business plan for applying for a loan

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Why Do I Need a Business Plan?

Sections of a business plan, the bottom line.

• Small Business

How to Write a Business Plan for a Loan

How to secure business financing

Matt Webber is an experienced personal finance writer, researcher, and editor. He has published widely on personal finance, marketing, and the impact of technology on contemporary arts and culture.

A business plan is a document that explains what a company’s objectives are and how it will achieve them. It contains a road map for the company from a marketing, financial, and operational standpoint. Some business plans are more detailed than others, but they are used by all types of businesses, from large, established companies to small startups.

If you are applying for a business loan , your lender may want to see your business plan. Your plan can prove that you understand your market and your business model and that you are realistic about your goals. Even if you don’t need a business plan to apply for a loan, writing one can improve your chances of securing finance.

Key Takeaways

• Many lenders will require you to write a business plan to support your loan application.
• Though every business plan is different, there are a number of sections that appear in every business plan.
• A good business plan will define your company’s strategic priorities for the coming years and explain how you will try to achieve growth.
• Lenders will assess your plan against the “five Cs”: character, capacity, capital, conditions, and collateral.

There are many reasons why all businesses should have a business plan . A business plan can improve the way that your company operates, but a well-written plan is also invaluable for attracting investment.

On an operational level, a well-written business plan has several advantages. A good plan will explain how a company is going to develop over time and will lay out the risks and contingencies that it may encounter along the way.

A business plan can act as a valuable strategic guide, reminding executives of their long-term goals amid the chaos of day-to-day business. It also allows businesses to measure their own success—without a plan, it can be difficult to determine whether a business is moving in the right direction.

A business plan is also valuable when it comes to dealing with external organizations. Indeed, banks and venture capital firms often require a viable business plan before considering whether they’ll provide capital to new businesses.

Even if a business is well-established, lenders may want to see a solid business plan before providing financing. Lenders want to reduce their risk, so they want to see that a business has a serious and realistic plan in place to generate income and repay the loan.

Every business is different, and so is every business plan. Nevertheless, most business plans contain a number of generic sections. Common sections are: executive summary, company overview, products and services, market analysis, marketing and sales plan, operational plan, and management team. If you are applying for a loan, you should also include a funding request and financial statements.

Let’s look at each section in more detail.

Executive Summary

The executive summary is a summary of the information in the rest of your business plan, but it’s also where you can create interest in your business.

You should include basic information about your business, including what you do, where you are based, your products, and how long you’ve been in business. You can also mention what inspired you to start your business, your key successes so far, and your growth plans.

Company Overview

In this section, focus on the core strengths of your business, the problem you want to solve, and how you plan to address it.

Here, you should also mention any key advantages that your business has over your competitors, whether this is operating in a new market or a unique approach to an existing one. You should also include key statistics in this section, such as your annual turnover and number of employees.

Products and Services

In this section, provide some details of what you sell. A lender doesn’t need to know all the technical details of your products but will want to see that they are desirable.

You can also include information on how you make your products, or how you provide your services. This information will be useful to a lender if you are looking for financing to grow your business.

Market Analysis

A market analysis is a core section of your business plan. Here, you need to demonstrate that you understand the market you are operating in, and how you are different from your competitors. If you can find statistics on your market, and particularly on how it is projected to grow over the next few years, put them in this section.

Marketing and Sales Plan

Your marketing and sales plan gives details on what kind of new customers you are looking to attract, and how you are going to connect with them. This section should contain your sales goals and link these to marketing or advertising that you are planning.

If you are looking to expand into a new market, or to reach customers that you haven’t before, you should explain the risks and opportunities of doing so.

Operational Plan

This section explains the basic requirements of running your business on a day-to-day basis. Your exact requirements will vary depending on the type of business you run, but be as specific as possible.

If you need to rent office space, for example, you should include the cost in your operational plan. You should also include the cost of staff, equipment, and any raw materials required to run your business.

Management Team

The management team section is one of the most important sections in your business plan if you are applying for a loan. Your lender will want reassurance that you have a skilled, experienced, competent, and reliable senior management team in place.

Even if you have a small team, you should explain what makes each person qualified for their position. If you have a large team, you should include an organizational chart to explain how your team is structured.

Funding Request

If you are applying for a loan, you should add a funding request. This is where you explain how much money you are looking to borrow, and explain in detail how you are going to use it.

The most important part of the funding-request section is to explain how the loan you are asking for would improve the profitability of your business, and therefore allow you to repay your loan.

Financial Statements

Most lenders will also ask you to provide evidence of your business finances as part of your application. Graphs and charts are often a useful addition to this section, because they allow your lender to understand your finances at a glance.

The overall goal of providing financial statements is to show that your business is profitable and stable. Include three to five years of income statements, cash flow statements, and balance sheets. It can also be useful to provide further analysis, as well as projections of how your business will grow in the coming years.

What Do Lenders Look for in a Business Plan?

Lenders want to see that your business is stable, that you understand the market you are operating in, and that you have realistic plans for growth.

Your lender will base their decision on what are known as the “five Cs.” These are:

• Character : You can stress your good character in your executive summary, company overview, and your management team section.
• Capacity : This is, essentially, your ability to repay the loan. Your lender will look at your growth plans, your funding request, and your financial statements in order to assess this.
• Capital : This is the amount of money you already have in your business. The larger and more established your business is, the more likely you are to be approved for finance, so highlight your capital throughout your business plan.
• Conditions : Conditions refer to market conditions. In your market analysis, you should be able to prove that your business is well-positioned in relation to your target market and competitors.
• Collateral : Depending on your loan, you may be asked to provide collateral , so you should provide information on the assets you own in your operational plan.

How Long Does It Take to Write a Business Plan?

The length of time it takes to write a business plan depends on your business, but you should take your time to ensure it is thorough and correct. A business plan has advantages beyond applying for a loan, providing a strategic focus for your business.

What Should You Avoid When Writing a Business Plan?

The most common mistake that business owners make when writing a business plan is to be unrealistic about their growth potential. Your lender is likely to spot overly optimistic growth projections, so try to keep it reasonable.

Should I Hire Someone to Write a Business Plan for My Business?

You can hire someone to write a business plan for your business, but it can often be better to write it yourself. You are likely to understand your business better than an external consultant.

Writing a business plan can benefit your business, whether you are applying for a loan or not. A good business plan can help you develop strategic priorities and stick to them. It describes how you are going to grow your business, which can be valuable to lenders, who will want to see that you are able to repay a loan that you are applying for.

U.S. Small Business Administration. “ Write Your Business Plan .”

U.S. Small Business Administration. “ Market Research and Competitive Analysis .”

U.S. Small Business Administration. “ Fund Your Business .”

Navy Federal Credit Union. “ The 5 Cs of Credit .”

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How to Write a Business Plan for a Loan

Business plans are often required when applying for funds from venture capitalists or other private investors, but even if you are seeking a bank loan for your company it is very helpful to prepare one since the lender wants to be confident that he is taking on an investment with growth potential so that you can repay the loan.

In this article, you will learn about the types of business loans, the importance of the business plan in your application for a loan, and how to write a business plan that will help you get the funding you need for your company.

Download our Ultimate Business Plan Template here

What Is a Business Loan?

A business loan is funding that is provided by a financial institution to a company for it to carry out its day-to-day operational activities. It also supports the purchase of equipment, refinancing of debt, and other purposes. Small businesses might need these loans because they may not have enough funds to buy equipment, refinance debt, or because they encounter financial difficulties.  

Your Loan Application

You can apply for a commercial loan with your local bank, credit union, Small Business Administration (SBA) lender, or community development financial institution like Capital Impact. You should expect that the lender will ask you detailed questions about all aspects of your business to ensure that he or she is lending you money that will be repaid.

In addition, if you are looking to purchase a business or commercial real estate, the lender may ask for additional information and documentation to assess your qualifications and ability to repay the loan.

Before applying for a business loan it can be helpful to research different types of loans so you understand what is available and what you will need to pay attention to in your loan proposal.

Common Types of Business Loans

There are many types of loans for small businesses, including:

• lines of credit
• commercial mortgages
• equipment financing

Contact different lenders in your area to see what kind of loan terms they offer and if their interest rates are within your budget.

What is a Business Plan?

A traditional business plan is a document that provides an analysis of the present situation and future financial projections for a company. It includes details about the owners, management team, customers, location of the business, finances, marketing plan, and other information.

A comprehensive and well-researched business plan will help lenders make informed decisions about providing a loan for your business.

To help you get started, you can download our sample business plan for bank loan pdf .

Why Do You Need a Business Plan to Get a Business Loan?

A loan proposal business plan is your opportunity to show the lender you understand your business, its capabilities, and how it operates within the industry in which it competes. By putting together a clear and concise document that outlines all of this information, the lender should have a much easier time understanding how you have arrived at your numbers and where you are going in the future.

A business plan is also helpful to the lender because it provides an opportunity for him or her to ask you questions, further clarifying details that might not be clear from your application materials alone. This way the lender can walk away from the meeting with a good understanding of what he or she is loaning money to and how likely it is he or she will see the loan repaid.

How to Write a Business Plan to Get Approved for a Loan

Different lenders may ask for different sections of your business plan, but most require some combination of the following key elements.

1. Executive Summary

The Executive Summary is the first section of your business plan that a lender will read, but typically the last section written. It is very important because it acts as a snapshot of your business plan and allows the person reading to get an overview of what you are proposing.

The summary should include:

• A statement about why you need the business loan
• Details on how much money you want to borrow, when you will repay it, and interest rates
• A description of how the proceeds from the loan will be used
• Your business’s historical and projected financial information (again)
• The expected impact on your company and the industry as a whole if you are successful.

2. Company Description

In the Company Description, you should include basic facts about your company such as:

• What is the business structure (corporation, partnership, limited liability company (LLC), etc.)?
• How long has your company been in operation?
• What is the size of your workforce?
• What accomplishments or milestones have you achieved within the last year?

This section should also include information about your future business plans.

• How do you plan to expand, if at all?
• Who are your main competitors and how is your company different from them?
• What changes will you make to excel against these competitors?

3. Industry Analysis

In the Industry or Market Analysis, you should include information about your industry in general.

• What are the strengths and weaknesses of your industry?
• How will your company compete in it?
• What trends within the industry affect its future success or potential struggles?

You may also include information about your specific niche in the market. If your company operates in a very specific area of the industry, be sure to highlight it.

4. Customer Analysis

The Customer Analysis section of your business plan helps a lender understand who your customers are and why they will buy from you.

In this section, you should include information on the following:

• Your target audience and the individual customer segments
• How many potential customers you have within your target market
• How much your customers typically spend, and how much you expect them to spend in the future
• What has caused these changes or trends to occur and how they will impact your business

5. Competitive Analysis

This section should show the competitive landscape and how you plan to compete against your competitors.

• What are their strengths?
• Where do they fall short?
• What changes will you implement to get ahead of them?
• What are your company’s competitive advantages over these competitors?

6. Marketing Plan

This section should include a detailed description of the marketing strategy you plan to implement.

• What is your customer acquisition cost? How much will it cost you to bring in one new customer?
• How will you reach these potential customers? Be specific about your marketing strategy, advertising methods and costs.
• Who is responsible for implementing each part of the marketing plan and how much it is expected to cost?

7. Operations Plan

Your Operations Analysis should describe the way your company currently operates and how it will operate with the help of the loan.

• What are your company’s strengths? Weaknesses?
• What have you implemented in the past 12 months that has led to increased revenue, decreased costs, or improved efficiency?
• How will you continue to operate efficiently with the proceeds?

8. Management Team

In the management section, you should describe your business in terms of its personnel structure.

• What are the responsibilities of each person on your team?
• Who are they? What are their qualifications?
• How will their roles change when you receive the loan proceeds?

9. Financial Plan

This section should include your company’s financial statements include the projected income statements, projected balance sheet, and cash flow statements for the next 3 – 5 years.

You can assume that you will receive loan proceeds in 20XX, so plan accordingly.

Include a five-year break-even analysis and an explanation of how you arrived at your income statement and cash flow projections. Don’t forget to include interest and loan payments in your financial projections.

10. Appendix

In this section, you will include the supporting documents for the claims within your business plan. This section should include:

• A loan agreement
• A list of all applicable business licenses, permits, etc. that your company holds or has applied for

You may also include:

• An organizational chart for your company
• The resumes of the members of your management team
• The resumes of any employees who will be making a significant impact on your business with the loan money
• Copies of contracts, leases, and other agreements that are relevant to your business plan
• Complete financial statements and projections if you only include a summary in the Financial Plan section

These documents should be attached to your business plan in a separate file if they are not included and may need to be submitted with the final small business loan application.

Tips for Writing a Business Plan for a Loan

To have a successful business plan and loan application, you need to know exactly what information your loan officer is looking for and how to find it.

• Before you submit your application, be sure to carefully edit and proofread it for errors. Errors in a business plan may lead a lender to question your attention to detail, so make sure it is polished and error-free.
• Always be sure to include an executive summary of the main points of your plan at the beginning, as some loan officers may not read all of the details.
• Be sure to keep your tone professional and business-like.
• Include detailed financials, market analysis, and other crucial information.
• Remember that any omission or inaccuracies will be carefully scrutinized by a lending officer, so be sure you have all of the necessary documents before submission.
• Finally, remember that lenders often appreciate creativity and outside-the-box thinking when it comes to business plans, but don’t let it distract from the necessary information for your application.

Writing a good business plan is one of the most important and necessary steps toward securing a loan or other source of capital.

Use our proven business plan template provided below, and you’ll be able to give your lender all of the information they need to make an informed decision.

The key is to do it right. By following the steps outlined above and including all of the necessary documents (and editing/proofing your application), you should significantly improve your chance of securing a loan for your business.

How to Finish Your Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your business plan?

With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

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• Mar 30, 2023

The Ultimate Guide to Writing a Business Plan for a Loan: A Step-by-Step Walk-Through

The Ultimate Guide to Writing a Business Plan for a Loan: A Step-by-Step Walkthrough

As a business plan specialist and expert business planner, I'm here to guide you through the process of writing a comprehensive business plan for securing a loan. Whether you're a start-up or an established business looking to expand, a well-crafted business plan is essential for impressing potential lenders and securing the funding you need.

In this extensive, 5,000-word article, I'll cover everything you need to know about creating a top-notch business plan that will boost your chances of loan approval. We'll go through each section in detail, providing you with practical examples and tips to optimize your plan for success. So, let's get started!

Executive Summary

The executive summary is the first and most critical section of your business plan. It's a brief overview of your entire plan, highlighting the key points and giving readers an insight into your business.

Key elements to include in your executive summary:

Business concept: Briefly explain your business idea, the products or services you plan to offer, and the target market.

Company overview: Provide essential information about your company, including its legal structure, location, and mission statement.

Management team: Showcase the expertise and experience of your management team, emphasizing their ability to lead the business.

