Step 1: Define the use and the payback period
Lenders ask what the money is for because it predicts repayment. Inventory ahead of a season pays back in months. A delivery truck pays back over years. A new location may take longer still. Write down the amount, the use, and how many months it realistically takes to earn back, then look only at products whose terms fit that window.
The two most common mistakes are borrowing short for a long-lived asset, which starves cash flow with oversized payments, and borrowing long for a short gap, which wastes interest.
Step 2: Know your three numbers
Almost every lender filters applications on the same three figures before a human reads anything:
- Personal credit score. Banks and SBA lenders look for 650 or higher. Online lenders go to 600, a few to 500 to 570.
- Time in business. Banks want two years. Online lenders accept six to twelve months; Fundbox accepts three.
- Revenue. Usually expressed as a monthly or annual minimum, from $30,000 a year at the low end to $250,000 or more.
Pull your credit report, count the months since your first business deposit, and total the last twelve months of revenue. Those three numbers tell you which lenders will say yes.
Step 3: Choose the lender type that fits
Banks offer the lowest rates and the slowest, most document-heavy process. They favor existing customers with two or more years of history. SBA lenders are banks and credit unions lending under a government guarantee, which lets them approve files they would otherwise decline. Online lenders fund in one to three days at higher rates and accept younger businesses. CDFIs such as Accion Opportunity Fund are nonprofits with bank-like pricing and a mission to lend to underserved owners. Factoring companies buy your receivables and care about your customers' credit, not yours.
Our best small business loans page sorts these by situation.
Step 4: Gather documents once
Online lenders typically need three to six months of business bank statements and a connection to your account. Banks and the SBA want more:
- Two to three years of business and personal tax returns
- Year-to-date profit and loss statement and balance sheet
- Business debt schedule
- Formation documents, EIN letter and business licenses
- A short business plan or use-of-funds statement for SBA loans
Put everything in one folder before you apply. Lenders move at the speed of your slowest document.
Step 5: Compare offers on total cost
Advertised rates are not comparable across products. A 1.3 factor rate, a 9% weekly fee and a 12% APR describe very different costs. Convert everything to APR or to total dollars repaid, add origination and draw fees, and check the repayment frequency against your deposit pattern. Our business loan calculator and factor rate calculator do the conversion.
Step 6: Apply in order of fit
Most lenders prequalify with a soft credit pull that does not affect your score. Use those first. Submit full applications, which usually involve a hard pull, only to the one or two lenders whose terms you would actually accept. Applying everywhere at once lowers your score and signals desperation to underwriters who can see recent inquiries.
What to do if you are declined
Ask why. Lenders will usually tell you which of the three numbers fell short. Then either fix that number (see credit repair before business funding) or move to a lender type that weights it less: factoring if credit is the problem, a CDFI if revenue is modest, a business credit card if time in business is the blocker.