How to apply for a business loan

Published Friday 5 June 2026

Table of contents

• Why getting a business loan matters
• Types of business loans
• What you'll need to qualify
• Required documents and information
• Choosing the right lender
• How to prepare your application
• What to expect after you apply
• Startup business loan requirements
• Simplify your loan application with Xero
• FAQs on applying for a business loan

Key takeaways

• Business loans come in many forms, from traditional term loans and SBA loans to microloans and peer-to-peer lending. Matching the right loan type to your needs saves time and increases your approval odds.
• Most traditional lenders require a personal credit score of 680 or higher and at least 1 year in business. Minimum annual revenue thresholds typically range from $50,000 to $250,000.
• Clean financial records strengthen your loan application. Lenders will ask for profit and loss statements, balance sheets, and tax returns.
• Startups with limited history can still access funding. Small Business Administration (SBA) Microloans and peer-to-peer lending platforms are designed for newer businesses.

Why getting a business loan matters

Access to capital can mean the difference between growing your business and staying stuck. A business loan lets you invest in equipment, hire staff, manage cash flow gaps, or seize time-sensitive opportunities.

The right loan at the right time helps you move faster. Without it, you may miss growth windows or struggle to cover costs during slower periods. Understanding your options and how to prepare a strong application puts you in the best position to secure funding.

Types of business loans

Business loans come in many forms. Options include term loans, lines of credit, SBA loans, invoice financing, equipment financing, microloans, and peer-to-peer lending. Each suits different funding needs and timelines. Understanding the differences can help you choose the best financing for your situation.

Choosing the right loan type starts with understanding what each one offers and where it fits best.

• Term loans: You receive a lump sum and repay it over a fixed period with regular payments. Best for large one-time purchases like equipment or property. Typical amounts range from $25,000 to $500,000.
• Business lines of credit: You get flexible access to funds up to a set limit. You pay interest only on what you draw. For example, if you draw $50,000 from a $100,000 line, you pay interest only on $50,000. Best for managing cash flow gaps or covering unexpected costs. Typical amounts range from $10,000 to $250,000.
• Small Business Administration (SBA) loans: Private lenders issue these loans with a government guarantee. They offer favorable terms and lower down payments. Best for established businesses seeking larger amounts with competitive rates. Typical amounts range from $500 to $5.5 million.
• Invoice financing: You borrow against unpaid invoices to access cash before customers pay. Best for businesses with reliable invoices but slow-paying clients. Typical advances cover 80% to 90% of invoice value. Xero Small Business Insights data shows US small businesses waited 7.8 days past due dates in Q4 2025. That makes invoice financing a practical tool for bridging payment gaps.
• Equipment financing: You borrow specifically to purchase business equipment, with the equipment itself serving as collateral. Best for businesses that need machinery, vehicles, or technology but want to preserve working capital. Typical terms cover 80% to 100% of the equipment cost.
• Microloans: These are smaller loans, typically up to $50,000, offered by nonprofit lenders and the SBA Microloan program. Best for startups and small businesses that need modest funding and may not qualify for traditional loans. SBA Microloans average around $13,000.
• Peer-to-peer lending: You borrow directly from individual investors through online platforms that match borrowers with lenders. Best for businesses that want an alternative to traditional bank financing. Amounts and rates vary by platform, and approval often focuses on cash flow rather than credit history alone.

What you'll need to qualify

Loan qualification depends on your credit score, time in business, revenue, and business plan. Meeting these benchmarks before you apply gives you a stronger position with lenders.

Here are the key requirements most lenders look for.

• Credit score: Aim for a personal credit score of 680 or higher for traditional lenders. Some online lenders accept scores of 600 or above, though rates will be higher. A score of 720 could qualify you for rates of 6% to 8%. A score of 620 might mean rates of 15% or more.
• Time in business: Most lenders want at least 1 to 2 years of operating history. Some online lenders work with businesses that have been open for 6 months or more.
• Annual revenue: Minimum revenue thresholds typically range from $50,000 to $250,000 depending on the lender and loan type. If your business earns $10,000 per month, you meet the $120,000 annual threshold that many online lenders require.
• Business plan: You'll need a clear plan showing how you'll use the funds and how your revenue will cover repayments. Lenders want to see specific numbers, not general projections.
• Debt-to-income ratio: Lenders assess your existing debt relative to your income. A ratio below 36% is generally favorable. If you earn $15,000 per month and your existing debt payments total $4,000, your ratio is about 27%. Most lenders find that acceptable.

Required documents and information

Having your documents ready before you apply speeds up the process and reduces the chance of delays. Most lenders request the same core set of financial records and business information.

Prepare the following financial statements.

