Small business credit tightened after 2022 and has only partially loosened. Approval rates at large banks remain well below their pre-2020 levels, and the gap has been filled by a mix of legitimate online lenders and some genuinely predatory products.
Knowing which is which is worth more than any negotiating tactic.
SBA loans: the best terms most owners qualify for
The Small Business Administration doesn’t lend directly. It guarantees a portion of loans made by participating lenders, which reduces their risk and lets them offer longer terms and lower rates than they otherwise would.
SBA 7(a) — the flagship program
- Up to $5 million
- Uses: working capital, equipment, inventory, business acquisition, refinancing debt, owner-occupied real estate
- Terms: up to 10 years for working capital and equipment, up to 25 years for real estate
- Rates: tied to a base rate (commonly prime) plus a lender spread, subject to SBA maximums
- Down payment: typically 10%–20% on acquisitions
The long amortization is the underrated benefit. A 10-year term on working capital transforms monthly cash flow compared with the 12- to 24-month terms typical of online lenders.
SBA 504 — for fixed assets
For purchasing owner-occupied commercial real estate or heavy equipment. Structured across a bank loan, a Certified Development Company portion, and roughly 10% owner equity, with long fixed-rate terms. If you are buying the building your business operates from, this is usually the right product.
SBA Microloans
Up to $50,000, delivered through non-profit intermediaries, often with business coaching attached. Suited to very small and early-stage businesses that banks won’t consider.
The trade-off across all SBA programs is documentation and time. Expect to provide business and personal tax returns, financial statements, a debt schedule, business plan and projections, and to wait 30–90 days. SBA Express and Preferred Lender programs move faster.
Check whether lenders you’re considering are SBA Preferred Lenders — they can approve in-house rather than routing to the SBA, which cuts weeks off the timeline. And note that SBA fees and program parameters are periodically revised; confirm current terms directly with SBA.gov or your lender.
Other legitimate options
Business line of credit — revolving, draw as needed, pay interest only on what you use. The right tool for seasonal cash flow and unexpected expenses. Establish it before you need it; lenders extend credit most willingly to businesses that don’t urgently require it.
Term loan (bank or online) — lump sum, fixed repayment. Bank rates are far better; online lenders approve faster and with lower revenue and credit thresholds, at a substantially higher cost.
Equipment financing — the equipment collateralizes the loan, so approval is easier and rates are lower than unsecured borrowing. Terms usually match the equipment’s useful life.
Invoice factoring — sell outstanding B2B invoices at a discount for immediate cash. Expensive, but tied to receivables you already hold rather than to your credit profile. Useful for businesses with long payment cycles and creditworthy customers.
CDFIs and non-profit lenders — Community Development Financial Institutions serve businesses in underserved markets, often with more flexible underwriting and technical assistance included. Genuinely underused.
What to avoid
Merchant cash advances are not loans. A funder buys a portion of your future receivables at a discount and collects a daily or weekly percentage of card sales. Because they aren’t structured as loans, they escape much of the regulation that governs lending — and their effective annual cost frequently runs from 40% into the triple digits.
Warning signs: pricing quoted as a “factor rate” rather than an APR, daily ACH debits from your operating account, a confession of judgment clause, and aggressive brokers who found you rather than the reverse.
MCAs can be defensible for a genuinely short-term, high-return need in a business with strong margins. They are financially destructive as a substitute for working capital, and businesses that take a second MCA to service the first — “stacking” — rarely recover.
What lenders actually check
| Factor | Typical expectation |
|---|---|
| Time in business | 2+ years for banks; 6–12 months for many online lenders |
| Annual revenue | Bank minimums often $250k+; online lenders lower |
| Personal credit score | 680+ for SBA and banks; 600+ for many alternatives |
| Business credit profile | Dun & Bradstreet, Experian Business, Equifax Business |
| Debt service coverage ratio | Typically 1.15–1.25x minimum |
| Collateral | Required for most bank and SBA loans |
| Personal guarantee | Nearly always required for small business borrowing |
That last row deserves emphasis. A personal guarantee means your LLC does not protect you from this debt. If the business fails, the lender can pursue your personal assets. Read the guarantee language carefully and ask whether a limited guarantee is available.
Preparing an application that gets approved
- Clean financials. Reconciled books, profit and loss statement, balance sheet, cash flow statement. Disorganized books are the most common reason a viable business gets declined.
- Business and personal tax returns for two to three years.
- A debt schedule listing every existing obligation, rate and payment.
- Realistic projections with stated assumptions. Lenders discount hockey-stick forecasts heavily.
- A specific use of funds. “Working capital” is weak. “$180,000 to purchase inventory for the Q4 season, historically generating $310,000 in sales” is strong.
- A repayment narrative — where the money to repay comes from, month by month.
- Separate business and personal finances. Commingled accounts signal disorganization and complicate underwriting.
Frequently asked questions
Can I get a loan for a startup? Traditional lenders rarely finance pre-revenue businesses. Options include SBA microloans, CDFIs, equipment financing, personal credit, and business credit cards — the last of which carries a personal guarantee and high rates.
Does an SBA loan require collateral? Generally yes where available, though the SBA does not decline loans solely for insufficient collateral if other criteria are met.
How long does approval take? Online lenders: days. Banks: two to six weeks. SBA: 30–90 days, faster with Preferred Lenders or Express.
Will applying hurt my credit? Most lenders pre-qualify with a soft pull and hard-pull only at formal application. Ask before submitting.
What if I’ve been declined? Ask specifically why. The reason usually points at a fixable problem — thin time in business, high existing debt, weak margins, or disorganized financials.
Before you apply
Get the books current, write the use-of-funds statement, and start with an SBA Preferred Lender or a local CDFI before entertaining anything quoted in factor rates.
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