How much do you need?

with Fundera by Nerdwallet We ’ ll beginning with a brief questionnaire to better understand the alone needs of your business.

once we uncover your individualized matches, our team will consult you on the process moving forth.

1. Decide what type of loan you need to fund your business

Lenders will ask why you need a small-business lend. Your answer will likely fall into one of three categories and determine which type of business lend is right for you :

• SBA loans or traditional term loans. These often have eminent borrowing maximums — small business administration loans can reach $ 5.5 million, for case. many lenders besides offer specific products to fit a growing caller ‘s needs, such as loans for equipment or vehicle purchases .

• Startup financing

  , such as business credit cards and personal loans.

  These lenders require cash flow to support repayment of the loan, so companies in their first year typically can’t get business loans. Instead, you’ll have to rely on other financing.

• business line of credit. This could make sense if you want to manage daily expenses. This flexible kind of funding lets you tap into finance as needed to cover expenses such as payroll or unexpected repairs, offering a useful guard net .

2. Determine if you qualify for a business loan

Answer these questions to help determine whether you might meet the eligibility requirements to qualify for a small-business lend

What’s your credit score?

You can get your recognition composition for dislodge from each of the three major accredit chest of drawers : Equifax, Experian and TransUnion. You can besides get your credit seduce for free from several credit menu issuers and personal finance websites, including NerdWallet Banks prefer to offer their low-rate occupation loans to borrowers with credit scores above 680 at least, says Suzanne Darden, a finance specialist at the Alabama Small Business Development Center. If your credit score falls below that doorway, consider small-business loans for borrowers with bad credit or loans from a nonprofit organization microlender .

How long have you been in business?

You need to have been in business at least one year to qualify for most online small-business loans and at least two years to qualify for most bank loans.

Do you make enough money?

Many lenders require a minimum annual revenue, which can range anywhere from $50,000 to $250,000.

3. Determine what payments you can afford

• Look carefully at your business’s financials — especially cash flow — and evaluate how much you can afford to apply toward loan repayments each month.

• Some online lenders require daily repayments, so make sure to factor that in.

  Read more: 9 Ways to Build and Improve Your Credit Fast – NerdWallet

• To comfortably repay your loan each month, your total income should be at least 1.25 times your total expenses, including your new repayment amount, Darden says. For example, if your business’s income is $10,000 a month and you pay $7,000 in rent, payroll and other costs, you should be able to afford a $1,000 monthly loan payment. Your income ($10,000) is 1.25 times $8,000 of expenses.

4. Decide whether and how you want to collateralize the loan

• A procure loanword requires occupation collateral, such as place or equipment, that the lender can seize if you fail to repay the loan .

• Putting up collateral is risky, but it can also raise the amount lenders let you borrow and get you a lower interest rate.

• Lenders may also require a personal guarantee — even for unsecured loans. This means you’ll personally repay the loan if your business can’t, and it may let a lender come after things like your house or car in instances of nonpayment.

5. Compare small-business lenders

There are three main sources of small-business loans: online lenders, banks and nonprofit microlenders. Each typically has multiple products, but one may be better in certain instances than others.

When to get a business loan from online lenders:

• You lack collateral.

• You lack time in business.

• You need funding quickly.

Online lenders provide small-business loans and lines of credit from about $1,000 to $5 million. The average annual percentage rate on these loans ranges from 6% to 99%, depending on the lender, the type and size of the loan, the length of the repayment term, the borrower’s credit history and whether collateral is required.

These lenders rarely have APRs as low as what traditional banks offer, but approval rates are higher and funding is faster than with banks — as fast as 12 hours.

When to get a business loan from banks:

• You’ve been in business at least two years.

• You have good credit.

• You don’t need cash fast.

Traditional bank options include term loans, lines of credit and commercial mortgages to buy properties or refinance.

Through banks, the U.S. Small Business Administration provides general small-business loans with its 7(a) loan program, short-term microloans and disaster loans. The SBA provides loans up to $5.5 million, with 7(a) loans averaging $704,581 in fiscal year 2021, according to the Congressional Research Service. The average SBA microloan is $13,000.

The SBA besides has a 504 loan program that helps promote communities ‘ economic development by funding business ‘s fixed asset purchases — like state, buildings or equipment — through long-run, fixed-rate financing . Taking out a small-business lend from a bank can be hood due to factors like lower sales bulk and cash reserves. Add bad personal credit or no collateral to that, and many small-business owners come up empty-handed .

Getting funded takes longer than other options, but banks are usually the lowest-APR option.

When to get a business loan from microlenders:

• You have bad credit or no credit history.

• You are a new business.

• You can’t get a traditional loan.

Microlenders are nonprofits that typically lend short-run loans of less than $ 50,000. The APR on these loans is typically higher than that of savings bank loans. The application may require a detailed occupation plan, fiscal statements and a description of what the loan will be used for, making it a drawn-out serve .

Also, the size of the loans is, by definition, “micro.” But these loans may work well for smaller companies or startups that can’t qualify for traditional bank loans due to a limited operating history, poor personal credit or a lack of collateral.

Accion Opportunity Fund, Kiva and Accompany Capital are merely a few examples of microlenders

Estimate the cost of getting a business loan

Calculate estimated payments, then see if you qualify for a clientele lend loanword amount

$

Loan term ( months ) annual share rate ( APR ) 1 % not certain ? See estimate rates on See estimate rates on on-line business loans and SBA loans

Get personalized small-business loan rates to compare

compare business loans

with Fundera by Nerdwallet

6. Gather your documents

Before you apply, make sure you have all the required documentation. Locating these files now and having them easily accessible will help streamline the process of getting a small-business loan.

Depending on the lender, you’ll need to submit a combination of the following:

• Business and personal tax returns.

• Business and personal bank statements.

• Business financial statements.

• Business legal documents (e.g., articles of incorporation, commercial lease, franchise agreement).

• Business plan.

7. Apply for a business loan

You made it! Now that you’ve determined which type of loan and lender are right for you, it’s time to apply.

Start by looking at two or three similar options based on loan terms and annual percentage rate, or APR. Because APR includes all loan fees in addition to the interest rate, it’s the best way to understand the total cost of a business loan for the year.

Of the loans you qualify for, choose the one with the lowest APR (as long as you’re able to handle the loan’s regular payments), and apply with the documents you’ve gathered.

Note that credit bureaus don’t differentiate between business and personal inquiries. If you use your personal credit history, your credit score could be affected when applying for a small business loan, which is why it’s important to go with your best bet.

Frequently Asked Questions

You will need a hard personal credit grade, solid occupation financials, such as gross, at least a year in commercial enterprise and in some cases collateral to qualify for a small-business lend at a savings bank. Online lenders require less rigorous requirements. If you ‘re just starting out, consider alternatives such as business accredit cards. See our list of startup support options It can be challenging to qualify for a small-business lend without a hard personal score ( starting around 700 ) and a solid cash flow from your clientele. Those are among common reasons why your business loanword application can be denied