How Hard Is It to Get a Small Business Loan?

The Small Business Administration’s (SBA) Paycheck Protection Program (PPP) loan opportunity has ended. However, it’s still important that entrepreneurs get the financial support they need to rebuild from the economic downturn. Thankfully, there are many low-cost solutions available.

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You may have heard that getting a small business loan is hard. Helping entrepreneurs apply for the funds they need quickly and easily is our specialty. In fact, through its marketplace banks, SmartBiz® has facilitated over a billion dollars in loans for small businesses across America. We’ll explain the process and requirements, so you’ll better understand your options and how to prepare.

What is a small business loan?

Whether you’re just launching your business venture, or you are in expansion mode, it’s highly likely that you’ll need financing to fund your growth. Many owners turn to small business loans as a solution for capital without losing equity or stake in their company. Small business loans enable entrepreneurs to get off the ground and remain in control of their company.

Where can you get a small business loan?

The local bank used to be the only option for business owners seeking funding. However, technology has opened those choices. Here’s where business owners can apply for funding:

Direct Lenders

Banks, credit unions, online lenders, and investors are considered direct lenders. You won’t go through a third-party to complete your loan application, receive funds, or make payments.

Lending marketplaces

This option helps you find lenders based on your qualifications. When you apply with SmartBiz Loans, we match you to the lender most likely to fund based on your unique business. A variety of marketplaces are available online and applications are relatively quick compared to more traditional lending situations.


Short for “peer-to-peer,” the P2P lending space has become popular and can be a good option if turned down by a traditional lender. Crowdfunding is an example of P2P lending. However, this is not the easiest route to take. Read our comprehensive article about this type of lender here: Reasons to Avoid Small Business Crowdfunding.

Why getting a business loan can be hard

Here are several reasons the loan process can be difficult for a busy small business owner.

Business credentials

Every lender has different criteria but your time in business, annual revenue, desired use of funds, and even the industry you operate in can keep you from qualifying.

Finding the right fit

You don’t want just any loan. You want one that's affordable with manageable payments. One of the toughest parts of the process can be simply finding the right loan to apply for. There are a lot of options out there. From peer-to-peer lenders to lines of credit to SBA loans, it can get confusing. It’s important to do research and pick the best option. If you’re having trouble choosing a loan, speak with an accountant or other financial professional.

Poor customer service

Going through the application process without support can sink your application. No matter how familiar you are with your business finances, questions are bound to come up. If you don’t have anyone in your corner who can provide fast answers, the process can slow down or even come to a screeching halt. Choose a lender who can answer emails, talk on the phone, or participate in an online chat if any issues or questions arise.

Gathering required paperwork

This first step in the application process can be difficult if your finances aren’t organized. We suggest working with an accountant or other financial professional to get your documents in order. When you're applying for a small business loan, you need to make sure you're presenting a strong financial profile and submitting up-to-date correct information is key. Here’s an example of the paperwork required to apply for an SBA loan: SBA Loan Documents: What You Will Need.

Credit Scores

Every lender has different credit score requirements, but in general, the better your credit, the better your rates and terms will be. Both your personal credit scores and your business credit scores are key when it comes to loan approval. Lenders want to determine if you can make full payments for the life of the loan and your credit history is a good indication of this.

Review these two articles from the SmartBiz Small Business Blog for in-depth information on personal and business credit. You’ll learn the factors involved in calculation your scores and how you can improve your numbers if needed:


Types of small business loans

If you’re seeking funds for working capital, to refinance existing high interest debt, for equipment, hiring, inventory, and more, you should be familiar with the different loan products available. Here’s a summary of the most popular options.

SBA loans

If you qualify, the Small Business Administration’s nationwide, low-cost loan programs can be your best option. SBA loans have low rates, long terms, and very low monthly payments.

There are three types of SBA loan programs available for business owners:

The 7(a) Loan Program

An SBA 7(a) loan can be used for a variety of purposes including working capital, debt consolidation or commercial real estate purchase or refinance.

NOTE: As part of the PPP legislation, the Small Business Administration (SBA) is covering both principal and interest payments for the first 3 months on new, eligible SBA 7(a) loans. Of course, your business will have to meet the eligibility requirements to qualify.

