How to Apply for a Small Business Loan

Key insights:

• When applying for a small business loan, lenders evaluate factors such as your time in business, annual revenue and credit scores to determine your eligibility
• There are different types of business loans, including installment loans for large, one-time expenses and lines of credit for ongoing funding needs
• To compare lenders, consider their interest rates, loan terms, fees and customer support services to find the right fit for your business needs
• You’ll need to gather information such as financial records, legal documents and personal details of business owners to complete the loan application process

Running a business requires both strategy and capital. For example, you must balance short- and long-term needs to grow and expand, and sometimes that requires extra funding. That’s when small business loans can help.

Business loans can provide access to a lump sum or ongoing funding that you can use for a range of needs, from keeping the business running to expanding your operations. However, the application process differs slightly from that for a personal loan.

Let’s walk through the requirements and process to apply for a small business loan.

Reasons to apply for a small business loan

Small business loans can suit many purposes. For example, a loan may help you purchase inventory, equipment or real estate to expand your business. A line of credit could help you cover operational costs during leaner months. Depending on the lender, you may also be able to use a small business loan to start your business.

Steps to apply for a small business loan

Applying for a business loan can be a smooth and straightforward process when you’re prepared. Here are steps to follow.

Determine if you qualify for a small business loan

The first step to getting a small business loan is determining whether you qualify. Where you get your loan — whether from a bank, a credit union or an online lender — can shape its requirements.

In general, lenders may consider eligibility factors such as:

• Time in business: Some lenders may require anywhere from 1 to 2 years in business to qualify.
• Annual revenue thresholds: Some lenders may require a minimum revenue threshold to qualify for a small business loan. Your revenue may help determine the loan amount or credit limit you can qualify for, too.
• Personal and/or business credit scores: Lenders can use your personal and business credit scores to help evaluate your creditworthiness. Generally, the higher your scores, the more preferable the terms you may be offered.
• Credit utilization ratio: Many lenders prefer low credit utilization. This measures your existing revolving debt compared to your total available credit.

Choose the type of business loan you need

There are generally 3 types of small business loans to consider. Each financing option can fit different needs.

• Business installment loans: These give business owners access to a lump sum to be repaid in fixed installments over time with interest. You may have to pay an origination fee or use collateral. Installment loans are generally ideal for funding larger needs, such as purchasing equipment or covering a major, unexpected business expense. Installment loans are for a set amount, so you’ll have to apply for a new loan if you need additional funds.
• Commercial mortgages: These are installment loans that allow you to purchase or renovate a facility for your business, or refinance an existing commercial mortgage. Like other installment loans, commercial mortgages are for a set amount. If you need additional funds, you’d have to apply for a new loan or line of credit.
• Business lines of credit (LOC): A business LOC allows business owners to repeatedly borrow up to a limit and repay the amount plus interest. LOCs may come with an annual fee. This type of revolving business credit typically makes sense for ongoing funding needs, such as purchasing inventory or covering operating expenses.

Compare small business lenders

Terms may vary from lender to lender, so shopping around for your small business loan is key.

One significant factor is the interest rate, which determines your total borrowing cost. Business loan interest rates may be fixed (resulting in predictable payments) or variable (potentially increasing or decreasing your rate and payments over time). The loan term is another important factor. It helps determine your monthly payment amount, your interest rate and the total interest you’ll pay over the life of your loan.

Other factors that may help shape your decision include:

• How and when funds can be disbursed
• Your relationship with the lender
• Loan fees, such as annual, origination and prepayment fees
• A dedicated banker to help with your application versus an online lender

Gather your documents

When you’re ready to apply, gather your documents to complete your loan application. Required documents may vary depending on the lender, but may include things like:

• Financial documents: Your business balance sheet, income statements, tax returns and bank statements may help lenders determine whether you meet their revenue requirements and can afford the loan. You may also need to provide your personal tax returns.
• Legal documents: Lenders may need to verify that your business is properly established. You may need your business formation document, a legal document you receive from your state after registering your business.
• Personal details of the business owners: Your Social Security number or individual taxpayer identification number can help lenders verify your identity and creditworthiness. If you have co-applicants, you’ll need to include their details as well. You’ll typically need their date of birth, address, residence and citizenship status. You may also need to let the lender know how many employees you have.
• Personal guarantee: Many lenders require applicants to give a personal guarantee for unsecured business loans. That means you’d be responsible for repaying the loan if your business can’t pay.

Submit the application and receive your funds

Make sure you’ve fully completed the application and included all required documents before submitting it. Response time can vary depending on your bank and the type of loan.

If your loan is approved, funds can be disbursed as a lump sum for installment loans, or you’ll receive access to your line of credit. Then you may use the money as needed.

Explore small business loans with Citi

Finding the right small business loan starts with understanding what you need, knowing which loans fit your business and preparing your documents. Whether you’re purchasing new equipment or growing your company, Citi offers flexible lending options with support along the way.

Explore Citi’s range of small business loans today to find the right option for your business goals.

Applying for a small business loan FAQs

Can a start-up LLC get a loan?

A start-up LLC may qualify for a business loan, but requirements often vary by lender. Some lenders may look at how long the business has been operating, its revenue and the owners’ personal and business creditworthiness.

Is it hard to get a loan for a small business?

Getting a small business loan may be more challenging if your business is new, has limited revenue or has a short credit history. Lenders often consider factors such as time in business, revenue, existing debt and overall creditworthiness when deciding whether to approve an application.

How much is required up front for a small business loan?

The amount required up front depends on the loan type and lender. Some business loans may not require any upfront contribution, while others, such as loans used to buy real estate or certain equipment, may require you to contribute part of the cost or provide collateral.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.