Market opportunity: Describe the market demand, trends, and target audience, highlighting the opportunity for your business to succeed.

Financial highlights: Summarize your financial projections, including sales, profits, and cash flow.

Loan purpose: Clearly state the purpose of the loan and the amount you're seeking.

Remember, the executive summary is often the first thing lenders read, so make it engaging and informative to grab their attention.

Company Description

The company description section is where you provide a more in-depth look at your business. It should give readers a clear understanding of your company's purpose, goals, and competitive advantages.

Key elements to include in your company description:

Business history: If your company has an existing history, briefly describe its origins and milestones achieved.

Mission statement: Articulate the purpose of your company and the value you aim to provide to customers.

Objectives: Outline the specific goals you want to achieve with your business, both short-term and long-term.

Products and services: Provide a detailed description of the products or services you plan to offer, emphasizing the benefits they provide to customers.

Target market: Identify your target audience, specifying their demographics, psychographics, and buying habits.

Competitive advantage: Explain what sets your business apart from the competition and how you plan to maintain this edge.

Market Analysis

The market analysis section demonstrates your understanding of the industry, market, and competition. It's crucial to show lenders that you've done your homework and have a comprehensive understanding of the market landscape.

Key elements to include in your market analysis:

Industry overview: Provide a high-level view of your industry, including its size, growth trends, and key players.

Market segmentation: Break down your target market into smaller segments, identifying their unique needs and preferences.

Target market characteristics: Describe the specific characteristics of your target market, such as demographics, psychographics, and geographic location.

Market demand: Present evidence of market demand, using data on customer needs, market trends, and buying behaviors.

Competitor analysis: Evaluate your main competitors, analyzing their strengths, weaknesses, and market share.

SWOT analysis: Conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) to assess your business's position in the market.

Marketing and Sales Strategy

In this section, outline your marketing and sales strategy to show lenders how you plan to attract and retain customers, as well as generate revenue. A well-defined marketing and sales strategy is crucial to demonstrate that you have a clear plan for growth and profitability.

Key elements to include in your marketing and sales strategy:

Marketing objectives: Define your marketing goals, such as brand awareness, lead generation, or customer retention.

Target audience: Reiterate your target market, emphasizing their needs and preferences.

Unique selling proposition (USP): Highlight your USP, the main reason customers should choose your products or services over the competition.

Marketing channels: Identify the marketing channels you plan to use, such as social media, email, content marketing, or paid advertising. Explain the rationale behind your choice of channels and how they align with your target audience.

Sales process: Describe your sales process, from lead generation to closing deals. Include details on your sales team structure, training, and compensation plans.

Key performance indicators (KPIs): List the KPIs you'll use to measure the success of your marketing and sales efforts, such as conversion rates, average deal size, or customer lifetime value.

Operations Plan

The operations plan section details the day-to-day activities required to run your business. It shows lenders that you have a clear understanding of the operational aspects of your company and the resources needed to support your growth.

Key elements to include in your operations plan:

Facilities: Describe your business's physical location, including its size, layout, and any equipment or machinery required.

Production process: If applicable, detail your production process, including the steps involved, quality control measures, and production capacity.

Supply chain: Outline your supply chain, identifying key suppliers, procurement processes, and inventory management practices.

Staffing: Explain your staffing requirements, including the roles, responsibilities, and qualifications of each team member.

Management structure: Provide an organizational chart, showcasing your company's management structure and reporting lines.

Legal and regulatory requirements: Identify any relevant legal or regulatory requirements, such as licenses, permits, or certifications needed to operate your business.

Financial Plan

The financial plan is arguably the most crucial section of your business plan when applying for a loan. It demonstrates your ability to manage finances, make informed decisions, and, ultimately, repay the loan.

Key elements to include in your financial plan:

Revenue projections: Estimate your future sales, breaking them down by product or service category and showing growth rates over time.

Expense projections: Forecast your expenses, including fixed costs (e.g., rent, utilities) and variable costs (e.g., marketing, salaries).

Cash flow statement: Provide a detailed cash flow statement, showing how cash will flow in and out of your business over a specified period (typically 12 months).

Profit and loss statement: Create a profit and loss statement that projects your business's profitability over time.

Balance sheet: Prepare a balance sheet that showcases your business's assets, liabilities, and equity.

Break-even analysis: Calculate the point at which your business will break even, meaning your revenues equal your expenses.

Loan repayment schedule: Detail your proposed loan repayment schedule, including the loan amount, interest rate, repayment terms, and projected date of full repayment.

The appendices section is where you can include any additional documents or supporting materials that are relevant to your business plan. These documents may provide further evidence of your company's viability and help strengthen your case for securing a loan.

Examples of items to include in the appendices:

Resumes of key team members

Product samples or prototypes

Market research data or surveys

Letters of intent or contracts with suppliers, partners, or customers

Intellectual property documentation, such as patents, trademarks, or copyrights

Relevant licenses, permits, or certifications

Writing a comprehensive business plan for a loan can seem like a daunting task, but with the right approach and guidance, it's an achievable goal. By following the step-by-step instructions outlined in this article, you can create a well-structured, persuasive business plan that will greatly improve your chances of securing the funding you need. Remember to:

Pay close attention to your executive summary, as it sets the tone for the entire plan.

Be thorough and detailed in your market analysis, showing a deep understanding of your industry and target audience.

Develop a solid marketing and sales strategy to demonstrate your ability to attract and retain customers.

Address the operational aspects of your business, including staffing, facilities, and supply chain management.

Present a robust financial plan, complete with projections and a loan repayment schedule.

By doing so, you'll showcase your expertise, commitment, and preparedness to potential lenders, significantly increasing the likelihood of obtaining the loan your business needs to grow and succeed.

In addition to following the steps outlined in this guide, consider seeking professional assistance from a business plan consultant or specialist to review and refine your plan. Their expertise can help you identify any areas that may need improvement and ensure that your business plan is optimized for success.

Finally, remember to continuously update your business plan as your business evolves. Regular updates will ensure that your plan remains relevant and accurate, providing you with a valuable roadmap for your business's future growth and development.

With dedication, persistence, and a well-crafted business plan, you can secure the funding you need to bring your business vision to life. Good luck, and here's to your success!

• Writing Your Business Plan
• Funding Your Business

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How to Write an SBA Business Plan + Template

Noah Parsons

10 min. read

Updated November 21, 2023

Applying for a Small Business Administration loan typically requires a business plan.

Unfortunately, there’s no SBA loan business plan format that guarantees approval. The SBA even states you should “pick a business plan format that works for you.” 

While I agree with this sentiment, I’ve found that entrepreneurs who explain how funds will be used and how they will repay the loan tend to be more successful. 

Luckily, these details can be covered using our SBA-lender-approved business plan format . I’ll go over that structure in this article, and focus on the sections that the SBA prioritizes, so you can maximize your chances of getting funded .

You can even download a free SBA-lender-approved business plan template to fill out as you read. 

Let’s get started.

• Why you need a business plan for SBA loans

SBA loans require good documentation of your business and personal finances. You’ll need to pull together your past tax returns, bank statements, and various application forms depending on the type of SBA loan you apply for.

The bank issuing the loan will also want to know about the future of your business. 

They’ll want to see how the loan will be used and if future cash flow projections are realistic and indicate you can afford loan payments.

That’s where writing an SBA business plan comes in. 

Not only will your business plan describe your business to the lender, but it will include the financial projections the bank will use to determine if you qualify for the loan .

• What your business plan should include, according to the SBA

Business plans for SBA loans follow a fairly standard structure, but that doesn’t mean you need to follow it exactly. 

The SBA even recommends adjusting the plan outline to serve your needs. If a section does not apply to your business, it’s fine just to remove it.

Here’s the successful business plan structure I recommend for SBA loans:

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1. Executive summary

A great executive summary is a short, simple overview of your business. It should be easy for a loan officer to read and clearly understand what your business does. 

When applying for an SBA loan, highlight your: 

• Business opportunity
• Financial forecast
• How much money you want to borrow and how it will be used

Remember, an executive summary should be short and to the point. The rest of your business plan will provide additional details.

[Dig deeper: How to write an executive summary ]

2. Company description

Some people call this section “Products and Services.” Either option is fine. The important thing is that you use this section to explain what your business opportunity is. 

You need to cover: 

• The problem you solve
• Who you’re solving it for
• What your solution is and why it’s better

Be specific and tell the story of your business and your customers. Focus on your strengths and what sets you apart from competitors. 

If your company is developing a product, include information on:

• What the product life cycle looks like
• Intellectual property filings
• Current research and development

If these topics don’t apply to your product, that’s fine. Just be sure that the description of what you sell is clear.

3. Market analysis

The market analysis chapter explains who your customers are. It provides an overview of your target market, competition, and industry.

Your target market is essentially a description of your ideal customers. Be sure to include specific demographic information (like age, gender, location, income) and psychographic information (hobbies, purchasing behaviors). 

This data should reinforce that your target market needs your solution .

It’s helpful to also include information on the size of your target market . Lenders will want to see evidence of enough potential customers to drive growth. 

While your target market information describes your customers, an industry overview discusses the type of business you’re in and its potential for growth. 

For example: If you’re starting a fast-casual restaurant, your industry overview might discuss the increased interest in fast-casual dining and how more people are eating in these types of restaurants every year. 

Finally, you’ll need to include a competitive analysis . This is a list of current competitors and alternatives, with explanations of why your business is a better option. 

Your goal is to show how your business is unique, what opportunities and threats there are, and how you plan to address the competition.

4. Organization and management

Also known as your company overview, this section is where you describe your legal structure, history, and team .

For your SBA loan application, you should focus on describing who is managing the business as clearly as possible. 

You may want to include an organizational chart. You should provide detailed resumes for everyone in leadership positions. Each team member’s experience, skills and professional qualifications can mitigate risk in the eyes of a lender .

To show you’re thinking ahead, it’s also helpful to include key positions you plan to fill as you grow. 

5. Sales and marketing plan

Your goal in this section is to summarize how you will attract, retain, and sell to your customers.

The marketing strategies and sales methods you describe should always have the customer top of mind, and demonstrate that you know how to connect with them. 

To help a loan officer visualize this, you can provide examples of marketing messaging, visuals, and promotions. If you have any research or results to show that your strategy has merit, include those as well. 

6. Financial projections

SBA lenders typically require 5 years of financial projections — including profit and loss statements , balance sheets , and cash flow statements . 

Be sure to include the SBA loan in your projections in the following areas: 

• A liability on your balance sheet.
• Payments on your cash flow.
• Interest expenses on your profit and loss statement. 

I’ll dive into specific details of what you should focus on in the “how to improve your chances” section.

Your first year of financial projections should include monthly details. After that, annual summaries are usually sufficient for most SBA lenders. Occasionally, a lender might require 24 months of monthly projections, so check with your bank before submitting your business plan. 

If your business is up and running, you must also provide historical financial reports for the past 12-24 months of operations—including income statements and a current balance sheet.

Typically, you will also need to provide reports on your personal finances , including any assets you have, such as a home or car. 

Finally, include a section explaining your use of funds—what exactly you plan to use the loan for.

7. Appendix

The appendix is your chance to provide additional documents that support sections of your business plan. 

When applying for a loan, these may include:

• Employee resumes
• Licenses and permits
• Patents and other legal documents
• Historical financial statements
• Credit histories

Don’t worry about stuffing your appendix full of additional documentation. Only include information if you believe it will strengthen your approval chances, or if your lender specifically asks for it.

• How to improve your chances of being approved for an SBA loan

Your SBA business plan needs to focus on the loan you are applying for and how that will impact your business financially. 

Make sure to include the following information in your financial plan to increase your chances of success with your lender:

Funding request 

In your executive summary, document how much money you are asking for. It’s best to put your number where it can be clearly read, instead of trying to bury it deep within your business plan.

Remember, there are limitations to how much you can borrow through SBA-backed loans.  Most have a maximum loan amount of $5 million, while SBA Express loans have a maximum loan amount of $350,000. 

Use of funds

You should also describe how you plan to use the loan and which aspects of the business you want to invest in. 

Some SBA loans are designed specifically for expanding export businesses or funding real estate transactions. So, make sure your use of funds description is appropriate for the loan you are applying for.

Cash flow forecast

Be sure to include the loan in your cash flow statements and projections . You want to demonstrate that you’ve planned how you will use and repay the loan.

You need to show:

• When you anticipate receiving the loan.
• How the loan will impact your finances. 
• Loan payments for the life of the loan. 

Having this prepared won’t just increase the chances of your application being approved—It  will make it much easier to manage the loan after you receive funding . 

Balance sheet 

You’ll also want to put the loan on your projected balance sheet , and show how the loan will get paid down over time. 

The money you owe will show up on your balance sheet as a liability, while the cash you receive from the loan will be an asset. Over time, your forecasted balance sheet will show that the loan is getting paid back. 

Your lender will want to see that you have forecasted this repayment properly.

Profit & Loss forecast

Your P&L should include the interest expenses for the loan, and show how the interest will impact your profitability in the coming months and years.

• How long does an SBA business plan need to be?

The SBA doesn’t have an official recommended or required business plan length . As a general rule of thumb, you should make your business plan as short and concise as possible. 

Your business plan is going to be reviewed by a bank loan officer, and they will be less than excited about the prospect of reading a 50-page business plan.

If possible, keep the written portion of your business plan between 10-15 pages. Your financial forecasts will take up several additional pages. 

If you’re struggling to keep it short, try a one-page plan

A great way to start your business plan is with a simple, one-page business plan that provides a brief and compelling overview of your business. 

A good one-page plan is easy to read and visually appealing. Once you have your one-page plan, you can expand on the ideas to develop your complete written business plan, and use the one-page plan as your executive summary. 

Loan officers will appreciate a concise overview of your business that provides the summary they need before they start looking at your complete business plan and financial plan .

• Resources and tools for writing an SBA business plan

Remember, you can download a free SBA-lender-approved business plan template . It includes detailed instructions to help you write each section, expert guidance and tips, and is formatted as lenders and investors expect.

If you’re looking for a more powerful plan writing tool, one that can also help you create financial forecasts for the use of your loan, I recommend you check out LivePlan . 

With LivePlan, you get:

• AI-powered recommendations: Generate and rewrite sections of your plan to be more professional and persuasive.
• Step-by-step instructions: In-app examples, tutorials, and tips to help you write an impressive business plan.
• Automatic financials: Skip the spreadsheets and complex formulas, and quickly create accurate financial forecasts with everything a lender needs.
• A built-in pitch presentation: Print or share your full business plan, one-page pitch, and financial reports—all with a professional and polished look.

Whether you use the template, LivePlan, or try writing a business plan yourself, following the structure and tips from this article will improve your chances of getting an SBA-backed loan. 

And for additional SBA-focused resources, check out our guide on how to get an SBA loan .   

