Getting a business loan can be a great way to get the funding you need to start or grow your business. However, the process of applying for and getting approved for a business loan can seem daunting. Here is a comprehensive guide on everything you need to know about getting a business loan in the USA.
Eligibility for a Business Loan
Before applying for a business loan, you need to make sure you are eligible. Here are some of the basic eligibility criteria for getting a small business loan in the USA:
- Your business must be based in the United States
- You must be 18 years or older
- Have a business license and all other required registrations
- Have a business bank account
- Have a personal credit score of at least 650
- Be able to provide 2-3 years of financial statements and tax returns for your business
- Be able to provide a detailed business plan
- Have collateral to secure the loan
Meeting these basic criteria is important to even be considered for a small business loan by lenders and financial institutions.
Types of Business Loans
There are many different types of business loans available in the USA. Some of the most common types include:
This is the most common type of small business loan. Term loans provide a lump sum of cash upfront and are paid back over a set period through fixed monthly payments. Term loans can be secured or unsecured.
Lines of Credit
A line of credit provides access to a revolving pool of funds that can be used as needed. You only pay interest on the amount used. Lines of credit are more flexible than term loans.
Equipment financing loans are used to purchase specific pieces of equipment for your business. This type of financing works well when you need to upgrade equipment.
SBA (Small Business Administration) loans are backed by the government to encourage lending to small businesses. SBA loans offer lower interest rates and longer repayment terms.
Merchant Cash Advances
A merchant cash advance provides a lump sum of cash in exchange for a percentage of your future credit card and debit card sales. Payments are taken automatically from card sales.
With invoice financing, you can borrow against the value of your unpaid customer invoices. The lender advances you a percentage of the invoice amount.
The amount of money you can borrow with a small business loan depends on many factors including your credit score, time in business, revenues, collateral, and ability to repay. Here are some general loan amount guidelines:
- Term Loans – $5,000 to $5 million
- Lines of Credit – Up to $100,000
- Equipment Financing – 100% of equipment costs
- SBA Loans – Up to $5 million
- Merchant Cash Advances – Up to $250,000
- Invoice Financing – Up to 80% of invoice value
Speak to potential lenders to get loan offers tailored to your specific financing needs. Provide them with your business financial documentation so they can make informed lending decisions.
When applying for a small business loan, you need to submit several documents as part of your application. Lenders will analyze these documents to assess your business’s ability to qualify for and repay the loan. Documents usually required include:
- A business plan
- Business and personal tax returns for the past 2-3 years
- Annual financial statements for the
- past 2-3 years
- Personal financial statement
- Projections of income, expenses, and cash flow
- Collateral (property, equipment, accounts receivable, etc.)
- Business licenses and registrations
- Resumes of owners and key employees
- Business bank account statements
Having these documents ready will help support and speed up your loan application. Be prepared to provide any other documents required by the lender during underwriting.
Student-Friendly Business Loan Policies
Getting a business loan as a student can be challenging but not impossible. Here are some tips for students
- Apply with a cosigner who has strong credit – this improves your chances
- Seek loans that require little or no credit history like SBA microloans
- Use school-sponsored incubators and competitions to build your track record
- Start small – seek smaller loan amounts to prove your ability to handle debt
- Use education-secured loans backed by a portion of your college savings
- Get prior student loans into good standing to improve creditworthiness
- Showcase academic achievements like degrees and certifications
- Provide realistic financial projections backed by thorough market research
- Consider invoice financing – this relies more on customer credit than yours
With careful planning and preparation, you can get approved for the business loan you need to turn your student business idea into reality.
Top Business Loan Providers
There are many banks and alternative lenders that offer small business loan options. Here are some of the top business loan providers in the USA to consider:
- Wells Fargo – Offers term loans, lines of credit, and SBA loans
- Bank of America – Flexible lending options including SBA loans
- Chase – Fast online loan applications and approvals
- Citizens Bank – Competitive interest rates and fees
- Navy Federal Credit Union – Offers secured and unsecured business loans
- Pentagon Federal Credit Union – Business loans tailored for veterans
- Alliant Credit Union – Online applications and fast financing
- Funding Circle – Quick access to loans with simplified applications
- LendingClub – Low fixed rates starting at just 5.5%
- OnDeck – Specializes in short-term business loans
- Kabbage – Focuses on funding for small business expenses
- CDC Small Business Finance – Top SBA lender offering 7(a) and 504 loans
- Prestamos CDFI – Largest Latino SBA lender serving underserved communities
- Accion – Offers SBA microloans up to $100K with fixed rates
- Lendistry – Minority-led SBA lender with focus on inclusion
Comparing Top Business Loan Lenders
When choosing a lender, it helps to compare offers side-by-side. Here is an overview of key factors to consider for top options:
- Loan amounts from $10K to $5M
- Terms up to 10 years for working capital loans
- Secured and unsecured loans offered
- Online application and fast decision
- Requires min 2 years in business
- Loan amounts from $25K to $500K
- Terms from 2-5 years
- Only unsecured loans offered
- Very fast online application and funding
- Requires min 1 year in business
- Loan amounts from $5K to $500K
- Terms from 1-5 years
- Only unsecured loans offered
- Easy online application with instant decision
- Requires personal credit score over 600
- Revolving credit lines up to $250K
- Draw funds as needed from the line
- Unsecured lines offered
- Minimal paperwork to apply
- Requires min 1 year in business
CDC Small Business Finance
- SBA 7(a) loans from $50K to $5M
- SBA 504 loans for commercial real estate
- Low down payments with longer terms
- Local advisors provide guidance
- Requires 2 years in business
Taking the time to research lenders and compare loan options will help you identify the best financing match for your business needs and circumstances.
Getting approved for business financing may require some work, but the payoff of having sufficient capital can be invaluable for starting or expanding your venture. Now that you know the loan types, required documents, policies for students, top providers, and factors to compare, you can approach lenders with confidence. Seek professional guidance if you need help preparing your application. With persistence and the right loan choice, you can secure the funding to turn your entrepreneurial dreams into reality.