You have heard how hard it is to get a business loan and you are afraid? If YES, here is a complete guide for improving your chances of getting a business loan. Irrespective of what endeavor you would like to pursue, it is always important to have a general idea of what you would be facing. This is why you should ask yourself the question; “how hard is it to get a business loan?” before you initiate the application process.

Within this overarching question are other more specific questions that you would need to ask yourself. How much time will getting a business loan cost you? How many documents will you need to prepare to apply for a business loan? And most of all, is your business likely to qualify for a business loan? All these questions and other consideration are parameters that will help you to gauge how difficult it is to get a small business loan.

So, How Hard Is It to Get a Small Business Loan?

Unfortunately, there is no one size fits all answer for this. The difficulty you encounter in getting a loan will largely depend on some factors some of which include how well your business is doing, what does your business need funding for? What industry is your business in? How much are you willing to pay for funding? When you consider the question of how difficult it is to obtain a small business loan, you would have to note that various types of loans have different eligibility requirements.

And as such their difficulty levels may vary. Many loan types will come with general minimum requirements. In order words, if you meet a loan’s general minimum requirements, then you can qualify for that type of loan, but it is not a guarantee that you will get it. Here are various types of small business loans and the requirements that are needed for qualifying for them.

7 Types of Small Business Loan Sources and Requirements According to their Difficulty Index

a. Merchant Cash Advances

This is easiest type of loan to qualify for. However, it is good to note that technically a merchant cash advance is not a loan, rather it is an advance. With a merchant cash advance, a lender will advance your business’s future credit card revenues that you will repay in a predetermined daily percentage of your business’s credit card revenues. Due to the fact that this “loan” is the most accessible for business funding options, it is usually very expensive when compared to the other options on this list.

A Merchant Cash Advance cost is most often expressed as a decimal factor rate which, if multiplied by your loan amount, will show you how expensive your Merchant Cash Advance will be. Surprisingly enough, on the average, merchant cash advance actually take quite some time to get funded. Even though they’re the easiest type of business loan to qualify for, Merchant Cash Advances will take longer than a week to fund. That’s because they rely on either verifying or setting up merchant services, which will slow down the funding process.

In order to qualify for a Merchant Cash Advance, you will need;

  • 5+ months in business
  • a 400+ personal credit score
  • $75,000+ in annual revenue
  • Driver’s License
  • Voided Business Check
  • Bank Statements
  • Credit Score
  • Business Tax Returns
  • Credit Card Processing Statements

Even though these types of loans are costly, your merchant cash advances can be a very good option for small business that are under-qualified but are in need of funding.

b. Invoice Financing

This is another type of business funding that is easily accessible for small businesses that are less-qualified to access loans. Invoice financing works by taking an outstanding invoice that a business is waiting on as a form of collateral. With invoice financing, a lender can advance your business up to 90% of your outstanding invoice’s value. But this advance doesn’t come free—they’ll charge you a certain percentage of interest per week that the invoice is outstanding.

So the further away you are from your invoice’s fulfillment day, the more expensive your invoice financing will be. You can secure invoice financing in as little as a day. That said, because invoice financing is a self-secured form of business funding, it’s relatively easy to qualify for. Invoice financing comes with these general minimum requirements:

  • 6+ months in business
  • $50,000+ in annual revenue
  • Driver’s License
  • Voided Business Check
  • Bank Statements
  • Credit Score
  • Outstanding Invoices

c. Business Lines of Credit

Business lines of credit are yet another business funding option that are reasonably accessible for businesses that are traditionally less-qualified. If you’re able to move quickly on your end, you can get funded with this business loan type in as little as a day.

A business line of credit is in a sense like an intangible credit which extends to your business a line of credit from which it can make expenses from and it will only have to be paid back whatever it ends up spending. However, with business lines of credit, you’ll always be handling cash, whereas credit cards will charge you a lot extra for cash advances.