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

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How To Write a Business Plan for a Loan: A Guide

This article contains general information and is not intended to provide information that is specific to American Express, or its products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

Many small business owners know that it can take money to grow. But what does it take to secure that funding? A strong business plan is often a part of the answer. That’s why learning how to write a business plan for a loan may be an important part of setting up a small business for success.

A good business plan helps a lender assess a business’ prospects. There is a standard format that owners may wish to follow. Keep in mind that applying for a loan is an important step that has legal consequences. As you put together your business plan, consult your professional advisers to make sure that you understand the importance of providing accurate information.

Here are some pointers on writing a business plan for a loan to help grow your business .

Why is a business plan important when you’re applying for a loan?

The Small Business Administration (SBA) describes a business plan as a “roadmap to small business success.” Given all the challenges of keeping a small business thriving, a roadmap is a handy thing to have. A business plan helps an owner visualize the future, take the actions needed to get there, and understand when to change strategies.

A business plan is also often required when applying for a business loan. Lenders often use an applicant’s business plan as part of the loan application and approval process. It helps the lender evaluate the likelihood of the small business being profitable.

Knowing how to write a business plan can also be helpful for other purposes. Commercial real estate landlords may ask for a business plan before leasing a space. A thorough business plan may also help with finding investors.

What lenders look for in a business plan

A lender typically evaluates several factors to decide if a small business is likely to repay requested financing. The various sections of the plan will help the lender decide if a market opportunity for the company exists, if the business has access to the organizational and managerial resources it needs, if the product or service appears viable, if a marketing plan exists, and if the small business’ finances are healthy. Simply put, the plan helps the lender review all aspects of the business on paper, so that the lender can make a more informed decision about making a loan.

In addition to the business plan, the lender will likely assess the company’s accompanying business credit reports and business credit scores to determine its creditworthiness.

What does a formal business plan include?

Many business owners have informal business plans from when their small business was just a side hustle. Business ideas written on the back of a napkin are a cliche for a reason: it’s a common way for a small business to take shape.

A formal business plan, however, can’t fit on a napkin. When a growing small business needs a sizable business loan or line of credit , they will likely need to provide something quite detailed to a lender. The need for a formal document doesn’t necessarily mean it will be difficult to secure the loan , however. It just means the lender needs a clear picture of the business.

Small business owners can think of a business plan for a loan application like a resumé when seeking a job. It helps a lender decide if the small business is a good candidate for a loan in an easy-to-read document. Similar to a resumé, the business plan should be professional looking and free of spelling, grammatical, and typographical errors.

The list below follows the naming conventions and structure of how to write a business plan for a loan application according to the SBA . It includes:

• Executive summary
• Company profile
• Market analysis
• Organization and management
• Service or product line
• Marketing and sales
• Funding request
• Financial projections

1. Executive summary: Spark interest in your business

The executive summary may be the first thing a lender will read, but small business owners may be best served by writing it last. Learning how to write a business plan for a loan may help owners understand their own business better. The executive summary will likely be most accurate after the owner has thought through, and learned from, all the sections to follow.

What is the executive summary?

The executive summary is a brief overview of the business plan. It should give readers a high-level description of the business, as well as the high points of the business plan.

What to include in an executive summary

An executive summary should include the following:

• Business name, contact information, and social media profiles : This will help the reader find the business in the real world.
• Mission statement : A mission statement should directly reflect the values of the business to help readers understand why the business exists.
• Product or service description : This highlights what customers can expect from the business.
• Demographic, economic, and financial factors affecting the business : Readers should understand the general environment in which the business operates.
• An analysis of competitors and the primary market : This previews the market analysis section and clarifies the business’ market position.
• Marketing, public relations, and sales plan : Readers should understand how the business plans to attract and retain customers.
• Future revenue and cash flow projections : Financial forecasts help readers understand the business’ potential for growth and profitability.
• Any current assets or capital : Lenders will want to know what potential collateral the business has.

2. Company profile: Define the business

A company profile is a business owner’s opportunity to briefly explain what their business is all about and why it exists. The profile should be heavy on facts, including what the products and services are, the target audience, and what needs the business fulfills. It should be written in a formal tone and explain what, if anything, makes the business unique.

3. Market analysis: Competitors and customers

A market analysis explains the business environment in which the company will operate. Lenders may look at this section to determine if the business has a good understanding of its competition and potential customers. You may want to consider hiring a market research firm to help you prepare a market analysis.

Market analysis elements include:

• An industry analysis : This describes the outlook for the industry to which the business belongs.
• Knowing your competition : A competitor analysis highlights the strengths and weaknesses of similar businesses in the same market to identify challenges and opportunities.
• Know your niche : Explain how the product or service addresses an unmet If your business has a significant social media following, that may help to show how your business is reaching your customers.

4. Organization and management: Talent and experience

Who will run the business? This section is meant to help lenders understand the experience and skills of those operating the business. It’s not uncommon for lenders to ask if the talent that has made a business successful so far will stay with the business as it grows. Including a description of the current and future business structure over the next three to five years may demonstrate room for growth for valuable staff members.

5. Service or product line: What makes the business special?

A description of the small business’ service or products helps highlight what makes the business unique. The nuts and bolts of these offerings are critical, but their intangible qualities are valuable as well. This could include the recent hiring of an up-and-coming chef, the development of a new, patented product, or an innovative production method. This section is an opportunity to drill down on what makes the business unique.

6. Marketing and sales: How do you get the word out?

A great product or service is only valuable if enough potential customers hear about it. A lender will want to know how the business plans to get the word out about its offerings and increase its share of the target market. The plan might include social media platforms, established business partners, and how the company will generate and nurture sales leads.

7. Funding request: How much does the business need?

A business plan is all about clarity. Small business owners may use this opportunity to clarify how much money they need and why they need it. Lenders value a detailed explanation of how the business will use the loan and why it will increase their revenue or net profits.

8. Financial projections: Dollars and cents

Naturally, lenders will want to know about a business loan applicant’s finances. When learning how to write a business plan for a bank loan, business owners should understand the critical role of financial reports.

When preparing financial projections, it may be wise to consult a professional to best help your business prepare your documents accurately. Financial projections may include the following documentation:

• Startup expenses
• Payroll costs
• Sales forecast
• Operating expenses
• Cash flow statements
• Income statements for the first three years of business
• Balance sheet
• Break-even analysis
• Financial ratios
• Cost of goods sold (COGS)
• Amortization and depreciation for your business

9. Appendix: Show instead of tell

The appendix is where a business owner can show their work. The appendix includes supporting documentation, including resumés, financial statements, media clips indicating buzz around a product or brand, or anything else that verifies the information shared in the previous eight sections.

A formal business plan can be important when applying for a business loan

Seeking financing for business growth is a great opportunity to move from an informal business plan to something more structured. Having a business plan ready for lenders is a great first step in securing the funding your business may need to grow or sustain operations.

The material made available for you on this website is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.

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Key takeaways

• The type of business loan you choose depends largely on why you need the loan and what you’ll be using it for.
• Lenders set their own qualifications for business loans, including time in business, personal and business credit score, annual revenue and collateral.
• The application process may vary depending on the lender and type of loan, and the funding time can range from a few days to 90 days or more.

Getting a business loan requires careful research and consideration to make sure you’re choosing the best funding option for you. Different loans serve different purposes, so researching loan options is a good starting point.

You’ll also need to make sure that you meet the lender’s requirements for credit score, time in business and cash flow, ensuring that your business can easily handle loan repayments. Let’s walk through the process of choosing and applying for a business loan step by step.

1. Choose a type of loan

The type of business loan you choose depends largely on why you need the loan and what you’ll be using it for. You might need a business loan to:

• Purchase equipment, assets or real estate
• Restock inventory
• Fund the development of a product
• Pay for an emergency expense
• Keep payroll and accounts payable up to date despite gaps or delays in revenue
• Draw from as needed for small- or medium-sized purchases

You’ll see many types of business loans on the market, and each comes with its own advantages and disadvantages. Take a look at some of the most common business loans and what they’re best used for.

2. Decide how much you can afford to borrow

At the end of the day, how much you can afford to borrow depends on the wiggle room in your business finances. You want to use business profits to make repayments on the loan.

To find out whether your business can afford a loan, many lenders will use something called a debt service coverage ratio (DSCR). The ratio essentially figures your business’s yearly cash flow divided by the cost of the loan.

DSCR = annual net operating income / total annual debt, including principal and interest

Many lenders won’t consider any business with a DSCR below 1.25, and the higher the number, the stronger you look.

For example, let’s calculate your DSCR if your annual net operating income is $500,000 and your loan’s yearly principal and interest is $225,000.

Step 1. Find your annual net operating income. Calculate your business revenue minus operating expenses.

Step 2. Calculate the yearly cost of your loan , including principal and interest. Use our business loan calculator to help you.

Step 3. Divide the annual net operating income by the annual loan cost.

$500,000 / $225,000 = 2.2222222

Here, your DSCR is 2.2, a number that shows a strong ability to repay the loan you’re vying for.

3. Check your eligibility

Requirements across lenders vary widely because lenders set their own qualifications for business loans . Brick-and-mortar banks tend to work with businesses that have a strong financial profile. Alternatives like online lenders may lower their qualifications, helping startups and business owners with subprime credit get a business loan.

Lenders may set requirements for:

Time in business

Traditional banks may require one to two years of business under your belt to qualify. Alternative and online lenders may fund businesses as young as six months old. Taking time to get your business on solid financial ground will help when making loan repayments.

Personal and business credit score

Since many small businesses don’t have established credit, lenders often use your personal FICO score to get a picture of your creditworthiness. For the best interest rates, most banks will look for a score of 680 or higher.  Online lenders may drop to the 500s to approve businesses with bad credit for a loan.

Once you’ve built up your business’s credit profile, lenders may rely on your business credit score to approve a loan. Your business credit score will range from 0 to 100 (or 0 to 300 with the FICO Small Business Scoring Service). The score factors in your company’s size, payment history, industry and other debts. A strong business credit score could mean that you don’t need to guarantee the loan with your personal assets.

Annual revenue

Most lenders require you to meet a minimum amount of revenue to prove you have enough cash flow for a loan. Requirements are different based on the lender and type of loan. Some lenders go as low as $40,000, while others set the annual revenue at $100,000 or more.

Collateral or personal guarantee

Since small businesses pose a higher risk to lenders, many lenders require you to secure the loan with assets like business equipment. Another way to secure the loan is to sign a personal guarantee , which allows the lender to seize your personal assets if you default on the loan. Some lenders require both.

Bank relationship

Relationships can make a big difference in managing your business finances and getting a loan. If your business finances are in a gray area, having an established bank relationship can help your business get approved for a loan.

And if you find yourself in a tight spot with repayments, your lender may be willing to work with you to defer payments or restructure the loan. You can start your banking relationship by opening a business bank account at your preferred bank.

4. Compare small business lenders

Once you’ve narrowed down the type of loan you need, you can compare lenders side by side to find the best small business loan for you. Take a look at the following types of lenders that offer small business loans.

Both traditional banks and online lenders offer wide-ranging loan amounts, anywhere from $5,000 to $600,000 or more. However, the interest rates are where you’ll see a real difference. Maximum interest rates for online lenders can range from 30 percent to 100 percent — much higher than you’ll see with banks.

Banks and credit unions

Banks and credit unions can offer APRs between 5.5 to 12 percent for conventional loans and lines of credit, though the exact rate varies based on your business’s financial standing.

Many banks also offer loans backed by the U.S. Small Business Administration. As of April 2024, SBA loans have interest rates between 11.50 to 16.50 percent, and you can secure loan amounts up to $5 million. Repayment terms may also stretch out longer than conventional loans, ranging from five to 25 years.

Community Development Financial Institutions

Community Development Financial Institutions (CDFIs) are a network of organizations that offer financial services and educational support to underserved communities. Each CDFI serves a specific target group for the purpose of building up the community, and they often accept customers with poor or no credit history.

If you’re part of an underserved community, working with a CDFI could help you build a sustainable business through funding, mentorship and additional resources.

Minority Depository Institutions

Minority Depository Institutions (MDIs) are financial institutions in which minority individuals own most of the stock or the board of directors are mostly minority individuals. Many MDIs focus on serving minority communities, providing business loans to entrepreneurs who are historically underserved in the banking industry.

5. Gather required documents

Lenders not only need to know your business’s financial standing and legal status, but they also want documentation on how you plan to use the loan and its expected effect on your business. When you apply for a business loan, your lender should have a full list of required documents . Some of the documents you should have ready to go include:

• Personal documentation. Your lender may request information about your finances, background, other sources of income and resume. If you have a business partner or co-owner, you must include their information too.
• Business plan. While not every lender will require a business plan, having one is beneficial. Your business plan should outline how you intend to use your loan funds and how additional financing will benefit your business. You should also include how the funds will improve revenue and your ability to repay the loan.
• Business financial statements. Most lenders require two years of income tax returns, balance sheets, profit and loss statements, bank statements and cash flow projections to determine if your business can repay a loan.
• Legal documents. To prove ownership and your business’s status, you’ll need to provide business insurance, a business license and any other legal documents pertaining to your business.

6. Apply for a business loan

Most lenders — both banks and online lenders — offer online applications that require minimal initial paperwork. With some banks, you’ll go in person to apply for the loan. In this case, you may want to contact the bank for a list of required documents ahead of time.

Once your application is received, the lender should be in contact within a few days to discuss your business’s eligibility and any additional paperwork required. But, the exact amount of time until you get the funding can vary depending on the lender and type of loan.

Every lender is different. Some may take only a few days to review your application. Others may take weeks. Many online lenders boast funding in as little as one to two business days. An SBA loan can take 30 to 90 days or more to fully process.

However, since the average application requires basic documentation, you can have a Small Business Development Center review it. They can give you tips, advice and strategies on improving your application — and thus your chances for approval.

Bottom line

If you’re considering applying for a business loan, you first need to decide what type of loan your business needs, how much you can afford and if your business meets the minimum qualifications.

Reach out to lenders you have worked with in the past or banks you already have a relationship with to discuss the process. You could also meet with a business advisor or a member of a Small Business Development Center in your area to learn more about what your business may qualify for.

Frequently asked questions

How hard is it to get a business loan, what disqualifies you from a small business loan, how long does a business loan take to get.

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First-time small business loan: 6 things to know

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Run » business financing, everything you need to know to prepare to apply for a business loan.

We help you decide if a small business loan is right for you and how to apply for one if you decide it's the right move.

A business loan is a financial asset that can help cover the cost of an unexpected expense, purchase an expensive piece of equipment, lay the foundation for expanding your business, or solve a sudden cash flow problem. Seeking a business loan will require preparation and legwork, including research on the type of loan that’s best for you.

Here’s what you need to know about different types of business loans and how to prepare to apply for one.

What types of business loans are available?