• Income statements (profit and loss): Revenue and expenses for the past 2 years. These show whether your business is profitable and trending in the right direction.
• Balance sheets: Assets, liabilities, and equity position. These give lenders a snapshot of your financial health at a specific point in time.
• Cash flow statements: Cash coming in and going out over recent months. Lenders use these to assess whether you can make regular loan payments.

Gather these verification documents as well.

• Tax returns: Personal and business returns for the past 2 to 3 years.
• Bank statements: 3 to 6 months of business account activity.
• Business plan: Your loan purpose, use of funds, and repayment strategy.
• Business licenses and registrations: Proof that your business is legally registered and in good standing.
• Ownership and legal documents: Articles of incorporation, partnership agreements, or franchise agreements if applicable.

Cloud accounting software can generate many of these reports on demand, saving you days of manual preparation.

Choosing the right lender

Where you apply affects your approval timeline, interest rates, and loan terms. Matching the right lender type to your business situation can save you time and money.

Traditional banks

Traditional banks offer lower rates and larger amounts but have stricter requirements. They work best for established businesses with strong credit and existing banking relationships. Approval typically takes 2 to 6 weeks, with 1 to 2 weeks for funding after approval.

You'll benefit from lower interest rates, larger loan amounts, and relationship-based service. However, expect stricter qualification criteria, more documentation, and slower processing.

Online lenders

Online lenders provide fast funding with flexible requirements. They work best for businesses that need quick access to capital and have strong cash flow but limited credit history. Approval typically takes 1 to 3 days, with same-week funding.

Many online lenders let you connect your accounting software directly. Automated systems evaluate your cash flow and performance data for faster decisions. You'll get faster approvals and streamlined applications, but expect higher interest rates and smaller loan amounts.

Credit unions

Credit unions offer competitive rates with more flexible terms than traditional banks. They work best for members seeking better rates than online lenders without the strict requirements of large banks. Approval typically takes 1 to 3 weeks.

You'll benefit from lower rates and community-focused service. Membership is required, and branch networks tend to be limited.

SBA-approved lenders

SBA-approved lenders provide larger loans with favorable terms backed by a government guarantee. They work best for businesses seeking larger amounts with lower down payments of 10% to 20%. Approval takes 30 to 90 days due to government processing.

You'll get longer repayment terms and competitive rates, but expect extensive documentation and longer wait times.

Microlenders and alternative lenders

Microlenders, including nonprofit organizations and Community Development Financial Institutions (CDFIs), focus on underserved businesses. They work best for startups, minority-owned businesses, and businesses in low-income areas that may not qualify elsewhere.

Loan amounts are typically smaller (up to $50,000), but qualification requirements are more flexible. Many microlenders also offer business mentoring and training alongside funding.

How to prepare your application

Preparing your application thoroughly can reduce processing time and improve your approval odds. Complete these 8 steps before you submit.

1. Define your loan amount and purpose

Calculate exactly how much you need and specify how you'll use it. Lenders approve requests tied to clear business outcomes. "I need $75,000 for a delivery van to reach 2 new areas" beats "I need money to grow."

2. Review your financial health

Assess your cash flow, profitability, and debt levels before a lender does. Look for red flags like declining revenue, negative cash flow months, or high debt ratios, and address them first.

This step matters even more in the current environment. Xero Small Business Insights data shows US small business sales growth averaged 2.4% year-over-year in 2025. That is roughly half the long-term average of 5.5%. Lenders may scrutinize revenue trends more closely as a result.

3. Gather required documents

Collect financial statements, tax returns, and bank statements in advance. Missing documents can delay approval by days or weeks. Use a checklist to track what you have and what you still need.

4. Update your business plan

Show how the loan supports specific revenue goals. Include realistic projections for how the investment will generate returns to cover repayments. Lenders look for plans grounded in actual performance data, not optimistic guesses.

5. Check your credit reports

Review both your personal and business credit reports for errors. Dispute inaccuracies before you apply, since even small errors can lower your score. You can access free personal credit reports at AnnualCreditReport.com.

6. Present clear financials

Organize your records so lenders can quickly assess your business performance. Clean, well-formatted financial reports build confidence and speed up the review process.

7. Consider professional help

An accountant can prepare loan-ready documents and strengthen your application. If you don't have one, you can find an advisor who specializes in small business finances. Many offer remote services.

8. Include visual summaries

Charts and graphs help loan officers evaluate your application faster than raw numbers alone. Revenue growth charts, cash flow graphs, and profit margin trends all make your case more compelling. Most accounting software generates these visuals automatically from your financial data.

What to expect after you apply

Once you submit your application, the process moves through several stages before you receive funds. Knowing what comes next helps you respond quickly and avoid surprises.