In addition, business lines of credit are usually easier to access. The minimum requirement for business line of credit are as follows;

  • 6+ months in business
  • $50,000+ in annual revenue
  • Driver’s License
  • Voided Business Check
  • Bank Statements
  • Balance Sheet
  • Profit & Loss Statements
  • Credit Score
  • Business Tax Returns
  • Personal Tax Returns

d. Short-Term Loans

This type of loan works like a condensed version of a normal loan which gives you access to a particular sum of money that you will need to pay off (in addition to the accrued interest) within a particular period of time. However, with short-term loans in general, the loan amounts will be smaller, the APR’s will be higher, and the repayment terms will be shorter. In addition, as opposed to paying monthly sums, you will have to make daily or weekly payments.

Some short-term loans even express their rates in factor rate instead of APR’s (which usually means that it will be costly). However, short-term loans have less desirable terms when compared to long term loans mainly because they are easily accessible. The minimum requirement for short term loans are as follows.

  • 1+ years in business
  • a 550+ personal credit score
  • $50,000+ in annual revenue
  • Driver’s License
  • Voided Business Check
  • Proof of Ownership
  • Bank Statements
  • Credit Score
  • Personal Tax Returns

e. Equipment Financing

Just like invoice financing, equipment financing is a form of self-secured form of business funding. Equipment financing is a form of business loan used for acquiring equipment. If you qualify for equipment financing, you’ll be able to finance up to 100% of a piece of equipment’s value. With a funding speed of as little as 2 days, equipment financing is still a pretty speedy option as far as business loans go.

The equipment that will be purchased with the loan will serve as a collateral and thus makes equipment financing less risky for the lender and more affordable for the borrower. However, because equipment financing offers such ideal terms, its minimum requirements present a bit of a hurdle. The minimum requirement equipment financing are as follows.

  • 11+ months in business
  • 600+ personal credit score
  • $100,000+ in annual revenue
  • Driver’s License
  • Voided Business Check
  • Bank Statements
  • Credit Score
  • Business Tax Returns
  • Equipment Quote

f. Term Loans

This is the type of loan that most people are familiar with. A term loan makes available to businesses a lump sum of money which they will have to repay in addition to interest, with scheduled monthly payments. Term loans offer a straightforward, affordable funding solution for small businesses.

You can get this type of loan in as little as 2 days. However, the requirements that are attached to this loan may be difficult for a lot of small businesses to meet. The minimum requirement for a term loan are as follows;

  • 1+ years in business
  • a 600+ personal credit score
  • $90,000+ in annual revenue
  • Driver’s License
  • Voided Business Check
  • Bank Statements
  • Balance Sheet
  • Profit & Loss Statements
  • Credit Score
  • Business Tax Returns
  • Personal Tax Returns

g. Small Business Administration (SBA) Loans

SBA loans are the most favorable of small business loans—because the Small Business Administration partially guarantees SBA loans, lenders are willing to lend to small businesses more often and with better terms.

However, because they come with such ideal terms, SBA loans will still be the hardest type of business loan to qualify for, despite the partial SBA guarantee that makes it less risky for lenders. Because SBA loan has such high standards, and because it involves a government entity, its application process will involve a bit of bureaucracy which, can tend to slow things down.

As such, an SBA loan will take at least 3 weeks to process and fund. SBA loans come with the following minimum requirements that makes it difficult for a lot of small business to qualify:

  • 2+ years in business
  • a 640+ personal credit score
  • $100,000+ in annual revenue
  • Driver’s License
  • Voided Business Check
  • Bank Statements
  • Balance Sheet
  • Profit & Loss Statements
  • Business Tax Returns
  • Personal Tax Returns
  • Business Plan
  • Business Debt Schedule

You will notice that business loan that are easiest to qualify for are also the quickest and easiest to apply for. In addition, business loans that are easier to qualify for generally require the lender to verify less information through documentation. Also, the types of business loans that are the easiest to get are quite often the most expensive. On the other hand, the types of business loans that are the hardest to get are often worth the effort due to the ideal terms they offer.

There are a lot of information (of which this article is one of them) out there that can help you to increase your chances of getting business loans that have better terms. Business loans that are difficult to get such as term loans and SBA loans are worth the effort it might take to apply or even to improve your business’s credentials in order to qualify.

Financial institutions are notoriously reluctant to lend to small businesses – according to a recent survey by on-deck, of over 10,000 business loan applicants in the U.S. 82% were denied financing by their bank. Loaning to small businesses, especially startups, is a riskier proposition for banks than mortgage lending or lending to larger, established businesses.