Choosing the type of loan that best suits your needs and repayment ability is essential. You should take out a loan with the idea that it will help your business, not saddle you with debt.

Line of credit loan

This short-term loan is considered a useful option for small businesses. With a line of credit , you’re given a certain amount of cash which you can draw from. You only repay the amount you draw and that’s the only amount you pay interest on.

This type of loan is the one with which most people are familiar. It comes in both short- and long-term options, with generally lower interest rates for longer-term loans. Borrowers receive a lump sum of cash upfront and make monthly repayments of principal and interest. These loans have some of the lowest interest rates and generally require collateral.

Specialty financing

Specialty financing includes loans for very specific purchases, such as leasing or buying equipment. You usually pay equipment loans over the estimated lifespan of the equipment you’re financing, and the equipment serves as collateral. Specialty financing also includes commercial real estate loans. The main issue with these loans is that sometimes the loan outlasts the life of the equipment.

Invoice financing

With invoice financing , you use unpaid invoices as collateral to secure a cash advance, which is usually equal to a percentage of the invoice. You then repay the advance once the invoice is paid, along with a fee. A similar type of financing is invoice factoring, where you sell your outstanding invoices to a factoring company for it to collect on.

Merchant cash advance

Like a payday loan, a merchant cash advance is an expensive form of borrowing where you get a cash advance in exchange for a percentage of your future credit card sales. Because these loans are short, and repayment is taken out daily, they can have the equivalent of a 70-200% APR. The upside is that these loans are very quick and easy to obtain.

Personal loan

If you have a very strong personal credit score but have a new business or limited collateral, you might consider taking out a personal loan for business expenses. Keep in mind, though, that if you default on the loan, it will impact your personal credit.

Secured and unsecured loans

To receive a secured loan, you must provide collateral. The collateral, such as real estate or inventory, must outlast the loan. The advantage of a secured loan is that it usually has a lower interest rate than an unsecured loan.

Unsecured loans generally have a higher interest rate because the borrower does not have collateral to be claimed by the lender if the borrower defaults on the loan. You will only be able to receive this type of loan if the lender considers you to be low-risk. That generally means that your company has been profitable and the lender considers your business in sound condition.

How do Small Business Administration loans work?

The governmental body known as the Small Business Administration (SBA) doesn’t directly loan money to small business owners. Instead, it works with partner lenders to make it easier for small businesses to get loans.

The SBA guarantees a portion of the loan, meaning if the borrower defaults, and the lender can’t recoup its costs from the borrower, the SBA will pay that amount. This makes the loans slightly less risky for a lender, which in turn improves the likelihood of approval to a borrower it may not have otherwise approved.

The advantages of SBA-guaranteed loans are long borrowing terms, low interest rates, and high borrowing amounts. Another plus is that some of these loans will offer support to help borrowers run their businesses successfully.

SBA-backed loans can range from $500 to $5.5 million dollars and can be used for almost any business need. Generally, they require lower down payments, and collateral isn't always needed.

To qualify for an SBA loan, the business must be physically located and operate in the United States or its territories. It must also be officially registered and a legal entity.

To apply for an SBA loan, you must provide a statement of purpose, a business plan, and financial statements, including a cash flow statement, income statement, balance sheet, and personal financial statement.

To increase the odds of getting a loan, it’s essential that you establish a business credit profile as soon as possible.

Steps to take before you apply for a business loan

1. understand your options..

Applying with the right lender is as important as choosing the right business loan. When researching your loan options, look into banks and other lending institutions that offer business loans. While large banks can fund more significant loan amounts, alternative lenders may provide quick approvals and have less stringent funding requirements. Working with a local bank also allows you to develop a rapport with the lender. Having that personal connection can afford you more flexibility in the future.

[Read more: A Breakdown of Business Loan Types ]

2. Build/maintain good credit.

One of the first things a lender will look at when determining whether to approve you for a loan is your credit score. Your credit score is a snapshot of your lending history, including how many lines of credit you have open, if you pay your bills on time, and if you’re using your current credit responsibly and effectively. Other factors lenders may consider when reviewing your business loan application include:

• Your experience in your industry.
• How long your company has been in business.
• Your company’s reputation with your customers and other industry competitors.

If your business is relatively new, a large bank is less likely to approve your business loan application, and alternative lenders and local banks may ask to see your personal credit score to help inform their decision. However, even if you don’t qualify for a business loan, you may be eligible for a business line of credit, which you can use to help build and improve your business credit score, helping you secure larger business loans in the future.

3. Prepare your documents.

Good financial records become especially important when applying for a business loan. Your bookkeeping and accounting processes should include tracking your assets, revenue, debt, and expenses. For a business loan, you’ll need to provide proof of cash flow and accurate financial projections. Lenders will want to see your financial reports and realistic forecasts with the loan factored in to accurately estimate your business’s future revenue and expenses.

Once you have your financial documents in order, you can determine how much you’ll need for your business loan. If your loan sum exceeds what you need, you could wind up paying unnecessary accumulated interest. On the other hand, if you request too little, you might need to apply for an additional loan, which will come with its own interest rate and payment plan..

When you have your loan estimate, review the potential loan terms against your business’s other financial obligations to determine what you can actually afford. If your loan estimate is more than you can afford, consider lowering your loan estimate or seeking a different loan option.

4. Follow best practices.

Making a mistake in the application process could prove costly for your financial future. Some best practices to keep in mind include:

• Think like a lender. Once you’ve completed your loan application, review everything from a lender’s perspective to ensure you’ve provided everything they would want to see in order to approve your loan. Your application is your chance to prove yourself a competent borrower.
• Be prompt and thorough. If a lender requires additional documentation, send it as soon as possible. Banks and lenders review many loan applications, and prolonging the application process may affect their decision to approve your loan. Provide more information than what the bank asks for if you can, so you can avoid delaying the process by having to provide additional documentation
• Be accurate. Like applying for a job, padding your loan application may negatively affect your chances of getting a loan. Banks and lenders want to work with borrowers they can trust. So, review your financial documents carefully to ensure they accurately reflect your business’s finances, and its earnings and growth potential.

Is a loan your best option?

You need to decide if you really need a loan or if your main issue is related to cash flow. If cash flow is what’s causing the financial difficulties, you may be able to figure out a way to accelerate your receivables, even if that means offering customers a slight reduction in price for paying their bills early.

Decide if a loan will help you achieve the goals in your business plan. If you don’t already have a business plan, write one. A formal business plan will give you a better idea of what you need to accomplish with a potential loan and how large a loan you need. It’s an important step because most lenders will require a business plan if you decide to pursue a loan.

[Read more: How to Write a Business Plan ]

Questions lenders will ask

Since lenders are also business people who need to make a profit, the first question you’ll get is, “Can you repay the loan?”

Lenders will determine this about you by reviewing your credit history and financial statements.

The three main criteria lenders use to decide whether to approve you for a loan are:

• Your personal credit score.
• Your time in business.
• Your annual revenue.

Depending on the lender — for example, a traditional bank versus an online lender — some factors will be more important than others.

Young companies may have a harder time securing a loan because they don’t have a track record. To increase the odds of getting a loan, it’s essential that you establish a business credit profile as soon as possible.

Lenders will also question if you have a backup plan if your reason for obtaining the loan is unsuccessful. For example, if the loan is to fund a project designed to increase revenue, and that doesn’t happen, they’ll want to know if you can still make your regular loan payments.

Before applying for a loan, try to get your credit score in the best shape possible. Also, start gathering the paperwork you’ll likely need, including:

• Business financial statements, like a current profit and loss statement from the last three fiscal years, a cash flow statement, and your balance sheet.
• Bank statements from the last three months.
• Personal and business income tax returns for the last three years.
• Ownership and affiliations, including any other business you have a financial interest in and any partners in your business.

[Read more: 2023 Small Business Financing Trends ]

Borrower beware

As in any business transaction, you must be sure that you are being treated fairly. Watch out for these lending practices:

• Lenders who impose unfair terms on borrowers, either by deception or coercion.
• Interest rates that are significantly higher than those offered by competitors.
• Fees that are more than 5% of the value of the loan.
• Being asked to lie on the paperwork.
• Being told to leave signature boxes blank.
• Being pressured into taking a loan.

Before finalizing a loan agreement, consult an attorney, financial planner, or accountant to determine when you need the money and how much you need.

This story was updated by Julianna Lopez.

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How to Apply (and Get Approved) for a Business Loan

Table of Contents

Many small businesses require loans to start out or scale up, but the process of applying for a small business loan can be confusing. Submitting a loan application can be an intimidating process because it requires you to give a bank or credit union significant information on your business’s financial performance and projections.

Fear not! Landing a small business loan doesn’t have to be difficult. It just takes a little knowledge to navigate the application process and best position your business for lender approval. This guide will walk you through the process of securing a small business loan from start to finish. We’ll also introduce you to the concept of alternative lending, which might be useful for businesses unable to qualify for a conventional small business loan.

A small business loan is a type of financing provided to an entrepreneur for the express purpose of opening or growing a small business. This includes term loans from banks and credit unions. Depending on the lender, small business loans could range in value from a few hundred dollars to several million.

Small business loans are generally among the more affordable types of funding. Depending on the lender’s requirements and the borrower’s circumstances, the interest rates for small business loans generally range from 2% to 8%.

What is the most common type of small business loan?

One common type of small business loan is the U.S. Small Business Administration (SBA) 7(a) loan . The SBA administers this program through banks, which are the actual lenders, but the SBA guarantees the loan. This reduces risk for the lending institution if the borrower defaults. The reduced risk lowers costs and opens up approval to a wider swath of candidates. SBA 7(a) loans range in value from $500 to $5.5 million.

How do you repay a small business loan?

Most small business loans are structured in a familiar way. The lender provides a principal amount, which is paid back with interest over a predetermined amount of time. For example, if a bank gives a business a one-year loan of $10,000 with an annual percentage rate (APR) of 10%, the borrower usually pays back the loan plus interest in 12 monthly installments. In this case, the monthly payment would be about $880. When the loan is fully repaid, the borrower will have paid the lender the principal amount of $10,000 plus $550 in interest payments. You can use a loan repayment calculator to determine the monthly payments and total amount of interest paid over the life of the loan. 

Editor’s note: Looking for a small business loan? Fill out the questionnaire below to have our vendor partners contact you about your needs.

If all that sounds good, you might be ready to apply for small business lending. Before you rush off to the bank and fill out the paperwork, though, take some time to organize your documentation and consider what the lender will want to see. Taking these steps prior to filling out your loan application will improve your chances of approval.

How to apply for a business loan in 7 steps

Every lender is different, but these are the common factors that influence a loan application – with a look at why they matter.

1. Prepare documentation.

“Applying for a conventional small business loan can be challenging,” said Rob Misheloff, founder of Smarter Finance USA. “Many providers (particularly banks and SBA lenders) don’t specify their requirements for qualification. Consequently, many small business owners spend hours preparing documents for conventional loans only to be denied, which can be a daunting and frustrating process.”

Misheloff recommends preparing the following documents before applying for a loan:

• Two to three years of financial statements and/or tax returns
• Accounts receivables reports
• A minimum of three months’ worth of bank statements
• A business plan
• Proof of ownership

2. Review your credit score.

For an unsecured business loan, a lender will examine your personal finances, including your credit history. In this case, you will be the individual guaranteeing the small business loan, so your personal finances matter to lenders.

“Maintain a good personal credit score,” said Rob Stephens, founder of CFO Perspective. “Banks will require a personal guarantee on the debt, so good personal finances improve the odds of getting a loan.”

3. Gather financial documents.

If your business is already established, your cash flow is an important consideration for a lender. They will examine your sales, revenue and expenses to determine whether you will have sufficient liquid capital each month to meet your repayment obligations.

“You need to gather cash flow statements for at least the last year,” said Jesse Silkoff, founder of MyRoofingPal. “Have them looked at by a professional so you can make sure everything is in order.”

You should also prepare other financial statements such as your balance sheet and income statement. Lenders will use your balance sheet to decide whether your assets, liabilities and shareholder equity make you likely or unlikely to repay your loan. Your income statement will show lenders your profits or losses during a quarter or year, further attesting to whether or not you’ll be a low-risk borrower.

Your cash flow, balance sheet and income statements aren’t the only things that might concern a lender. The debt-to-income ratio shows how much you’ve leveraged your business already. If you have a significant amount of debt on the books, it will be harder to secure another loan. Usually, lenders prefer to see less than a 30% debt-to-income ratio when issuing a new small business loan.

4. Create a business plan.

Before you receive a small business loan, the lender will likely want to know your plans for the money. After all, their interest is now dependent on your continued business success. Bring a detailed business plan to your lender to help convince them you’re a safe bet.

“Once you have your documentation and reports assembled, you need to write up a business plan,” Silkoff said. “Keep in mind the goal here is to show your company is financially stable and to define a use for the funds you hope to receive.”

A business plan is critical, Stephens added, especially when you don’t have a sufficient history of strong cash flow to persuade a lender. “Be ready to show a history of steady, strong cash flow, or a business plan with a strong likelihood of sufficient cash flow to repay the debt.”

5. Consider your collateral.

Sometimes a lender will require you to put up collateral to guarantee a loan. Collateral is some asset of value that a lender can fall back on if you default. For example, when you take out a mortgage to buy real estate, that real estate becomes the collateral. Foreclosure occurs when a borrower defaults on a mortgage and the lender claims the property as recompense.

6. Consider which loan to apply for.

Earlier, we mentioned that SBA 7(a) loans are the most common type of small business loan. That doesn’t make them your only option. You can also pursue business lines of credit, microloans, short-term loans and equipment financing. We’ll explain these types of loans – and how your application process may differ based on the loan type – in more depth later in this guide.

7. Assemble and submit your application.

Prepare all your verification documents ahead of time. This includes tax returns, cash flow statements and bank statements. Depending on the size of your business and the type of loan you apply for, you may need to provide these documents for your business and your personal finances.

Once you’ve applied for a loan and submitted all the necessary documents, the ball is in the lender’s court. They’ll review your documentation and determine whether you should be approved or denied for the loan.

How long does it take to get approved for a small business loan?

Loan approval can take a few weeks or a few months, depending on the lender and specific type of small business loan. SBA 7(a) loans, for example, can take up to 90 days to approve. A small business bank loan, on the other hand, could be approved in as little as two weeks.

If you need funding tomorrow, a small business loan won’t cut it. Small business loans are intended for starting or growing a business, not providing working capital. If you need money quickly to keep the lights on and the employees working, consider alternative lending options like a merchant cash advance or invoice factoring. These options are much more expensive than a small business loan, but they can provide funding in as little as 24 hours.

What repayment terms can you get for your small business loan?