The 504 Loan Program

This program was created to give small businesses low-cost funds for expansion or modernization. Typically, up to 50% of project costs are funded by a lender backed by the SBA. CDCs (Community Development Corporations) usually fund up to 40% of the project cost. The 504 loan program requires a final 10% is a cash down payment to come from the small business owner.

The Microloan Program

The Microloan Program is for very small businesses, including start-ups and provides loans of up to $50,000. Requirements to qualify for a microloan can vary depending on the lender. Proceeds from an SBA Microloan can be used for most business expenses but not for paying down debt or real estate purchases.

Non-SBA loans

There are plenty of non-SBA loan options available although they may have higher rates, shorter terms, and larger payments. They include:

Bank Term Loans

If your business isn’t quite ready for an SBA loan or you need funds more quickly than the SBA loan application provides, consider applying for a bank term loan. SmartBiz currently offers term loans through its bank marketplace for working capital, debt refinance, and new equipment purchases. To learn more about flexible term loans from banks in the SmartBiz network visit the website here: Bank Term Loans.

Business Lines of Credit

A business line of credit allows you to borrow funds up to a limit based on your credit, typically smaller than a term loan. You only pay interest on the amount you use, and you can continue borrowing as necessary until you reach the set maximum. These loans are usually unsecured, meaning that you won’t have to provide collateral to qualify. For in-depth information, read this post from the SmartBiz Blog: Small Business Lines of Credit Pros and Cons.

Business credit cards are revolving lines of credit. The main distinction is that they don’t terminate once the predetermined limit is reached. They function like personal credit cards, with varying spending rewards and offers depending on the lender. Learn more here: 5 Business Credit Card Myths.

Merchant Cash Advances

A merchant cash advance (MCA) is most often used by small businesses that accept credit and debit card sales. You receive a specific sum in advance that is repaid either by a percent deduction from daily transactions or through daily or weekly payments.

Keep in mind that MCAs often lead to extremely high annual percentage rates. Even the minimum within the range can be several times larger than term loan annual percentage rates. Some APRs can reach up to well over 300%. For more info, read MCA: A Complete Guide 2021.

Factors that influence your application

There are several factors at play that influence the ability to successfully apply for a loan.

Banks reluctance to fund smaller loan sizes

Many small businesses are denied financing by their bank. One of the reasons is that the costs for a bank to process a small loan is about the same as processing a larger one. Small businesses typically seek to apply for less than $500,000 and banks make a higher profit on large loans to bigger businesses.

Your personal credit score

For almost all lending products, in particular those that are affordable, a strong credit score is required. Your personal credit score is a number that represents your creditworthiness and tells lenders the potential risk of lending money. In other words, how likely are you to pay back the money you’ve borrowed? Review this post from the SmartBiz Small Business Blog: Your Personal Credit Score: What It Is, Why It’s Important. You’ll learn how your score is calculated and how to improve yours.

Important to note: A credit inquiry from a lender can lower your score. Make sure the lender you’re working with initially conducts a “soft pull” of credit that won’t affect your score. SmartBiz Loans® does an initial soft pull although a hard pull happens later in the process when matched with a lender likely to fund.  The SmartBiz® Small Business Blog has a comprehensive covering this topic: Credit Scores: Soft Inquiries vs. Hard Inquiries.

Age of your business

Only 20% of businesses with employees will survive their first year in business so lenders see younger businesses as riskier. Make sure you check on the business age requirement before spending time on an application. In general, 2 years of solid business history is sufficient.

However, a detailed business plan can help bolster your case if you’re under the 2-year minimum. For more information, read Do I Need a Business Plan to Get a Small Business Loan?

Business revenue

Your business’s revenue can indicate how likely your business will be to pay off a loan. To determine where you stand and learn how to calculate business revenue trends, review this blog post. Small Business Revenue: Determine Where You Stand.


These days, there are a ton of resources out there to help you through the loan application process.

For example, SmartBiz Advisor ® is a free tool that helps you learn how banks typically evaluate your business and recommends ways to help you increase your credit profile and financial health. When you’re in a strong financial position, you’ll have a better chance of successfully applying for funding when you need it. SmartBiz Advisor shows where you stand for each of the key ratios banks use to evaluate your business, such as: debt coverage, debt usage, credit, and business revenue trends.