Getting business financing comes down to convincing a lender of three things: your business earns enough to repay the money, you have a specific plan for using it, and you (personally) are creditworthy enough to stand behind it. Most lenders want at least two to three years of financial records, a personal FICO score in the mid-600s or higher, and a written business plan before they’ll take an application seriously. From there, the path splits by lender type: an online lender can fund in a day, a bank or SBA-backed loan usually takes four to eight weeks, and the real cost of the loan is always more than the interest rate on the term sheet.
What Lenders Require You to Show
Every lender is trying to answer one question: does this business generate enough cash to cover its existing obligations plus the new debt? The paperwork exists to answer that from several angles.
Financial statements are the backbone. You’ll need profit and loss statements, balance sheets, and cash flow projections, typically for the current year and the two prior years so the lender can see whether the trend is up or down. Tax returns, both personal and business, go back three years and serve as a reality check against those statements. If the numbers don’t line up, the application is usually dead on arrival. You can pull returns from your accounting software or request transcripts from the IRS.
A business plan ties the numbers to a story. Lenders expect an executive summary explaining why you need the money, a market analysis, a rundown of your management team’s experience, and projections showing how the borrowed capital will produce enough return to service the debt. They read the plan to judge whether you know how to deploy capital, not just request it.
For SBA-backed loans, you’ll also complete SBA Form 1919, which collects ownership, background, and criminal history disclosures from every individual owning 20 percent or more of the business and from all officers and directors.1Small Business Administration. Form 1919 Borrower Information Accuracy on this form is not optional. A false statement on a loan application to the SBA or any federally connected lender is a federal crime carrying fines up to $1,000,000, imprisonment up to 30 years, or both.2Office of the Law Revision Counsel. 18 USC 1014 – Loan and Credit Applications Generally
Credit Scores and the DSCR Benchmark
Your personal credit score matters even when the loan is for the business. Most conventional lenders want a FICO score of at least 680 for competitive terms; some will work with scores in the low 600s at higher interest rates. For SBA 7(a) Small Loans, the rules changed on March 1, 2026: the SBA discontinued use of the FICO Small Business Scoring Service (SBSS) score and replaced it with lender-driven underwriting focused on the business’s ability to repay.
Under those revised guidelines, lenders on 7(a) Small Loans have to assess your debt service coverage ratio directly and require at least a 1.10-to-1 DSCR on a historical or projected basis. In plain terms: for every $1.10 the business earns after operating expenses, no more than $1.00 goes to debt payments. Below that line, the lender reads new debt as pushing the business underwater.
Beyond credit and DSCR, expect scrutiny of your time in business (two years is a common minimum at traditional banks), annual revenue, existing debt, and industry risk. Volatile or seasonal industries face tighter review even with strong personal credit.
Choosing Where to Borrow
Traditional Banks
Commercial banks are still the most common source of business debt. They offer term loans, which give you a lump sum on a fixed repayment schedule, and lines of credit you draw against up to an approved limit. Banks generally carry the lowest rates, but the qualification bar is high: strong collateral, solid credit, and established revenue history. Loan amounts range from tens of thousands to hundreds of millions depending on the bank and the borrower.
SBA-Backed Loans
The SBA doesn’t lend money directly. It guarantees a portion of loans issued by participating private lenders, which lowers the lender’s risk and makes them more willing to work with businesses that couldn’t get a conventional bank loan on their own.
The 7(a) program is the SBA’s most flexible option. Standard 7(a) loans go up to $5 million; SBA Express and Export Express cap at $500,000. The funds can cover working capital, equipment, real estate, debt refinancing, and business acquisitions. The SBA guarantees up to 85 percent of loans of $150,000 or less and up to 75 percent for larger loans.3U.S. Small Business Administration. Terms, Conditions, and Eligibility Interest rates are capped by loan size, from prime plus 3 percent on loans over $350,000 to prime plus 6.5 percent on loans of $50,000 or less.
The 504 program targets long-term fixed assets: real estate, major equipment, new facilities. The maximum 504 loan is $5.5 million, with long-term fixed rates.4U.S. Small Business Administration. 504 Loans One limit worth knowing before you apply: 504 loans cannot be used for working capital or inventory. If you need cash for day-to-day operations, 7(a) is the right program.
For fiscal year 2026, the SBA waived upfront guarantee fees on 7(a) manufacturing loans up to $950,000, which is a meaningful cost reduction for smaller manufacturers.5U.S. Small Business Administration. SBA Waives Loan Fees for Small Manufacturers in Fiscal Year 2026
Online and FinTech Lenders
Online platforms prioritize speed. Automated underwriting can return approvals in as little as 24 hours, with funds in days. The tradeoff is cost: APRs commonly run from 10 percent to well over 50 percent depending on the borrower’s risk profile. That math works when you need immediate liquidity for a time-sensitive opportunity whose return clearly beats the borrowing cost. Otherwise these are a last resort.
Equipment Financing
If you’re buying specific machinery, vehicles, or technology, you can borrow against the equipment itself. An equipment loan leaves you owning the asset once it’s paid off. A lease is the alternative when the equipment is likely to be obsolete before it’s fully paid for. Rapidly depreciating technology is often better leased; long-lived assets like heavy machinery are usually worth owning.