While small business loans vary by specific type and lender, they tend to have several things in common. These are some of the elements of a small business loan you are likely to see regardless of the lender you approach:

• Short terms: Small business loans tend to be short-term loans, with many ranging from three to five years. However, some small business loans carry up to a 10-year term. It’s also not unheard of for SBA 7(a) loans to come with a 25-year term, but these circumstances are less common.
• Fixed interest rate: Most small business loans have a fixed interest rate. This means the APR the lender quotes to you will remain the same over the life of the loan if you are approved. A fixed interest rate makes repayment easier than with a variable interest rate, which can fluctuate with the market.
• Value: While small business loans can reach the multimillions in value, most range from $10,000 to $500,000. These loans are commonly used to start or expand a business, such as buying inventory and equipment, securing a location, and so on.

There are also repayment terms beyond the structure of the loan to look out for, Misheloff said. Two big ones are blanket liens and covenants.

“[Blanket liens are] a lien on every asset owned by the business,” Misheloff said. “Blanket liens can restrict further borrowing capabilities because they can restrict another lender’s ability to repossess assets or otherwise seek remediation of a loan gone bad.

“Loan covenants may stipulate that certain ratios (i.e., debt to assets or profitability ratios) must remain within a certain range,” he added. “If the ratios fall below a certain number, the loan may become due and payable immediately.”

Understanding the repayment terms of a loan, from the structure to individual clauses in the deal you sign, is critical to successfully paying it back. If possible, have an attorney review the terms of a loan alongside you before you sign. [Read related article: Hidden Gotchas in Your Business Loan Repayment Terms ]

Types of small business loans to consider

Below are several types of small business loans that might fit your company’s needs. Learn more about these loan types on our business loan best picks page.

Secured vs. unsecured loans

A secured loan means there is an asset the lender can seize if you default on the loan. This is known as collateral. Property and equipment loans often use the asset you are buying as collateral. Other types of loans may require you to put up business or personal assets as a form of collateral. Unsecured loans require no collateral. If you default on the loan, the lender’s only recourse is to sue you for the balance owed.

Business line of credit

A business line of credit offers you flexibility. You’ll have access to credit when you need it, and pay interest only on what you actually borrow. This type of credit is revolving, allowing you to pay down the balance and then take out money when you need it.

Unlike government loans, private companies administer business lines of credit. Our top recommendation for business credit line companies is Fundbox. It keeps the process transparent and simple, offering up to $150,000 in credit with terms spanning three to six months. You’ll also receive your funding quickly after you apply. Learn more about why Fundbox might be right for you in our Fundbox business line of credit review .

SBA loans are often a slower process, but they can provide you with a larger loan amount. The application process can take a few months. There is an express loan option, but it will still take a few weeks to a month for your funds to arrive after approval. The SBA says that loan amounts range from $500 to $5.5 million.

According to Investopedia , microloans are usually peer to peer. This means one individual will lend money to another individual. One person may finance the entire loan, or many investors may lend a small portion of the overall loan.

Microloans carry a higher interest rate because they are considered higher-risk loans. They are normally unsecured. They are a good option for those who don’t qualify for other types of loans and those who need a small amount of money quickly.

If microloans sound right for you, we recommend getting yours through Accion. The company’s microloans can be as low as $500 or as high as $150,000. It specializes in working with small business owners who have low credit scores or belong to marginalized groups (or both). Learn more about its offerings in our Accion microloan review .

Short-term loans

Short-term loans can give you the cash you need in as little as 24 hours. The terms are generally one to three years. If you need a loan and know you can pay it back quickly, they are a good option.

Merchant loans 

According to Lendio, merchant loans carry a higher interest rate, as much as 18%. However, the requirements are less stringent than most types of loans. After you receive the loan, a percentage of your daily deposits are transferred to the lender.

Equipment financing

Equipment loans have lower requirements as well, because the equipment serves as collateral. Equipment loans can be used for any type of equipment that’s necessary for your business. A new laptop, manufacturing equipment and a commercial printer are a few examples.  

Traditional vs. alternative lenders

In addition to different types of loans, there are different types of lenders. Traditional lenders are banks and other traditional financial institutions. Alternative lenders generally have lower approval requirements and a more straightforward or flat-fee structure.

Traditional bank loans charge monthly interest based on your current balance. Alternative lenders often charge a flat interest fee with no penalty for paying off the loan early. They usually have daily or weekly payments instead of the monthly payments that are standard for bank loans.

What are common mistakes to avoid when applying for a business loan?

Once you’re approved, it might be appealing to grab the money and run, but take a breath and think things through first. Make sure you avoid the most common mistakes small business owners make when accepting a small business loan.

Borrowing too much money

This might seem obvious, but borrowing money means you’ll have to pay it back with interest. If you don’t have the ability to repay your loan, you’re going to default. That means hard-to-repair damage to your credit score and the loss of any collateral you put up to secure the loan. If you personally guaranteed the loan, a default would also damage your personal credit score and put your own assets on the line, including your home.

“Small businesses shouldn’t borrow more than they can afford to pay back,” Misheloff said.

The moment you are approved for a loan, you should examine the terms and craft a repayment strategy. Debt is a useful tool for an entrepreneur, but failure to plan for how you’ll repay that debt could start a vicious cycle of taking out more loans to cover your existing debts.

Failing to maintain strict documentation

Strict documentation, both of the loan agreement and your business’s financial performance, can help you satisfy the terms of a loan with ease.

“Get a copy of the loan documents before you sign them, and actually read them,” Stephens said. “If you don’t want to read them, pay a CPA or attorney to read them.”

Stephens also recommends keeping a detailed cash flow projection to identify when your cash might be low ahead of time. That way, you can prepare to find additional liquid capital to service your debt, rather than be taken by surprise.

Triggering defaults by accident

Defaults are often associated with missed payments, but other issues could lead to default, depending on the terms of the loan.

“Realize that loan default can be triggered by many things other than missing payments,” Stephens said. “It may be caused by failing to comply with any terms of the agreement, a false statement by the borrower at any point to the lender, or a material adverse change in the borrower’s financial condition.”

Avoid triggering defaults by always paying on time and thoroughly understanding all the repayment terms of the loan. If you maintain strict documentation, you can periodically review the terms of the loan to ensure you remain compliant.

Can you qualify for a small business loan with bad credit?

Typically, small business lenders look for borrowers with a credit score that’s at least in the mid-600 range. Some lenders are more willing to work with low credit scores than others, though, so shop around before giving up.

“Local banks can sometimes be more forgiving and offer more favorable rates,” Silkoff said.

However, if even local banks won’t look twice at your application because of a bad credit score, there are other loan options for businesses with bad credit . Generally, these are provided by private companies known as alternative lenders or online lenders. They tend to be more expensive, but they’re also more flexible in how the loan can be used, and the loans tend to be approved more quickly than conventional small business loans.

Borrowing responsibly can grow a business

Taking on debt isn’t necessarily a bad thing. It can help you grow your business and position yourself for future success that would not be possible otherwise. However, irresponsible borrowing puts a business at risk of financial ruin. If you’re considering taking out a small business loan, consult with a professional accountant first.

It’s also wise to have an attorney review any loan documents before you sign them. Finally, when accepting a loan, have a clear strategy to pay back the lender. If you keep those aspects of borrowing in mind, you should be able to make a small business loan work for you.

Max Freedman contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article .

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How to Properly Write a Business Loan Request

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Have to submit a business loan request letter as part of your loan application? Not sure how to get started?

We don’t blame you. These kinds of letters aren’t as common as they used to be. While online lenders don’t usually ask for small-business loan requests, some traditional banks and credit unions still do. And if you apply for an SBA business loan (a loan backed by the US Small Business Administration), you’ll need a small-business loan request as part of your loan application package.

No matter which lender you’re applying with, this guide will help you write a strong business loan request letter―and to get the business loan you need.

How to write a business loan request letter

• Start with the easy stuff
• Write a brief summary
• Add information about your business
• Explain your financing needs
• Discuss your repayment plan
• Close the letter

1. Start with the easy stuff

Writing a loan request can feel overwhelming. After all, it’s not an everyday part of being a small-business owner. What do you say when applying for a bank loan? How do you write a business proposal for your loan application? What’s your lender even looking for in a business loan request letter?

That’s why we suggest starting your request writing process with the easy bits: formatting.

You’ll want to begin your business loan request with some pretty standardized formatting that includes your contact information, the date, your lender’s contact information, a subject line, and a greeting.

Typically, you’ll want to format the beginning of your small-business loan request roughly like this:

First and last name

Business’s name

Business’s phone number

Business’s address (this one is optional)

Lender name (or loan agent’s name and title, if you have one)

Contact information for your lender or loan agent

Subject line

Obviously you can simply plug in the relevant information for most of this. Easy peasy, right?

You’ll really only have to come up with your own subject line and greeting. But don’t overthink it. Something like this will work just fine for your subject line:

• Re: [Your business’s name] business loan request for [loan amount]

Likewise, keep your greeting simple. “Dear [lender]” or “Dear [loan agent]” will do quite nicely.

Got all that? Then you’re ready to get into the actual loan request.

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2. Write a brief summary

Before you dive into the meat of your loan request, you should give a brief summary of your letter. Just write a short paragraph that says why you’re writing and what you want.

So you’ll probably want to include the following details:

• Business name
• Business industry
• Desired loan amount
• What you’ll use the loan for

No need to get fancy with this. You’re trying to condense the most important information into one or two sentences.

For example, your summary might look something like this:

• I’m writing to request a [loan amount] loan for my small business in the [industry name] industry, [business name]. With this loan, [business name] would [describe your intended business loan use].

As you can see, you don’t need much detail here. You’re just giving the reader a quick overview of what’s to come.

And now that you’ve given them that preview, it’s time to get more in depth.

Remember, your lender isn’t here to grade your writing. Try to use good spelling, grammar, and punctuation―but don’t stress about crafting beautiful sentences.

3. Add information about your business

Your next section should add more detail about your business. You’ll want to include information like this:

• Business’s legal name (if different than name used)
• Business’s legal structure (LLC, partnership, S corp, sole proprietorship, etc.)
• Business’s purpose
• Business’s age (or date it began operating)
• Annual revenue
• Annual profit (if applicable)
• Number of employees

Now, keep in mind that you’re not trying to give your reader an encyclopedic history of your business. Instead, you’re trying to show that you have a well-established business―one that’s solid enough to deserve a business loan. So focus on relevant details that show your business’s maturity.

You can keep this section as short as a few sentences or as long as a few (brief) paragraphs. Just make sure you leave plenty of room for the next two sections.

4. Explain your financing needs

After discussing your business, it’s time to explain why you need a bank loan.

That means you’ll want to offer some details about how you plan to use your business financing. For example, you can talk about the employees you plan to hire, the building you want to expand, or whatever else you intend to do with your term loan .

Take note, though, that you also need to explain why your loan request makes sense. Because your lender doesn’t really care that you want a loan―it cares whether or not it makes sense to lend to you. You need to convince your lender that you have a good plan for your loan―one that will make it easy to repay the money you borrow.

Try to answer questions like these as you write this section:

• Why should your lender want to approve your loan application?
• What happens to your business if you get your small-business loan?
• What kind of growth will your business loan allow for?

Dig into your business plan and projections to find some good stats. Explain how hiring those additional employees will increase your revenue by a certain percentage or dollar amount. Break down how opening that add-on to your restaurant will allow you to seat a number of additional customers, and how much revenue you expect that to bring in.

The more specific you can get, the better. Because again, you’re trying to convince your lender that you’re borrowing as part of a thoughtful business plan ―not just because you want some cash.

And take your time with this part. In most cases, this section and the next one will form the meat of your business loan request letter. 

As a rule, you should keep your business loan request letter to one page.

5. Discuss your repayment plan

By this point, your lender should understand what your business does and why a loan would help it grow. Now you need to prove to your lender that you can repay your small-business loan.

This doesn’t mean you have to show precise calculations breaking down your desired interest rate and monthly payment. (After all, your bank probably hasn’t even committed to a specific interest rate yet.)

Instead, talk about things like your business’s past finances, other existing debts, and any projections can you offer.

So if you have a profitable business, point that out, and discuss how that will free up cash flow to repay your loan. Offer summaries of profit-and-loss statements that show your business has been growing. Tell your lender how you’ll pay off that existing loan within a few months, so they don’t need to worry about it interfering with repayment of your new term loan.

Put simply, this is your chance to convince your lender of your creditworthiness. Especially if you have a slightly low credit score or some other concern, you want to use this section to show that you will absolutely repay your loan.

6. Close the letter

Finally, you can add a few finishing touches.

Usually you should close with a short paragraph or two that refers the reader to any attached documents (like financial statements) and asks them to review your loan application.

You may also want to include a sentence expressing willingness to answer any questions―or just saying you’re looking forward to hearing back.

Then end things with your signature, list any enclosed documents, and you’re done!

Well, sort of.

At this point, we strongly recommend you print off your business loan request letter and read it―out loud, if possible. This will help you catch any errors. Because no, your lender isn’t a writing teacher, but you still want to make a good impression.

Plus, if you make typos on something like your business name or desired loan amount, that inaccuracy could lead to confusion from your lender―slowing down your loan approval process.

Once you’ve proofread your loan request letter, you’re ready to submit it to your lender. With any luck, your thoughtful letter will help convince your lender to give you that loan you want.

Loan proposal letter template

So how do all those steps look when you put them together? Something like this:

            First and last name

            Business’s name

            Business’s phone number

            Business’s address (this one is optional)

            Date

            Lender name (or loan agent’s name and title, if you have one)

            Contact information for your lender or loan agent

            Subject line

            Greeting

This first paragraph should summarize the rest of your letter. Keep it to just a couple sentences.

The next one to three paragraphs add more detail about your business. Include facts about its age, revenue, profit, employees, and other relevant information.

Then explain why you need financing and how you’ll use it to grow your business. This section can be a little longer (but remember your whole letter  should fit on one page).

Next, talk about how your business will repay your loan. You may want to mention how financial documents show your business’s financial health, for example.

Finally, close with a short paragraph or two that list any enclosed documents and invite the lender to consider your loan application.

Printed name

List of enclosed financial documents

That’s not so hard, is it? With this basic business loan request letter template, you can easily write your own personalized business loan proposal.

The takeaway

So there you have it―that’s how to properly write a business loan request.

Get your formatting right, include a short summary, talk about your business, explain your loan needs, prove you can repay your loan, and close things off. (And don’t forget to proofread.)

We believe in you. You can write this thing.

And good luck getting your loan application approved!

Don’t just tell your lender you can repay your business loan―make sure you can with our business loan calculator .

Related reading

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• 6 Most Important Business Loan Requirements
• How Long Does It Take To Get a Business Loan?
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Fueling Your Growth: A Guide to Startup Business Loans

16 Minutes Read

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Secure Funding for Your New Startup Business: How to Get a Startup Loan

Kristal Sepulveda, CPA

May 8, 2024

Did you know that 74% of Americans have come up with a business idea? But, between the initial concept and acquiring customers, there often lies a significant hurdle: funding . Startup business loans can bridge this gap.

