How do you actually get a small business loan?

Traditional lenders evaluate roughly the same things regardless of size: time in business, typically two years minimum, revenue and its stability, personal credit of the owners, business credit if it exists, cash flow sufficient to cover the new payment, collateral, and a personal guarantee, which is close to universal for small business borrowing. Prepare two years of business and personal tax returns, profit and loss statements and balance sheets, bank statements, a debt schedule, and a clear statement of what the money is for and how it will be repaid. Vagueness about use of funds is a common reason applications stall.

SBA loans are not made by the SBA; they are made by banks with a federal guarantee that reduces the lender's risk, which produces better rates and longer terms than the same borrower would otherwise get. The 7(a) program is the general-purpose workhorse, 504 loans finance real estate and major equipment, and microloans serve smaller amounts through nonprofit intermediaries. The tradeoff is documentation and time, with the process commonly running weeks to months, which is why the advice to arrange financing before you need it is not a platitude.

Know the alternatives and their real costs. A business line of credit is better suited to working capital gaps than a term loan, since you pay interest only on what you draw. Equipment financing is secured by the equipment and easier to obtain. Online lenders approve faster with lighter documentation and charge substantially more, frequently quoting a factor rate rather than an interest rate, which obscures the effective annual cost. Merchant cash advances, which take a percentage of daily card receipts, can carry effective rates that are extraordinarily high and should be treated as a last resort. Always convert any offer to an annual percentage rate before comparing, and read for prepayment penalties, which determine whether you can refinance out of an expensive facility later.