25 Reasons You Will Find It Difficult to Get a Small Business Loan

Though things are always shifting within the ever-growing and evolving industry that is small business lending, there are some consistencies in exactly which factors will affect how hard it will be for your business to get a business loan. These factors are what banks or alternative lenders look at when they try to judge whether or not to support your small-business idea:

Here are some of the factors that can be a clog in the wheel in your quest to get a small business loan for your business.

1. Your Personal Credit Score

Even though this may come off as unfair to some people, your personal credit score is one of the biggest determinant to your ability to get a small business loan. From a lender’s perspective, at the end of the day, you as the business owner will be in charge of spending and paying back any of the funds you secure through a business loan.

As such, they look to your own financial history as an indication of how you handle your finances. In order for a lender to get an idea of our financial history, they will have to check your personal credit history.

As such, a lot of lenders have established a minimum personal credit score that they are willing to work with. Any number below that limit will not be eligible to secure a loan from them. In that vein, you should make sure you fulfill this minimum before you dive into the application process. Generally speaking, if your personal credit score rounds in somewhere in the high 600’s, then you should fulfill almost any lender’s minimum FICO score requirement.

However, checking in before you start your will only cost you a quick Internet search, so it’s worth it to double check if you’re in range. In the wake of the recession, banks have increased their credit score standards, but many small businesses have credit scores that are still suffering from the aftermath of the financial crisis.

2. Your Business’s Age

When you consider that only 20% of businesses with employees will survive their first year in business, it becomes quite obvious that the younger a business is, the risker it will be to lend to it. As such, lenders will look to your business’s age as an indicator of your business’s likelihood to stay in business and, by extension, your business’s ability to pay back the loan it’s applying for.

Just like with a personal credit score, a lot of lenders will have a limit for the business age the can work with. Again, you should ensure you fulfill a lender’s minimum business age before sinking time into applying for funding from them. Generally speaking, if your business has over 2 years of business history, then you should be good to go.

3. Business’s Revenue

Just like your personal credit and your business’s age, your business’s revenue will be a big indicator of how likely your business will be to pay off the loan that it’s asking for. As such, it is yet another important factor that underwriters consider before approving your loan.

Your business revenue will tell your potential lender how much money your business makes within a particular frame of time. Even though different lenders have different time spans that they require people who seek loans to present, but more often than not, they require people to present an annual revenue.

Just as lenders will establish minimum personal credit scores and business ages they’re willing to work with, they’ll also establish a minimum revenue they’re willing to work with. As such, you should make sure that you know their minimum requirement before you apply for a loan with them so as not to waste your time and money.

4. Risky Business

When securing financing, it’s important to see your business from the lender’s perspective. Would you invest in this? Is this business going to be profitable? How easy is it to get your money back, or how hard is it?

To get a business loan, you need to assure them that it will be successful enough and that the lender won’t lose money. Surely, investors know that every investment has inherent risk, but in order to be financially viable, they need to be at least 90% sure that you will not default on your loan. That’s very confident. The lenders will examine the following:

  • Solvency or Cash Flow How much money will be going into the business, and does that suggest profitability?

5. Collateral

Should they have to liquidate the business, will there be enough valuable assets to make up the difference in the loan?

6. It’s not cost-effective for banks

Apart from the fact that new businesses pose a greater risk than already established business, smaller businesses are also not attractive to big banks. It costs banks the same amount of money to underwrite a $1,000,000 loan as it does to underwrite a $100,000 loan. However, the higher loan will potentially bring the bank more revenue, so it’s just not cost-effective.

Eighty percent of small businesses only need loans that amount to $500,000 or less, which means that 80 percent of small business loans are expensive for banks to underwrite, and don’t return a decent profit.

7. Organization

When you are applying for a business loan, your financial documents should be meticulously detailed. You should also have extensive plans outlining how you will achieve success. This should seem reasonable and logical. In your bid to impress your lender, you should not blow your potential success out of proportion as this can be detrimental to your getting the loan.

There are plenty of resources that business owners can refer to when putting together their loan applications. The Small Business Administration, for example, provides a highly detailed loan application checklist for borrowers. Using these resources can decrease your likelihood of coming across as disorganized or unprepared.