In this article, explore the various financing options available to aspiring entrepreneurs like you and learn how to successfully navigate the process of securing the capital needed to bring your entrepreneurial vision to life.

Further reading: Fast and Easy Funding: Exploring Easy-Approval Startup Business Loan Options

Unleashing Capital Potential

Overview of startup business loans.

Startup business loans are vital for entrepreneurs eager to start a business and need substantial working capital to cover initial expenses such as equipment, inventory, and salaries. These loans provide the necessary funds to start and expand operations.

New business owners look to establish themselves in competitive markets. Effective financial support can significantly influence a startup's ability to thrive, making these loans a strategic asset beyond mere financial aid.

Types of Startup Business Loans

For financing a new business, entrepreneurs have several loan options, each tailored to different needs and stages of business development:

• Traditional Business Loans : Offered by banks and credit unions, these are preferred due to their lower interest rates and longer repayment terms but require a good credit score and comprehensive business plan.
• SBA Loans : Backed by the Small Business Administration (SBA), these loans are designed to help those who might not qualify for traditional business loans, offering favorable terms and lower rates.
• Alternative Lending : Includes online lenders that provide quicker approvals and less stringent requirements but may have higher rates. Ideal for business owners with bad credit or those who need quick funding for their startup .
• Microloans : Particularly beneficial for small business owners starting out with smaller capital needs.
• Equipment Financing : Tailored for buying business equipment, with the equipment itself often serving as collateral.

Identifying the Right Funding Accelerator

Selecting the right loan program depends on the startup's stage, industry, financial health, and long-term goals. For example:

• Early-stage businesses may find SBA microloans or alternative lending more accessible.
• Manufacturing or restaurant startups needing equipment might benefit from equipment financing.
• Established businesses with solid financials and a good credit history might opt for traditional business loans or comprehensive SBA options.

Analyzing your startup's requirements and matching them to the appropriate loan type ensures that you get the best possible funding to meet your specific needs.

Further reading: Find Free Funding: Small Business Grant Opportunities for Startups

Tailoring your loan choice for rapid growth.

To align your financing choice with your business growth objectives, consider the following:

• Scalability : Opt for loans that offer flexibility to accommodate future growth, such as increased credit lines.
• Cost-effectiveness : Factor in the total cost of the loan, including interest rates and fees, to ensure it supports financial stability.
• Purpose-specific financing : Match the loan type with your funding needs—use equipment loans for machinery purchases to avoid higher costs associated with more general loans .
• Review terms and conditions : Ensure the loan’s repayment schedule aligns with your business’s cash flow to avoid financial strain.

Carefully choosing the right type of loan is critical for business owners aiming to start and grow their businesses effectively. This strategic financial planning supports not just the launch but the sustainable growth of your startup.

Streamlining the Process

How to apply for a startup loan.

Applying for a startup loan is an integral step in securing funding for your business. Here’s how to effectively navigate the application process:

• Assess Your Financial Needs : Determine the loan amounts needed to fund your business. Consider all aspects, including operational costs and capital for growth.
• Choose the Right Financial Institution : Research various financial institutions, including small business lenders and credit unions, to find options that fit your needs.
• Gather Necessary Documentation : Prepare essential documents such as financial projections, a business plan, personal and business credit reports, and past tax returns.
• Check Credit Reports : Review your personal credit and business credit reports. Correct any discrepancies before you start the application process .
• Develop a Solid Business Plan : Your business plan should detail your business model, market analysis, and financial projections. Review your business plan carefully as it's a significant part of your application.
• Submit Your Application : Apply for a loan by filling out the necessary forms and submitting your documentation. Ensure all information is accurate to avoid any delays.
• Follow Up : Maintain communication with the lender to track your application's status and provide any additional information if required.

Increasing Approval Odds

To boost your chances of getting approved for a loan, consider the following strategies:

• Improve Credit Scores : Both personal credit and business credit scores are vital. Pay down personal loans and business debt and avoid high credit card balances.
• Offer Collateral : Collateral can secure the loan, providing the lender reassurance and potentially reducing interest rates.
• Enhance Your Business Plan : A comprehensive business plan shows the lender you have a clear strategy for using the loan funds.
• Capital Injection : Demonstrating that you have invested personal funds into the business can make a significant impact on the lender’s decision.
• Prepare for Financial Scrutiny : Be ready to explain how you will repay the loan and how the loan funds will be utilized in your business operations.

Building a Compelling Case for Your Business

To effectively secure funding, present a compelling case to potential lenders:

• Demonstrate Market Viability : Use market research to highlight the demand for your product or service and outline your competitive advantage.
• Show Financial Prudence : Present detailed, realistic financial projections that show your capacity to manage business debt and repay the loan.
• Personal and Business Credit History : A strong credit report without significant blemishes can increase confidence in your financial responsibility.
• Detail Management Expertise : Showcase your experience and that of your management team to reinforce your capability to lead a successful business startup.
• Establish Relationships with Lenders : Building a rapport with your lender can provide an advantage, particularly when seeking loans from institutions that value personal connections, like small business lenders and nonprofits.

By thoroughly preparing for and understanding the loan application process, you increase your ability to get a startup business loan that fits your needs and supports the growth and sustainability of your business startup.

Beyond the Basics

Recognizing the trade-offs.

In considering different types of startup loans, it's essential to be aware of the potential risks and downsides, which can vary by lender and loan type:

• Interest Rates and Fees : High-interest rates on some business credit cards or line of credit options can escalate the total cost of borrowing. These costs need careful consideration as they impact financial health.
• Collateral Requirements : Secured loans, including many SBA loans, require collateral which might put business assets at risk if the loan cannot be repaid.
• Equity Financing : Utilizing equity or crowdfunding platforms involves sharing a portion of business ownership. This might dilute the business owner’s control over their company.
• Flexibility and Terms : Term loans provide funds with a fixed repayment schedule, whereas lines of credit offer flexibility but might carry variable interest rates that vary by lender.
• Specialized Lenders : Some loan alternatives, like those from nonprofit lenders or industry-specific finance options, come with stringent usage rules about how funds can be used, which might not fit every business model.

Building a Strong Financial Foundation

Effective management of a startup loan maintains and builds financial stability. Here’s how to ensure responsible management:

• Comprehend Loan Agreements : Be sure you fully understand the terms and conditions, as loans may have specific stipulations about usage and repayment that vary by lender.
• Timely Repayment : Consistently meeting repayment obligations helps in building a positive business and personal credit history.
• Use of Funds : Strategically use the borrowed funds to generate income, which can be reinvested back into the business to fuel growth and ensure you can comfortably repay the loan.
• Cash Flow Management : Monitor cash flow meticulously to ensure that operating expenses and loan repayments are well-managed without compromising business operations.
• Refinancing Opportunities : Keep an eye on opportunities to refinance high-cost loans if your business credit improves or if better terms are available.

Importance of Bookkeeping and Tax Planning

Strong bookkeeping and tax planning are fundamental in managing the financial aspects of a startup efficiently:

• Diligent Financial Tracking : Use advanced bookkeeping software to keep precise records of all transactions, which simplifies managing business credit cards, loan funds, and other financial aspects.
• Understanding Tax Implications : Be aware of how different forms of funding affect your taxes. For example, interest on small business loans might be deductible, which can reduce tax liability.
• Professional Advice : Engaging with a financial advisor can provide insights into effective tax strategies and help in making informed decisions about business financing.
• Financial Reviews : Regular financial assessments can help in identifying areas for improvement in your financial strategy and ensure compliance with existing tax laws.
• Invest in Growth : Appropriately managing your finances allows for reinvestment in key areas of your business, which is crucial for scalability and long-term success.

Implementing robust financial management and planning practices from the start can significantly impact the stability and growth potential of your startup, making it beneficial to integrate these practices into your daily operations.

Key Takeaways: Startup Business Loans

What are the basic requirements to qualify for a startup business loan.

To secure funding for your startup, lenders evaluate several key aspects:

• Business Plan : Essential for demonstrating the viability and potential of your startup. This plan should detail your strategy for entering the market and gaining a competitive edge.
• Credit History : Both the owner’s personal and business credit histories are scrutinized. A solid credit score can significantly enhance your loan approval chances.
• Collateral : Some loans, particularly traditional ones, may require collateral as a security measure, which the lender may seize if the loan is not repaid.
• Time in Business : Although this criterion can vary depending on the lender, many financial institutions prefer businesses with at least six months to two years of operational history.
• Cash Flow Projections : Demonstrating that your business can generate sufficient cash flow to cover loan payments is vital.
• Legal and Financial Documentation : This includes items like business licenses, articles of incorporation, tax returns, and detailed financial statements.

How much can you borrow as a startup?

The amount you can borrow varies widely and depends on several factors, including:

• Lender’s Policies : Each financial institution or lender may have different lending caps, especially when it's about how much they’re willing to risk on a new business.
• Business Needs and Projections : The amount you can borrow is aligned with your startup’s projected financial needs and ability to repay.
• Creditworthiness : A strong credit profile may increase the amount a lender is willing to provide.

What is the average interest rate for startup business loans?

Interest rates can vary greatly:

• Type of Loan : SBA loans generally offer lower rates compared to other business loans due to government backing.
• Lender’s Risk Assessment : Higher risk may lead to higher interest rates. Factors include the borrower’s credit history and the business's financial health.
• Market Conditions : Economic factors can influence interest rates across the board.

Can you get a startup business loan with bad credit?

While challenging, it is possible to get a startup loan with less-than-ideal credit:

• Alternative Lenders : Some lenders may specialize in high-risk loans but at higher interest rates.
• Smaller Loan Amounts : Starting with a smaller loan amount can be a feasible option to prove creditworthiness.
• Guarantors or Collateral : Providing additional security can improve approval chances.

How long does it take to receive funds after loan approval?

The disbursement time can vary widely:

• Type of Lender : Traditional banks might take longer, sometimes several weeks, whereas online lenders might disburse funds within days.
• Loan Complexity : Larger loans or loans requiring more documentation may take longer to process.
• Efficiency of the Borrower : The speed at which a borrower can provide the required documents and meet the lender's requirements can also affect the timeline.

Understanding these elements can help prospective business owners make informed decisions when exploring financial options to start or expand their businesses. Each lender’s terms and the borrower’s financial readiness play pivotal roles in shaping the loan process and terms.

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What is an SBA loan and how do I qualify?

November 16, 2023 | 8 minute read En español

Answered by Jeremy Wilson SBA Product Manager Bank of America

A Small Business Administration (SBA) loan is supported by the U.S. Small Business Administration, which allows financial institutions to provide business loans with more favorable terms or more flexible underwriting criteria than conventional loans. Because they are backed by the government, SBA loans encourage banks to lend to companies they might not be able to work with otherwise. For small company owners who can’t qualify for a traditional business loan , these infusions of capital may be the ideal option.

How is an SBA loan different from a traditional business loan?

With the government backing SBA loans, lenders can provide business loans with less stringent credit standards and lower down payments than conventional loans. Repayment terms on SBA loans are longer than traditional loans, extended to up to 10 and even 25 years in some cases. Plus, on loan terms of less than 15 years, there is no prepayment penalty. This allows companies to preserve their cash for growth or other needs.

What types of SBA loans are available?

There are several types delivered through two categories of SBA-certified lenders. Institutions designated as preferred lenders are authorized to make final decisions on certain types of loans on behalf of the SBA, which can create a faster and easier process. Other approved lenders need to submit loan requests to the SBA for approval.

SBA 7(a) loans

SBA 7(a) loans can be used for a variety of approved purposes including the purchase or refinance of commercial real estate, new construction, expansion or renovation, working capital , and business acquisitions or partner buyouts.

• Working capital, improvements or refinancing
• Equipment, including machinery and vehicles
• Furniture and other office essentials such as printers, fixtures and more
• Purchasing, refinancing, building or renovating commercial property
• Business acquisition and partner buyouts

Loan maturity:

• Up to seven years for working capital
• Up to 10 years for business acquisition, partner buyouts and equipment
• Up to 25 years for owner-occupied real estate purchase, refinance and construction

Maximum loan amount:

SBA Express loan

This type of 7(a) loan is generally used for equipment and working capital.

• Purchase or refinance of owner-occupied commercial real estate

Advantages:

• Longer loan terms
• Lower down payments
• Easier to qualify
• Up to 10 years for equipment
• Up to 25 years for owner-occupied real estate purchase or refinance
• The maximum size is $500,000, so the process of qualifying for one is more streamlined and accelerated than other 7(a) loans.

SBA 504 loans

These loans are typically used for financing commercial real estate, including the purchase or refinance of existing buildings or land and new construction. They can also be used for equipment purchases. SBA 504 loans actually involve two loans — one from a private lender, which provides up to 50% of funding in first trust deed position, and the other from a Certified Development Company (CDC), a community-based partner that provides up to 40% in second trust deed position. The applicant typically only needs to provide 10% of the total project costs as a down payment. The CDC portion is guaranteed by the SBA. The bank’s SBA specialist and the CDC work together with the goal of making it seamless for the applicant.

Qualifying criteria:

• Your business must have a tangible net worth of less than $15 million.
• Your business must have an average net income of less than $5 million after federal taxes for the last two years.
• Buying land
• Financing long-term machinery
• Purchasing existing buildings
• Ground-up construction or renovation of an existing building
• Refinancing existing commercial real estate debt

Cannot be used for:

• Working capital

Economic Injury Disaster Loans (EIDL)

EIDL loans can be used to help a business recover from an emergency in a declared disaster area. They can be used for losses not covered by insurance or funding from the Federal Emergency Management Agency. The funds can also be applied to business operating expenses that could have been met in the absence of the disaster. These loans are typically — but not always — issued directly from the SBA.

• Loan size: The maximum loan amount is $2 million.
• Type: Term loan
• Term: Up to 30 years

How to apply for an SBA loan

Each type of SBA program is unique, and loans often revolve around how the money can be used and the terms under which it should be repaid.

To apply for an SBA loan, follow these steps:

Step 1: Know exactly what your business needs are

Be able to answer the following questions:

• Why do you need the money?
• How much do you need?
• How long will it take you to pay it back?
• What is the current financial health of your business?
• Do you have collateral to put up?
• How fast do you need the money?

The answers you give will help determine your best course of action. Once you know how much you need and how it will be used, the better equipped you’ll be to determine the best loan option for your business.

Purpose of the borrowed funds

Back up your request with facts that support how much you are asking to borrow. Lenders appreciate the effort, and it will give them the confidence they need to trust in your ability to pay them back.

Step 2: Identify a lender who can issue an SBA loan

Types of lenders that handle SBA loans

• SBA standard lender: This qualified lender must submit transactions for review and receive an SBA authorization upon approval for every loan.
• SBA preferred lender: This lender is the more qualified of the two types. Loan approval times can be reduced because the SBA checks only the lender’s determination of eligibility for the borrower, not their underwriting. Bank of America is an SBA preferred lender.