Review and underwriting

The lender reviews your application, verifies your documents, and assesses your creditworthiness. This stage can take anywhere from 1 day (online lenders) to several weeks (banks and SBA lenders). You may receive follow-up requests for additional information during this period.

Reviewing the loan agreement

If approved, you'll receive a loan agreement outlining the interest rate, repayment schedule, fees, and terms. Read it carefully before signing. Pay close attention to prepayment penalties, variable rate clauses, and any fees for late payments.

If anything is unclear, ask the lender for clarification or consult an accountant before you sign.

Understanding collateral and personal guarantees

Some loans require collateral, such as equipment, inventory, or property that the lender can claim if you default. Others require a personal guarantee, meaning you're personally liable for the debt if your business can't repay it.

SBA loans and many traditional bank loans require personal guarantees from anyone who owns 20% or more of the business. Understand your personal risk before you commit.

Fund disbursement

After signing, funds typically arrive within a few days to a few weeks. Timing depends on the lender. Online lenders often fund within 1 to 3 business days. SBA loans may take 2 to 4 weeks after approval.

Some lenders deposit funds directly into your business bank account. Others issue a check or wire transfer. Confirm the disbursement method and timeline so you can plan accordingly.

Startup business loan requirements

Getting a loan as a startup is harder because lenders rely on financial history to assess risk. With limited revenue data and no track record, you'll need to explore options designed for newer businesses.

How startups can qualify

Even without years of financial history, you can strengthen your application in several ways.

• Build personal credit first: Lenders weigh personal credit scores more heavily for startups. A score of 700 or above significantly improves your chances.
• Create a detailed business plan: Include market research and financial projections. Show clearly how you'll use the funds and generate revenue.
• Show proof of concept: Revenue from early customers, signed contracts, or letters of intent demonstrate market demand.
• Offer collateral: Putting up personal or business assets reduces the lender's risk and can offset a limited operating history.

Alternative funding options for new businesses

Several funding sources are specifically built for startups and early-stage businesses.

• SBA Microloans: Loans up to $50,000 through nonprofit intermediaries. The average SBA Microloan is around $13,000, making it accessible for smaller needs.
• Peer-to-peer lending: Online platforms connect you directly with individual investors. Approval often focuses more on your business plan and cash flow potential than on years in business.
• Business credit cards: A business credit card can cover smaller expenses while you build a credit history. Many cards offer 0% introductory rates for 12 to 15 months.
• Grants: Federal, state, and local programs offer grants that don't need to be repaid. The SBA and organizations like SCORE maintain directories of available grants.
• Friends and family: Put any loan agreement in writing. Clear repayment terms protect both parties.

Repaying smaller loans on time builds credit history. That track record strengthens your position for larger loans later.

Simplify your loan application with Xero

Organized financial records are one of the strongest signals you can send to a lender. When your books are clean and current, you spend less time gathering documents and more time running your business.

Xero accounting software can help you stay loan-ready by generating income statements, balance sheets, and cash flow reports on demand. Bank feed integration can help keep your data current. Standardized report formats can meet lender expectations without extra formatting work.

Real-time visibility into your finances also matters. Xero Small Business Insights found US small businesses took an average of 27.9 days to be paid in Q4 2025. Having verified, up-to-date records of your payment cycles gives lenders a clearer picture of your cash flow health. To get your books loan-ready, Get one month free.

FAQs on applying for a business loan

Here are frequently asked questions about applying for a business loan.

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

Approval timelines depend on the lender. Online lenders typically decide within 1 to 3 days. Traditional banks take 2 to 6 weeks, and SBA lenders require 30 to 90 days.

What credit score do you need for a small business loan?

Most traditional lenders require a personal credit score of 680 or higher. Some online lenders accept scores of 600 or above, though you'll likely face higher interest rates with lower scores.

Can you get a business loan if your company is less than a year old?

Some online lenders and SBA Microloans work with businesses open for 6 months or more. Most traditional banks require at least 1 to 2 years of operating history.

What documents do you need to apply for a business loan?

You'll need income statements, balance sheets, and 2 to 3 years of tax returns. Also gather 3 to 6 months of bank statements. A business plan explaining your use of funds and repayment strategy is also required.

Is peer-to-peer lending a good alternative to traditional business loans?

Peer-to-peer lending can work well if you have strong cash flow but limited credit history. These platforms often weigh your business plan and revenue potential more than traditional credit scores.

How can startups qualify for business loans with no revenue history?

Build strong personal credit and create a detailed business plan with financial projections. SBA Microloans, business credit cards, and small business grants are accessible options for businesses with limited history.