8. Lacking a plan for the future

Having a plan and sticking to it is much more attractive than going in blind into the future in the finance world. Most banks will require that business owners have an organized, detailed and quantitative business plan in order to move forward with the loan process. It is however not uncommon for small business to not have a formal business plan or even any plan at all for that matter.

You should at least try to make a forecast of what your future earnings will be before you apply for a loan so that the lender will know if the business will be profitable or not. You should also be prepared to explain your plan for the money you want to borrow. Your pitch to lenders doesn’t need to be eloquent, but it must be straightforward. At the bare minimum, loan applicants should be prepared to explain why the want a loan and how they plan to repay it.

9. Failing to seek expert advice

Being a novice is not an acceptable excuse for not knowing what you ought to know. When it comes to making financial decisions for your business, lenders want to see that you’ve sought guidance from knowledgeable advisers. Accountants can be an important source of advice for small business owners.

It is also advisable for business owners to get financial advice from business networking groups and conduct research on the websites of the leading alternative funders, since many have detailed resource sections for small businesses about the many kinds of available capital and the best ways to prepare for funding.

10. Apathy

Too many business owners approach lenders with an apathetic attitude. In other words, they simply don’t demonstrate why they, rather than someone else, should get a loan. You should show the lender that you are very passionate about your business and getting the loan.

11. Banks are stricter post-recession

Banks have become even stricter post-recession. Banks have to prove that they’re not taking on a lot of risky investments, and since small business loans are inherently risky, banks have to turn a lot of them down. However, it seems that it looks like that there is starting to see a shift in the lending industry.

12. Lack of consistent cash flow

Banks tend to favor small business that have a steady revenue stream and consistent cash flow coming in every month. Small business that can’t demonstrate this consistency are denied loans significantly more often than not.

13. Insufficient collateral

In order to obtain a loan, you will have to be able to provide a collateral. In addition, the collateral you provide must be sufficient and viable for the type of loan you are trying to get. That’s not a problem for large businesses that own property or other big ticket assets, but it can be an insurmountable hurdle for a Small business.

14. Debt-to-income ratio

If your business already has some outstanding debts, then you will find out that a lot of banks will find it very difficult to lend money to you. In many cases, they won’t even consider lending to a business that has already taken financing.

Since many small business owners seek credit from multiple sources, especially during the start-up phase, this can be a major strike against them when applying for a loan or cash advance from a traditional bank.

15. Customer concentrations

Banks are often skeptical of businesses that report a significant bulk of their sales from only a select number of customers. Generally speaking, a lot of lenders prefer to see diversity in a business clientele as opposed to having a handful of customers. For example, a local pub or restaurant that relies mainly on its “regulars” for steady income can present a perception problem with traditional banks.

16. Personal guarantees

Personal guarantees from business owners are requirements from banks, but that also makes the owner personally responsible for paying back the loan. That’s a precarious position for those struggling to stay on top of expenses every month.

17. Economic concerns

Banks are always concerned with their own interests. They simply will not lend money to a business if they feel that the current economic conditions are unfavorable for getting the money back in a timely manner. This puts an unfair burden on small businesses to maintain revenue and keep costs down when the economy takes a bad turn.

18. Insufficient management team

Most banks will not lend money to small businesses that do not have strong top-level leadership with a noticeable chain of command, since that can bring up concerns about the organizational integrity and long-term success of a business.

19. You are blacklisted, on debt review or had a judgment against your name

If for any reason you have been blacklisted or have a judgment against your name, you will be automatically declined any loan. Under the National Credit Act, it is illegal for lenders to offer you credit under these circumstances.

Under debt review, credit is also declined as the process is aimed at getting consumers debt free. However, once the process has been completed, you get access to credit once again, with the added benefit of being completely debt free!

20. Garnishee orders

A garnishee order is a court order which empowers an employer to make deductions from an employee’s salary in order to settle an outstanding debt that the employee owes a third party (a bank, short term loan provider, store account, et al.). It shows you are already a poor payer and will more than likely reflect on your credit record. If lenders see this, they won’t lend you more money.