The SBA’s Lender Match tool can help.

Step 3: Know what lenders are looking for

The six cs of creditworthiness.

• Capacity: Can your business absorb unexpected expenses or a downturn in the economy?
• Capital: Do your assets outweigh your liabilities? How much capital have you and others invested?
• Collateral: This includes accounts receivable, inventory, cash, equipment and commercial real estate.
• Conditions: Certain factors, such as the economy, industry trends and pending legislation, may affect your ability to make payments.
• Character: Personal integrity, industry experience, credit history and good standing are critically important.
• Communication: Your willingness to communicate candidly with your banker and your other advisors about the opportunities and challenges your business faces is key to a productive financial partnership.

Step 4: Select the type of loan that best meets your needs

Below are common types of SBA loans. Availability, term and structure vary by lender.

• SBA 7(a) Loan
• SBA Express Loan
• SBA 504 Loan
• Economic Injury Disaster Loans

Use the information above to become familiar with your options.

Step 5: Provide an overall financial snapshot of your business and have necessary documents ready

Be ready to share details about the financial side of your business. Provide the lender with a comprehensive background on your company, future growth plans and your own personal information. The actions below will help boost your business’s financial standing.

• Maintain a good credit score
• Borrow only what you know you can pay back
• Present a repayment plan, complete with projections and a safety net
• Show a history of paying bills on time
• Provide collateral

For 7(a) and Express loans, look at the checklist the SBA has prepared before you apply to your lender. For a disaster assistance loan, you can start your application with the SBA online . If you’re applying for a 504 loan, we recommend setting up an appointment with a banker.

Step 6: Apply for your loan

Set aside an hour to complete the paperwork and reach out to your banker with any questions. Make sure to respond promptly to requests for additional information so the loan is processed promptly.

How long does it take to get approved for an SBA loan?

SBA loans take the same amount of time to get approved as a conventional loan for a similar purpose. A non-real estate loan can be approved and funded in approximately 30 to 60 days, while a real estate loan can be funded in approximately 60 to 90 days.

As a borrower, you can speed up the process by being actively engaged with your lender and providing the necessary documentation as quickly as possible. The faster you do that, the faster the lender can move forward.

Explore more

Get help finding the right products and services for your business

Financing options for small businesses

Important Disclosures and Information

Small Business Administration (SBA) financing is subject to approval through the SBA 504 and SBA 7(a) programs. Loan terms, collateral and documentation requirements apply. Actual amortization, rate and extension of credit are subject to necessary credit approval. Bank of America credit standards and documentation requirements apply. Some restrictions may apply. 

Bank of America, Merrill, their affiliates and advisors do not provide legal, tax or accounting advice. Consult your own legal and/or tax advisors before making any financial decisions. Any informational materials provided are for your discussion or review purposes only. The content on the Center for Business Empowerment (including, without limitations, third party and any Bank of America content) is provided “as is” and carries no express or implied warranties, or promise or guaranty of success. Bank of America does not warrant or guarantee the accuracy, reliability, completeness, usefulness, non-infringement of intellectual property rights, or quality of any content, regardless of who originates that content, and disclaims the same to the extent allowable by law. All third party trademarks, service marks, trade names and logos referenced in this material are the property of their respective owners. Bank of America does not deliver and is not responsible for the products, services or performance of any third party.

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• How to finance a new business

Last reviewed on May 10, 2024

Reading time: 11 min

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Page written by Rachel Wait . Last reviewed on May 10, 2024 . Next review due October 1, 2025.

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If you’re looking to grow your new business, it’s important to know how to finance it. Financing your business in the right way will provide a solid financial base and ensure you have sufficient funding to help your business succeed. 

There are many different ways to finance a new business and different methods will suit different business types, as this guide explains.

What is business finance?

Business finance is simply the funding a business needs to operate. You’ll need funds to start, run or expand your business. Having sufficient funds available to you will help drive your business forward, allowing you to buy raw materials, hire staff, invest in equipment and so on.

Finance is the foundation of any business as it’s almost impossible to succeed without it. 

What are the best ways to finance a new business?

There are several ways to finance a new business, so it’s important to research each one carefully to help you decide which is the right option for you and your business. 

Personal investments

Investing your own money into your business can be quicker than applying for finance and, as you’re not borrowing from anyone, you won’t need to pay interest. Using your own money can also help to show any future lenders that you’re confident in your company’s success. 

You might have a lump sum to invest in your business if you’ve saved up enough over the years or if you’ve received a large redundancy pay out or inheritance.

Funding from family and friends

It can also be worth asking family or friends whether they would be willing to invest in your business. They might agree to loan you a lump sum which you agree to repay over a set term, with interest added. Or they might ask for a stake in your company in return for their investment. 

The advantage of borrowing through family or friends is that interest rates can be lower. The downside is that if things go wrong, your relationship could be affected. 

Whichever option you choose, make sure you have an official written agreement stating how everything will work. It should explain whether the money is a loan, investment or gift and, if you need to repay the money, it needs to state how repayments will be made and over what length of time, as well as what happens if you can’t repay it. 

Business loans

Business loans are a popular way for companies to borrow money as they give you access to a lump sum of cash which you then repay in monthly instalments over a set term, with interest on top.

Many high street banks and online lenders offer business loans, meaning you’ll have a wide range of options to choose from. Just be aware that some lenders might be less willing to offer you a loan if you haven’t been trading for long and if you don’t have much of a business credit history. 

To increase your chances of acceptance, you’ll need a detailed business plan that outlines your goals and how you plan to use the money. It’s also important to ensure that the amount you want to borrow is affordable so that you can keep up with your repayments. A longer loan term can help reduce your monthly repayments, but this also means you’ll end up paying more interest, making it more expensive in the long run. 

Startup loans

A startup loan is a business loan specifically aimed at new UK businesses to help them launch and grow. It works in the same way as any other business loan, as you borrow a lump sum that is repaid in monthly instalments at a fixed rate of interest. This funding can help you to pay for concepts, testing, designs, machinery, premises, marketing and more.   

To qualify for a startup loan you must be at least 18 years old and living in the UK and your business must have been trading for no more than 36 months. You will also need to be able to show that you couldn’t obtain a loan from alternative sources. 

It’s possible to get a startup loan with a mainstream bank, but the primary source for startup loans is the UK government-backed startup loan scheme, which is offered by the British Business Bank. You’ll usually find that these loans offer lower interest rates compared to business loans provided by mainstream lenders. You can typically borrow between £500 and £25,000 over one to five years. 

Equity investment

Equity investment is another option you could explore and involves selling a stake in your business in exchange for investment. Equity finance investors will have a claim on your future earnings as a result, but you won’t need to worry about repaying the capital or paying interest. 

You might choose to have multiple rounds of equity financing from different types of investors, such as business angels, venture capitalists and private equity funds.

Business angels or angel investors are high net worth individuals who have the money to invest into a business. They typically prefer to invest in startups and early stage businesses, making them ideal if you’re just starting out. Because they are usually experienced entrepreneurs, as well as being able to take advantage of their investment, you can also benefit from their skills, knowledge and contacts, all of which can help your business to grow. 

Business angels usually invest between £50,000 and £500,000 and they might work on their own or as part of an angel network. 

By contrast, venture capitalists won’t invest their own money in your business; rather they will invest other people’s. They do this by setting up a fund for others to buy shares in the company. They usually invest larger sums and the return on investment is often higher too. 

Private equity funds are pools of capital to be invested in a company, making this more suited to established private businesses. The money managed by the fund usually comes from institutional investors such as large pension funds, insurance companies and sovereign wealth funds. 

While venture capitalists tend to invest upwards of £250,000 in high-growth startups and early stage businesses that need capital and business expertise, private equity firms tend to invest much larger amounts, say upwards of £5 million, in established businesses that need a cash injection or a new strategy to help move them forwards. In return, they will usually have a large or controlling share in your business. 

You can find out more about how to find investors for your business with our guide.  

Crowdfunding

Crowdfunding enables you to collect money from a large number of people via online platforms. Depending on the type of crowdfunding you use, these people might get a share in the company or a reward in exchange for their investment. As well as helping you to raise money, crowdfunding can also raise the profile of your business, which can boost its chances of success. 

If you want to raise money through crowdfunding, you’ll need to decide how much money you need and then create a campaign to show what your business has to offer and why you need the investment. This will be displayed on the crowdfunding website for a set number of days. Platforms you can use include Seedrs , Crowdfunder and Crowdcube .

Be aware that not all crowdfunding campaigns succeed and you’re likely to have better luck if your business has good growth potential and offers an innovative idea. If your business model is fairly traditional, crowdfunding might not be the right choice for you. 

Peer-to-peer lenders

Peer-to-peer lending is a type of business loan that’s offered by a number of private investors usually through an online platform. The idea is that it removes the need for financial institutions like banks and, instead, matches those who need to borrow money with those who have money to invest. Borrowers get better interest rates than they would with a standard loan, while investors can get a better rate than they’d get on a standard savings account. 

If you’re thinking of applying, you’ll need to complete an application form on a peer-to-peer lending website. Your risk profile will then be assessed and you’ll be given a credit rating. After this, you’ll be sent different options from proposed lenders with varying interest rates and you can choose the best one for your business. The stronger your business profile, the lower the interest rate on your loan.

Business grants

A business grant is a sum of money awarded to a business to help it grow and develop. You can choose to invest the money in training, equipment or reaching new markets, for instance. Business grants are usually awarded by the government or other companies and, unlike loans, they do not need to be repaid.

Across the UK, there are hundreds of different grants you can apply for, but these will often be targeted at specific industries, community groups or types of business, so eligibility criteria will be tight. Depending on your business, you might be able to choose from the following:

• Innovation grants, which are provided by funding bodies such as Innovate UK to support innovative ideas and business growth. 
• R&D tax credits , which are cash payments from the government to encourage companies to carry out research and development projects related to science and technology.
• The National Lottery Heritage Fund which provides grants to sustain and transform the UK’s heritage.
• Local Enterprise Partnerships, of which there are 38 across England. These are voluntary partnerships between local authorities and businesses that provide business funding, support and guidance in their local areas. 
• The Prince’s Trust which supports young people who want to start and run their own business.

When applying for a business grant, you’ll need to write a business grant proposal to explain what you plan to do, how your business meets the grant qualifying criteria and what success looks like as a result of taking on the grant.

You can view the many options available to you by  registering with Swoop . There’s a wide range of grants available across several sectors including grants for manufacturing, tech businesses, transport, energy, information and communication technologies, security, climate, aerospace, food, health, environment, and more. 

How to choose the right finance option for your business

To help you decide which finance option is right for your business, you will need to think about how much funding you actually need, factoring in how much it will cost to get your business off the ground as well as operating costs for the year ahead. You’ll need to ensure you have enough money to get your business started, but you should also avoid borrowing more than you can afford to repay as this can ultimately lead to financial difficulty.

You then need to consider which of the above funding options might enable you to borrow this sum of money. Go through the different types of funding available and consider the pros and cons of each to help you decide which one might be the best fit. 

Ask yourself whether you’re happy to offer people a stake in your business in return for their investment, or if you’d prefer to opt for a traditional loan, which you will need to repay with interest. If you’d prefer to take out a business loan, check that you will be able to comfortably afford the repayments. Bear in mind that UK government-backed startup loans are unsecured and offer a lower interest rate compared to business loans offered by mainstream lenders.

It’s also important to consider eligibility criteria. If you’re looking into business grants, for example, you’ll need to meet strict eligibility criteria to qualify. If you’re not eligible, you’ll need to look at alternative options. 

Similarly, if you have a fairly traditional business model, crowdfunding might not be the most appropriate route for you to go down. 

If you’re not sure which funding option is right for your new business, the team of experts at Swoop will be happy to talk through your options and help you find the best solution for you. Get in touch today.  

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Rachel has been writing about finance and consumer affairs for over a decade, helping people to get to grips with their finances and cut through the jargon. She's written for a range of websites and national newspapers including MoneySuperMarket, Money to the Masses, Forbes UK, and Mail on Sunday. Rachel has covered almost every financial topic, from car insurance and credit cards, to business bank accounts and mortgages.

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Biden's new student loan forgiveness plan would cost an extra $84 billion: report

Eliminating unpaid interest on student loans alone costs approximately $58 billion.

Much of the new plan is already covered under SAVE, but key new provisions raise the price tag considerably. ( iStock )

President Joe Biden's new student debt elimination proposal would bring relief for millions more Americans, but a Penn Wharton Budget Model (PWBM)  analysis  shows it could add another $84 billion to an already costly plan.

The Biden Administration  released a formal proposal  to provide student debt relief to over 30 million borrowers. The new plan also proposes to eliminate accrued interest for 23 million borrowers and automatically discharge debt for borrowers eligible for loan forgiveness under SAVE, closed school discharge or other forgiveness programs, even if not enrolled. Additionally, student debt for borrowers who entered repayment for 20 or more years would be discharged. The plan would also provide relief to borrowers who experience hardship in paying back their loans.

"These distinct forms of debt relief are designed for borrowers struggling with their loans – and that's a lot of people," Under Secretary of Education James Kvaal said. "There are 25 million borrowers whose interest is growing faster than they can pay it down. That fact alone shows how badly President Biden's student loan relief is needed."

PWBM said that the new plan would cost an extra $84.06 billion on top of the $475 billion price tag for the Saving on a Valuable Education (SAVE) Plan, bringing the total cost to around $559 billion for both plans. 

The biggest cost of the plan is waiving up to $20,000 for millions of borrowers whose balances have grown because of unpaid interest. That part of the plan is estimated to cost roughly $58 billion. The second-largest cost, $19 billion, stems from eliminating student debt for borrowers in repayment for 20 years or more (or 25 years with graduate student debt). 

Private student loan borrowers can't benefit from federal loan relief. But you could lower your monthly payments by refinancing to a lower interest rate. Visit Credible to speak with an expert and get your questions answered. 

BUY A HOME IN THESE STATES TO GET STUDENT LOAN DEBT RELIEF

Student loan cancellation keeps coming

More people are becoming eligible for student loan cancellation as they hit 10 years of payments. Since the launch of SAVE, nearly 8 million borrowers have received relief, including 4.5 million with a $0 monthly payment. Student loan forgiveness has reached millions even as the  Supreme Court blocked Biden's original debt forgiveness plan  last June.  

The latest round of cancellations targets $7.4 billion in student loans for 277,000 borrowers, the Department of Education said in a  statement . This brings the total debt forgiven over Biden's presidency to $153 billion.  

Biden's SAVE plan could lower borrowers' monthly payments to zero dollars, reduce monthly costs in half and save those who make payments at least $1,000 yearly. Yet roughly three out of four borrowers who make $75,000 or less annually, and would benefit from the SAVE plan, still need to be enrolled, according to a recent Student Debt Crisis Center (SDCC)  survey .

