a small business loan is easy. It would also be nice to say, “getting a small business loan is really hard.” At least you know what you are facing, right? Unfortunately, for some people, it’s going to be easy, and for others, it will be hard. How hard it will actually be depends on a lot of factors including the following:

• How is your business doing right now?
• What do you need funding for?
• What industry are you in?
• How much are you willing to invest on your own?

So the best thing we can do is to show you all of the different business loan types out there and rank them by how easy or difficult they are to get for the average person. Just keep in mind that not everyone is going to get the easiest loans, and some people will easily get the difficult loans.

Types of Small Business Loans

Merchant Cash Advance

A merchant cash advance (MCA) is the easiest type of small business loan to qualify for. However, it’s important to mention that this is not actually a loan.

With an MCA, a lender will give your company future credit card revenue in advance, which you will then repay each day with a percentage of the credit card sales your company has. This process can be expensive, and the amount of money you will pay for them is more than other types of loans. However, again, if you are in a pinch, these are pretty easy to qualify for. All you need is the following:

• A personal credit score that is at least 400
• At least $75,000 in annual revenue
• At least five months in business

Invoice Financing

Another pretty easy type of small business loan to look into is called invoice financing. This is when a lender will give your business a percentage of an outstanding invoice’s value. For this service, you must then pay the lender a percentage of interest every week until the invoice is fulfilled. To qualify for this, you need:

• At least $50,000 in annual revenue
• A business that is at least six months old

Business Line of Credit

You also might want to consider a business line of credit. Essentially, this is like a business credit card. You can use this credit to pay for things, and you simply pay back what you spend, plus any interest. To qualify, you need:

• At least $50,000 in annual revenue
• A business that is at least six months old

Short-Term Business Loan

A short-term loan might also be an option. If you qualify, you will get a certain amount of money from a lender and then pay it off over time, including interest. You will find that the available loan amounts are smaller, and the APRs are higher than other loans, and in general, you have to pay these back each week and sometimes each day. Here’s what you need to qualify:

• At least $50,000 in annual revenue
• A minimum 550 personal credit score
• At least a year in business

Equipment Financing

Do you need to get a small business loan in order to buy equipment? If this is the case, you can look into equipment financing. You can finance 100 percent of the cost of your equipment, and the equipment you are buying is the only collateral you need. To qualify, you will need the following:

• At least $100,000 in annual revenue
• One to two years in business, depending on the lender
• A personal credit score of at least 600

Term Loans

Term loans are more difficult to get, and these are the typical small business loans that people think of when thinking about loans. You will get a lump sum and then have to pay it off, plus interest, each month. To qualify, you need the following:

• At least $90,000 in annual revenue
• A personal credit score of at least 600
• At least one year in business

SBA Loans

Finally, consider SBA loans. These are the best small business loans, as they are partially guaranteed by the Small Business Administration, and they are the cheapest. However, they are harder to qualify for than other loans. Here’s what you need:

• At least $100,000 in annual revenue
• A personal credit score of at least 640
• At least two years in business

Your Application

If you qualify for these loan options, the next thing you need to worry about is the application. Remember, even if you meet these qualifications, your application really matters.

Some of the business loan applications out there are really involved, and the answers you give to the questions on the application can make or break the possibility of you getting a loan or not.

In general, some types of business loan applications are more involved than others, simply because the lender requires more information. All of them will take time, and all of them should be well-thought out before you submit them.

Invoice Financing

In general, the application for invoice financing is pretty easy and straightforward. All you really need is the value of your invoice and to fill out the application. Now, there are usually some things that the lender needs before they will approve it, so try to have the following available. If you do, you might get this in as little as a day:

• The invoice you want to finance
• A voided business check
• Company bank statements
• Driver’s license
• Credit score

Short-Term Loans

The application for a short-term business loan is also pretty quick and easy to fill out, and again, you can get funding for this in about a day, as long as you have everything ready to go. Typically, lenders ask for the following:

• Personal tax returns
• Personal credit score
• Driver’s license
• Proof of business ownership
• Bank statements
• Voided business check

Business Line of Credit

A business line of credit can also get approved rather quickly, sometimes in a day’s time. There is more paperwork involved, however, which could slow things down a bit. Here’s, in general, what you need:

• Personal tax returns
• Business tax returned
• Credit score
• Driver’s license
• Bank statements
• Profit and loss statements
• Balance sheet
• Voided business check

Equipment Financing

The time needed for the application approval for equipment financing is a bit longer. Usually you have to wait a few days for approval, but in some situations, you can get this type of financing in a couple of days. The good thing about this type of financing is that you typically don’t have to fill out a lot of paperwork, and you don’t have to provide a lot of documentation. You will generally need the following:

• Voided business check
• Credit score
• Business tax returns
• Bank statements
• Driver’s license
• Quote for the equipment that you want to finance

Term Loans

A term loan application can also be approved in a matter of a couple of days. Again, it depends on how quickly you can get the paperwork together, and in the case of these loans, they require a lot of paperwork. This includes the following:

• Voided business check
• Credit score
• Driver’s license
• Business balance sheet
• Bank statements
• Personal tax returns
• Business tax returns
• Profit and loss statements

Merchant Cash Advance

Remember, a merchant cash advance is typically the easiest type of small business loan to get, but they are definitely not the fastest. Typically, a merchant cash advance takes about a week to get funded because the lender generally has to set up merchant services, or at least verify it. This, of course, slows down the process.  In general, you will have to supply the following with your application:

• Credit score
• Voided business check
• Credit card processing statements
• Business tax returns
• Bank statements
• Driver’s license

SBA Loans

Finally, we have SBA loans. Remember, these loans are partially guaranteed by the Small Business Administration. Since these are guaranteed, they are the most difficult to get. Also, since these applications have to go through the government, it takes a lot longer to get approval or not. Typically, you can expect to wait three weeks or more for the application to be processed and your funding to get to you. Of course, you also need to make sure that you gather up all of the required paperwork. This includes the following:

• Bank statements
• Driver’s license
• Balance sheet
• Voided business check
• Business plan
• Business tax returns
• Personal tax returns
• Profit and loss statements
• At least three weeks of a business debt schedule

What’s Next?

So now you know, or at least you have an idea, of how hard it might be to get a small business loan. You know that there are a lot of options out there, but depending on your personal situation, it could be difficult or easy to get one of these. What you need to do next is determine which of these loan types might be right for you.

Remember, the small business loans that are easiest to get are generally the most expensive to get. This means that you need to put more of an investment into getting the loan, and over time, it will cost you more. However, the cheapest loans are the most difficult to get, and not everyone is going to qualify for them.

Fortunately, there are a lot of resources out there that you can rely on to make this process smoother, and even by reading this guide, you are taking the first step in securing funding for your small business.

Finally, we want to say that, even though they might take more effort, SBA and term loans are worth the time and effort to apply for, as you won’t be spending as much to get the loan. You can also use a number of online resources to get more hints and tips to make the process easier.