Venture Capital and Angel Investors
Equity financing is a different model. You sell a piece of the company for capital rather than borrowing against it. Angel investors are wealthy individuals putting in their own money at early stages. Venture capital firms deploy pooled institutional money and target high-growth businesses with a clear path to an acquisition or IPO. There are no monthly payments, but you give up ownership, control, and a permanent share of future profits. This route only fits businesses with scalable models and significant growth potential.
Businesses SBA Loans Cannot Fund
Federal regulations list specific business types that are ineligible for SBA-backed financing, and some catch applicants off guard:
- Nonprofit organizations, though for-profit subsidiaries of nonprofits may qualify
- Financial businesses primarily engaged in lending, such as banks and finance companies
- Passive businesses owned by developers or landlords who don’t actively use the property acquired with loan proceeds
- Gambling businesses deriving more than one-third of gross annual revenue from legal gambling
- Businesses engaged in activity illegal under federal, state, or local law
- Political or lobbying organizations
- Speculative businesses like oil wildcatting
- Businesses with an associate currently incarcerated or under felony indictment
Businesses that previously defaulted on a federal loan and caused a loss to the government are also generally ineligible unless the SBA grants a waiver.6eCFR. 13 CFR 120.110 – What Businesses Are Ineligible for SBA Business Loans
Personal Guarantees and Collateral
This is where first-time borrowers get an unpleasant surprise. On SBA loans, every individual holding at least 20 percent of the business generally has to sign a personal guarantee.7eCFR. 13 CFR 120.160 – Loan Conditions The SBA can also require guarantees from other individuals for credit reasons regardless of ownership, though not from anyone owning less than 5 percent.
A personal guarantee means what it sounds like. If the business can’t pay, you pay. The most common form is a payment guarantee, which lets the lender go after your personal assets immediately on default without first exhausting the business’s assets. Your LLC or corporate structure does not shield you from this. Some lenders will negotiate a limited guarantee that caps your personal exposure at a set dollar amount, and some will agree to a burn-off provision where the guarantee expires after a period of on-time payments. Neither exists unless you ask for it and the lender agrees.
Collateral requirements vary by lender and loan type. The SBA may require professional appraisals of business and personal assets, and hazard insurance is mandatory on all collateral for 7(a) and 504 loans over $500,000.7eCFR. 13 CFR 120.160 – Loan Conditions Most lenders will also file a UCC-1 financing statement with your state’s Secretary of State, which gives them a security interest in your business assets.
Timeline and Closing Costs
Once your application is formally logged, underwriting begins. For SBA 7(a) loans, the SBA’s own review takes 5 to 10 business days for standard loans and 2 to 10 days for small loans. That’s only the SBA’s piece. Budget four to eight weeks from application to funding for a conventional bank loan or a standard SBA loan, and longer for larger or more complex deals. SBA Express lenders have delegated authority to process, close, and service the loan on their own, which cuts the timeline significantly.8U.S. Small Business Administration. Types of 7(a) Loans
The interest rate gets all the attention, but closing costs can add thousands to the total price of the loan. Common line items include:
- Origination fees, typically 2 to 5 percent of the loan amount. On a $500,000 loan, that’s $10,000 to $25,000 before you’ve spent a dollar of the borrowed money.
- SBA guarantee fees on SBA-backed loans, based on loan amount and guarantee percentage. Manufacturing loans up to $950,000 have waived fees through September 30, 2026.5U.S. Small Business Administration. SBA Waives Loan Fees for Small Manufacturers in Fiscal Year 2026
- Commercial appraisals for any loan secured by real estate, generally $2,000 to $5,000 for smaller properties and over $10,000 for large or complex facilities.
- Phase I Environmental Site Assessments, often required for commercial real estate purchases, typically $1,500 to $6,000. If contamination is suspected, a Phase II assessment can run from $5,000 to over $200,000.
- Attorney fees. Both you and the lender may have counsel at closing, and both sets of fees often fall on the borrower.
Ask for a full fee estimate early. Some fees are rolled into the loan; others must be paid out of pocket at closing.
Covenants: What You Agree to After Closing
Getting funded isn’t the finish line. Most business loan agreements include covenants, which are ongoing conditions you have to meet for the life of the loan. Violating them, even unintentionally, can trigger serious consequences.
Financial covenants require you to maintain certain benchmarks. A minimum DSCR is the most common; if yours drops below the required level (often 1.15-to-1 or 1.25-to-1 on conventional loans), you’re in violation even when payments are current. Lenders may also set minimum revenue thresholds or cap how much additional debt you can take on.
Reporting covenants require regular financial information. Typical requirements are annual tax returns within 120 days of year-end, quarterly financial statements within 30 days of quarter-end, and annual insurance certificates. Missing a reporting deadline is one of the most common covenant violations and is entirely preventable. Put the dates on your calendar the day you sign the loan.9Office of the Comptroller of the Currency. Comptrollers Handbook – Commercial Loans
A covenant violation that doesn’t involve a missed payment is a technical default. It gives the lender legal grounds to demand full repayment immediately. In practice, most lenders don’t accelerate the loan unless fraud is involved; the more common response is a formal breach letter, tighter reporting requirements, and placement on the lender’s internal watch list. Either way, the leverage shifts to the lender the moment the covenant breaks, which is why the terms deserve as much attention before signing as the rate does.