21. You don’t have enough income for the loan you requested

Reputable lenders will conduct an affordability assessment on you which will give them an idea of whether you will be able to cope with the loan repayments. If they find that you have too many liabilities (too may outstanding loans, bills and other commitments) they are not likely to give you credit.

22. Your job history or type of job

Some lenders do not like to lend money to people who do not have a stable income. Freelancers, contractors and even small business owners fall into this category and as such may find it difficult obtaining credit.

23. Lack of a credit history

If you have never taken a loan before, you will find it easier to get a loan right? Well, that not true. If lenders have no way of gauging how good you are at paying your outstanding loans, then they will be hesitant to lend you money. Open a store account or apply for a credit card at your bank. Make a small purchase and be prompt with your repayments. If you build up a good credit history then you will get lenders on your side.

24. You may have provided incorrect details/lied on your application

When you are filling your application form, you should try to best to fill it with truthful answers. In a bid to impress your lender, you should not inflate your earnings or lie about your debt because the lender will find out one way or the other. If you lie, you will be rejected for a loan and in the worst case scenario, you may be charged with fraud.

25. Your age

It goes without saying that if you are below the age of 18 years you will not be able to access a small business loan. However, you can also be too old to lent to. Getting a long term loan for new small business after the age of 75 can be really difficult. But you may still qualify for short term loans if you are over the age of 75.

12 SURE Tips on How to Improve your Chances of Getting a Small Loans

i. Build personal and business credit scores

Personal credit score ranges from 300 to 850 (and it goes without saying that the higher your credit score the better). Credit scores evaluates your ability to repay your personal debts, such as credit cards, car loans and a mortgage

The FICO score, commonly used in lending decisions, is based on five factors: your payment history (35% of your score), the amounts owed on credit cards and other debt (30%), how long you’ve had credit (15%), types of credit in use (10%) and recent credit inquiries (10%). Small-business lenders require a personal credit score for loan applications because they want to see how you manage debt.

Paying your bills on time is one of the ways by which you can improve your credit score. But even if you pay your bills like clockwork, credit report errors could be damaging your score. One in 4 consumers identified damaging credit report errors, according to a 2012 study by the Federal Trade Commission. However, 4 out of 5 consumers who filed a dispute got their credit report modified, the study found.

A follow-up study by the FTC found that 20% of those consumers saw a jump in their credit score after resolving errors. You can get a copy of your credit reports for free once a year at and dispute any inaccuracies you find through each of the credit bureaus’ websites. Already established small business that want to apply for bank loans can check their business credit scores (which generally range from 0 to 100) at three business credit bureaus:

Experian, Equifax and Dun & Bradstreet. More than likely, you’ll need an excellent business credit score as well as good personal credit to qualify for an SBA loan or traditional loan from a bank; this will depend on the individual lender and business factors such as your revenue, cash flow and time in business.

Generally speaking, online lenders look at personal credit scores but can be a bit more lenient when it comes to credit score requirements, as they place more emphasis on your business’s cash flow and track record.

ii. Know the lender’s minimum qualifications and requirements

Before you apply for any loan with any lender, you should make sure that you meet their minimum requirement. Some lenders may offer some flexibility if you’re underperforming in one area but over performing in another, but your best chance of getting approved is meeting or exceeding all of their minimums.

Borrowers typically need to meet minimum criteria related to credit scores, annual revenue and years in business. And lenders generally frown upon recent bankruptcies and other past delinquencies.

iii. Gather financial and legal documents

In addition to your credit score, banks and other traditional lenders typically ask for a wide range of financial and legal documents during the application process. They can include:

  • Personal and business income tax returns
  • Balance sheet and income statement
  • Personal and business bank statements
  • A photo of your driver’s license
  • Commercial leases
  • Business licenses
  • Articles of incorporation
  • A resume that shows relevant management or business experience
  • Financial projections if you have a limited operating history

Getting all these documents in place will most probably take time. The application process will however be more seamless if you take the time to keep your financial, accounting and tax records up-to-date and accurate.

However, if you need money faster, online lenders may be a better fit, as they can provide a streamlined online application process with fewer documentation requirements and faster underwriting. If you have good credit and strong business finances, some online lenders may offer you rates comparable to those for bank loans.

iv. Have a business Plan

Don’t just have a business plan, but have a strong business plan. Lenders will want to know how you plan to use the money and will want to see that you have a strong ability to repay. As such, they will require that you present them with a detailed business plan that contains the purpose for which you are requesting for the loan and how you expect it to increase your profits.