If you can qualify for a student loan refinance at a lower rate than you're currently paying, there are usually no downsides to refinancing. You can use Credible to compare student loan refinancing rates from multiple private lenders at once without affecting your credit score.

HOMEOWNERS COULD SAVE TENS OF THOUSANDS IN DAMAGES BY USING SMART DEVICES

Biden student loan forgiveness plan faces legal challenge

Republican-led states  filed suit  against President Joe Biden and the U.S. Department of Education to stop the SAVE Plan. A total of 18 states have joined one of two lawsuits challenging the plan.

The lawsuits seek to halt the SAVE plan immediately, arguing that the U.S. Department of Education has no authority to alter student loan repayment plans. This would cancel more than $156 billion in student loan debt .  

The lawsuit also argues that the U.S. Supreme Court determined that Biden's original forgiveness program violated federal law and that only Congress can authorize the forgiveness of student loans involving taxpayer money. 

A  statement from the Education Department  said Congress gave the agency the authority to define the terms of income-driven repayment plans.

If you hold private student loans, you won't be enrolled in a federal income-driven repayment plan, but you could refinance your loans to a lower rate. Visit Credible to compare options from different lenders without affecting your credit score.

MORTGAGE LOAN LIMIT RISES ABOVE $1.1M AS HOME PRICES SURGE

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at  [email protected]  and your question might be answered by Credible in our Money Expert column.

Student Loan Cancellation Update: New Group Considered for Forgiveness

I n a renewed effort to cancel student loan debt for a niche group, Democratic Senators Chris Murphy of Connecticut and Tina Smith of Minnesota are pushing a forgiveness program for beginning farmers and ranchers.

With the rising costs of higher education, more students are turning to loans to finance their degrees. However, many students struggle to repay these loans after college, which has become a significant issue for Democrats . So far, President Joe Biden 's administration has authorized the cancellation of $153 billion in student loan debt for nearly 4.3 million people, according to a CNN report in April.

Murphy and Smith, both members of the Senate Health, Education, Labor, and Pensions Committee, reintroduced the Student Loan Forgiveness for Farmers and Ranchers Act on Wednesday. The act creates a loan forgiveness program for not only beginning farmers and ranchers, but also women, veteran, and minority farmers.

"Connecticut farmers have always been the lifeblood of our rural communities, but starting and maintaining a new farm is increasingly unaffordable for young people who are often saddled with student loan debt and can't afford to make additional investments necessary for success," Murphy said in a press release on Wednesday. "By helping new farmers pay off their student loans, this legislation would pave the way for Connecticut's next generation of farmers."

There are about 30 percent of producers considered beginning farmers in Connecticut, according to the release. A beginning farmer is someone who is operating a farm with less than 10 years of experience.

Smith echoed Murphy's calls to help the next generation of farmers.

"To keep Minnesota's agriculture economy thriving, we need to continue to invest in the next generation of farmers as the average age of farmers keeps going up. There is more we can be doing to help future farmers fill their shoes," Smith said in the release.

"Student debt is one of the most significant challenges our young farmers and ranchers face. This legislation would help incentivize a younger, more diverse workforce and help more people start and stay in farming."

There are about 16,910 beginning farmers in Minnesota, according to data collected by the U.S. Department of Agriculture in 2017.

Murphy has introduced this legislation twice before, once in December 2022 with Smith and Senator Tammy Baldwin , a Wisconsin Democrat, co-sponsoring the bill, and once in April 2018 with then-Senator Tom Udall, a New Mexico Democrat.

Newsweek reached out to Murphy's and Smith's offices via email for comment.

Currently, Minnesota has a program to help new farmers break into the agriculture industry known as the Minnesota Beginning Farmer Tax Credit. The program gives tax credits to asset owners who rent or sell farmland, equipment, livestock, and other agricultural assets to beginning farmers. However, new 2024 asset owner tax credit approvals have been placed on hold because of limited funds.

Connecticut Agriculture Commissioner Bryan P. Hurlburt told Newsweek via email on Friday: "Connecticut does not have a tax credit or incentive program for new and beginning farmers. However, over the past few years we have fine-tuned a number of our existing programs to better support new and beginning producers based on constituent feedback. As an agency we are strongly committed to diversifying how agricultural products are grown, where they are grown, and who is growing them."

For example, in 2024, the Connecticut Department of Agriculture Farm Transition Grant awarded 17 projects totaling $74,200 through Farm Transition Grant New Farmer microgrants. Meanwhile, of the 20 Farmland Restoration, Climate Resiliency and Preparedness awards, 13 went to beginning or underserved farmers.

Which Groups Get Help?

Dr. Nick Hillman, a professor in the School of Education at the University of Wisconsin-Madison, referenced a 2020 article written by Dr. Denisa Gándara and Dr. Sosanya Jones titled

Who Deserves benefits in higher Education? A Policy

Discourse Analysis of a Process Surrounding Reauthorization of the Higher

Education Act

"Federal financial aid policy has a long history of providing benefits [whether it's forgiveness or other subsidies/flexibilities] for borrowers who are employed in areas of national interest. For example, policymakers have created programs for military veterans, public service workers, and medical professionals to help relieve their debt burdens.

"When thinking about the importance of the nation's food supply chain, and in light of the attached study, it makes sense that policymakers would prioritize farmers/ranchers."

Update 5/10/24, 10:43 a.m. ET: This article has been updated with comment from Connecticut Agriculture Commissioner Bryan P. Hurlburt and additional information.

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How to Apply For Discover Student Loans

Types of student loans offered by discover, discover student loans frequently asked questions.

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Discover Student Loans Review 2024

Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate student loans to write unbiased product reviews.

Discover Student Loans is a solid student loan lender with a cash reward for borrowers who receive at least a 3.0 GPA. The lender has no fees — but you can find more competitive APRs with the best private student loans . 

0.25% discount on regular rates with automatic payments

6.49% - 17.37% variable and 5.24% - 15.99% fixed

Undisclosed

• Check mark icon A check mark. It indicates a confirmation of your intended interaction. No origination fee
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. No prepayment penalty
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. No late fee
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. Cash reward for 3.0 GPA
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. International students eligible with an eligible cosigner
• con icon Two crossed lines that form an 'X'. Credit check required
• con icon Two crossed lines that form an 'X'. One standard repayment term
• con icon Two crossed lines that form an 'X'. High APR
• con icon Two crossed lines that form an 'X'. Only one branch location

Discover is a solid student loan lender with a cash reward for borrowers who receive at least a 3.0 GPA. The lender has no fees — but you can find more competitive APRs elsewhere.

• Apply by phone or through your computer or mobile device
• 100% US-based customer service available 24/7
• $1,000 loan minimum
• 15 years standard repayment term length
• Loan amounts available: $1,000 minimum, up to 100% cost of attendance
• Repayment options available:
• Deferred: No payments for up to six months after leaving school
• Interest only: Only make payments on the loan's interest while in school and during grace period
• Fixed payments: Pay $25 per month while in school and during grace period

Discover Student Loans

To qualify for a Discover Student loan, you must:

• Be enrolled at least half-time in a program (undergraduate, graduate, law school, MBA, health program) at an eligible school
• Be pursuing a degree
• Be making adequate academic progress as determined by your school
• Be a US citizen, permanent resident, or international student (international students need to have a cosigner who is a US citizen or permanent resident)
• Be 16 years or older when you apply
• Pass a credit check

Before applying for any private student loan, including with Discover, make sure to consider your federal student loan options, as you can often find more favorable terms and better protections through the government.

To contact customer support, call the lender 24 hours a day, seven days a week. The company has both a US number and an international number. If calling isn't the best work for you, you can also send mail to Discover's Utah address. 

Discover has a well-reviewed app that has received 4.8 out of 5 stars on the Apple store and 4.6 out of  5 stars on the Google Play store. If you want to manage your loan on the go, this could be helpful. 

Discover Student Loan Pros and Cons

• Cash reward for good grades . You may qualify for Discover's one-time 1% cash reward on its student loans if you get a GPA of 3.0 or higher for any academic term covered by the loan. You'll need to redeem your reward within six months after the loan's disbursement or six months after the academic term has ended, whichever is later.  
• No origination fee . Other lenders charge origination fees which are deducted from your overall loan proceeds. 
• No late fees . If you fall behind on your payments, Discover won't hit you with any unexpected charges. 
• Relatively high APRs compared to competitors . You may qualify for lower rates if you pick a different lender and your credit score is in excellent shape.
• Only one term length for undergraduate and graduate loans . When you take out a loan with Discover, you'll get a 15-year term length. This limits your flexibility in how you repay the loan — though you can always pay it off early with no penalty. 
• One physical branch . Borrowers looking for in person support will be hard pressed to find it with Discover. 

Who Is Discover Best For?

Discover student loans are a great option for borrowers looking to avoid fees — you won't pay any with the company. Additionally, the lender has 24/7 support if you have any questions about your loans.

However, borrowers with excellent credit may find better rates elsewhere. 

1. Gather required information . This includes your Social Security number, your school of enrollment, the loan amount you need, your address, and certain financial documents.

2. Fill out the online application . You're apply to complete the application in just several minutes, and after doing so you'll get your rates. 

3. Submit required supplementary documents . Discover may need to see financial documents including proof of income and residency. 

4.  Sign your loan agreement . After you get all your documents in order, Discover will send you a formal loan agreement. Discover will fund your loan after you sign on the dotted line. 

Discover offers student loans for a variety of different types of degrees, including:

• Undergraduate
• Health professions

Discover Undergraduate Student Loans

You may like Discover's undergraduate student loans if you want to avoid fees, as the lender doesn't have any prepayment penalties, origination fees, or late charges. However, you may be able to find lower fixed rates with competitors.

You might be eligible for a one-time 1% cash reward available on Discover student loans if you get a GPA of 3.0 or higher for any academic term covered by the loan. You'll need to redeem your reward within six months after the loan's disbursement or six months after the academic term has ended, whichever is later.  

Discover Graduate Student Loans

Discover's graduate student loans function similarly to the lender's undergraduate loans. The major difference between the two is the repayment term length; the graduate loans are for 20 years, while the undergraduate loans are for 15 years. You'll still get a loan with no fees and will be eligible for Discover's one-time 1% cash reward on its student loans.

Yes, Discover offers student loans at competitive rates and has around the clock customer service for any questions you have.

Discover does not disclose the minimum credit score it will consider for student loans.

You can borrow up to 100% of the cost of attendance. 

While there is always a possibility the company could decide to forgive student loans, the chances are extremely slim. No private loans will likely be forgiven. 

The Better Business Bureau rates Discover with an A+ grade , indicating that the BBB has determined that the is company honest in how it handles business, responds effectively to consumer complaints, and is truthful in its advertising. 

Discover Student Loans Competitors

Compare Discover Student Loans against the competition.

Discover Student Loans vs. College Ave Student Loans

You can get a lower minimum APR on your loan with College Ave than with Discover, so if your credit is in good shape, College Ave might be the better choice. 

College Ave has a quicker application process than Discover, as you can get a rate in a few minutes with College Ave, and it will take roughly 15 minutes with Discover. This may not be a dealbreaker, but if you want to speedily compare multiple rates, College Ave could be a better place to start. 

Discover student loans offer a unique perk that College Ave does not. Discover has a one-time 1% cash reward on its student loans if you achieve a GPA of 3.0 or higher during any academic term covered by the loan. You have to redeem your reward within six months after your loan is disbursed or six months after your academic term is over, whichever is later.  

You won't pay any origination fees, prepayment penalties, or late fees with either company.

College Ave Student Loans Review

Discover Student Loans vs. Ascent Student Loans 

Ascent has five repayment terms available with co-signed loans, five, seven, 10, 12, or 15 years. Discover has only one standard term available, 15 years. 

You may be eligible for a 1% cash reward with Ascent and Discover. Neither company charges origination fees or prepayment penalties, but Ascent may charge a late fee while Discover does not. 

Ascent Student Loans Review

Why you should trust us: How we rated Discover student loans

We rate all student loan products in our reviews and guides on a 1-5 scale. The overall rating is a weighted average that takes into account seven different categories, some of which are judged more heavily than others. They are:

• Interest rate (20% of rating)
• Fees (20% of rating)
• Term lengths (15% of rating)
• Repayment options while in school (15% of rating)
• Borrower accessibility (15% of rating)
• Customer support (7.5% of rating)
• Ethics (7.5% of rating)

Each category's weighting is determined based on its importance to your borrowing experience. Rates and fees have the most significant impact on the total cost of your loan, so we weigh those the most heavily. Customer support and ethics are still crucial parts of the borrowing experience, but do not directly tie to a student loan's terms, so they have less of an impact on the overall rating.

When considering whether or not Discover is right for you, consider its additional product lines:

• Best Discover Credit Cards
• Discover Personal Loan Review
• Discover Bank Review
• Discover Savings Account Review
• Discover CD Rates
• Discover Home Loans Review

Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards .

Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

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The deadline to consolidate some student loans to receive forgiveness is here. Here’s what to know

President Joe Biden delivers remarks on student loan debt at Madison College, Monday, April 8, 2024, in Madison, Wis. (AP Photo/Evan Vucci)

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NEW YORK (AP) — Borrowers with some types of federal student loans have until today to consolidate their loans to qualify for full student loan cancellation or credit toward cancellation. The Education Department is expected to conduct a one-time adjustment in the summer but borrowers who want to be considered for the adjustment have to submit a request to consolidate their loans by Tuesday.

This one-time adjustment is meant to show a more accurate payment count for student loan borrowers.

Here’s what you need to know:

WHICH TYPES OF LOANS NEED TO BE CONSOLIDATED?

Borrowers with these types of loans must consolidate first to take advantage of this one-time adjustment:

— Commercially managed Federal Family Education Loan (FFEL) loans

— Parent PLUS loans

— Perkins loans

— Health Education Assistance Loan (HEAL) Program loans

You can learn more about the one-time adjustment at studentaid.gov .

WHEN IS THE DEADLINE?

The deadline to consolidate your loans is Tuesday.

WHAT IS LOAN CONSOLIDATION?

If you have multiple federal student loans, you can combine them into one loan with fixed interest. If you decide to consolidate your loans into a Direct Consolidation Loan, you can do so for free. Once you have consolidated your loans, you will have one monthly payment instead of multiple payments a month.

HOW DO I APPLY TO CONSOLIDATE MY LOANS?

You can apply to consolidate your loans at studentaid.gov/loan-consolidation . The consolidation process typically takes around 60 days to complete. Once you consolidate your loans, you will be eligible for the adjustment.

WHEN WILL I HEAR BACK IF MY LOANS ARE CANCELLED OR I RECEIVED CREDIT?

The Education Department is currently adjusting borrowers’ accounts and expects to finish by July 1.

The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.