Your business plan should include current and projected financials, and clearly demonstrate that your business will have enough cash flow to cover ongoing business expenses and the new loan payments. This can give the lender more confidence in your business, increasing your chances at loan approval. Your business plan should include:

  • Company description
  • Product and/or service description
  • Management team
  • Industry analysis
  • Facilities and operations plan
  • Promotional, marketing and sales strategy
  • SWOT analysis (strengths, weaknesses, opportunities, threats)

v. Have a worthy collateral

In order to be able to get a small business loan, it goes without saying that you should have a worthy collateral to back the loan. Collateral is an asset, such as equipment, real estate or inventory that can be seized and sold by the lender if you can’t make your payments. It’s basically a way lenders can recover their money if your business fails.

SBA loans require “adequate” collateral for security on all loans, plus a personal guarantee from every owner of 20% or more of the business. A personal guarantee puts your credit score and your personal assets on the hook.

Some online lenders do not require collateral but may want a personal guarantee. Others may also take a blanket lien on your business assets — essentially another form of collateral — giving the lender the right to take business assets (real estate, inventory, equipment) to recoup an unpaid loan. Different lenders have different requirements that you should try to find out.

If you don’t have collateral to get a loan or don’t want to take on the risk of losing personal or business assets, unsecured business loans may be a better option.

vi. Know which type of loan you need

Just because you qualify for a certain type of loan does not necessarily mean that it is the best type of loan for you. Understanding the type of loan that works best for you is very important. Applying for a highly scrutinized loan like a Small Business Administration (SBA) loan when all you need is a line of credit will greatly slow down the process and possibly even end in a denial.

If a business owner is looking for an SBA loan, he should know that they have higher standards and take 30 to 90 days to complete. They will ask for much more documentation as well. If a business owner applies for a line of credit or merchant cash advance, the requirements and documents needed are less stringent.

vii. Show that you have sufficient cash flow

If you’re an existing business, banks want to see that you have demonstrated cash flow sufficient to make your monthly loan payments. They will also checkup your tax returns and the debts that you already have at hand. If you’re buying a business or starting one from scratch, you should be able to show detailed financial projections.

viii. Understand that every bank is different

If you are getting your loan from a bank, you should know that all banks are not the same. There are advantages and disadvantages that come along with every lending institution. Bigger banks are more attuned to their bigger clients, because bigger loans means that they will get bigger profits.

Even though bigger banks may still finance your small business, most at times, you will have better attention or more favorable terms from smaller banks. In addition, there are some banks that don’t lend to certain industries, such as hotels. When applying for a loan, make sure to go to a bank that actually lends to your industry.

ix. Build Relationships with the Loan Officers

It is always good to have a good relationship with your loan officer. Even though some loan officers are mere front liners with no power to help you with your loan application, it is good to note that when you build a good relationship with them, you will find that these people have a lot of power and can mean the difference between rejection and acceptance.

x. Understand Your Business’s Risk Profile

You have to understand that the lender is taking a risk. That being said, it’s best that you know what those risks are and understand how a lender is going to view those risks. The more you can show that you understand your business’s risk profile – and respect the risk the lender is taking – the more they will feel comfortable with you as a business owner.

xi. Invest in an Accounting Software

The underwriting department relies on strong figures and ratios, so you need to make sure your bookkeeping is in order. In order to do this, you should make use of accounting software’s that provides an organized presentation of your financials. It has already been mentioned that presenting an accurate picture of where your business stands will help you to secure a loan and accounting software can help you to do that.

xii. Pay off Other Debts before You Apply

The more debts you have, the less likely it is that you will be able to secure a loan and as such, it is advisable that you try to settle your outstanding debts as much as possible before you apply for a loan. Many small business owners take home bonuses every year with excess business cash, but if you’re planning to get a loan soon then you should use the cash to pay off your other debts.

In conclusion, whenever you apply for a loan and your application is rejected, try to find out the exact reason why it was reject so that you can correct it and stand a better chance of securing loans in the future.