How to get a business loan guide

There are countless reasons why you might be thinking about a business loan. It might be part of a planned expansion, you might need some urgent cash to replace a big piece of equipment, or you might have a dip in your cash flow and need to keep things rolling smoothly. 

Whether you’re upgrading your espresso machine, dreaming of expanding your cozy shop, or just trying to ride out a storm, a business loan might be your answer. But before you start filling in a loan application, let’s take a look at your options, because there might be a more suitable alternative if you’re a business that takes card payments.

Decide what type of business loan you need

Loans come in all shapes and sizes. So, your very first step is deciding what kind of finance you actually need. There's a few factors that'll help you make this decision including:

• The loan amount: How much cash are you looking for? Is it a big chunk or are you looking for smaller, flexible amounts to manage day-to-day expenses?
• Purpose of the loan: What’s the money for? Whether it’s a new piece of equipment, a renovation, or just smoothing out cash flow, different loans cater to different needs.
• Repayment terms: How quickly can you pay it back? Some loans have fixed repayment periods, while business lines of credit offer more flexibility. Make sure you pick a loan that matches your ability to repay.
• Interest rates: The cost of borrowing can vary. Small Business Administration (SBA) loans, for example, often have lower rates, but we'll get onto this a little more in the next section.

Once you’ve got a handle on your needs, you can start looking at the best loan for you. Options include:

Term loans

These are the “Big Cash Infusion” option and are also referred to as traditional business loans. If you’ve got a major project or need a large sum for something like a new restaurant space or a full-blown renovation, a term loans might be for you. They’re designed to cover individual expenses and are repaid over a set period, usually five years or more. Interest rates typically range from 8% to 30%, depending on the lender and your business’s financial health.

You can get term loans from most banks and online lenders. How much you can borrow will depend on your industry, what you need the loan for, and your business’s financial status. These loans can be secured (backed by something valuable like property) or unsecured (no collateral required), and you can use them for stuff like buying new gear or expanding your business. 

Pros:

• Easy to find from banks and online lenders
• Covers a range of business expenses

Cons:

• Many lenders want high business revenue and a personal guarantee (a promise that you’ll pay if your business can’t)
• Startups and newer businesses might face steeper interest rates

SBA loans

A small business loan, AKA SBA loans or SBA guaranteed loans, are backed by the US Small Business Administration, and are like the VIP pass of business loans. Small business loans are super popular because they come with some great perks and various programs to fit different needs.

• 7(a) loans: For working capital up to $5 million. Depending on the amount and lender, 7(a) loans can be secured (backed by something valuable) or unsecured (no collateral needed) so this is a very common SBA loan to have.
• Microloans: Need a little cash for expansion or growth? Microloans let you borrow up to $50,000 for those smaller-scale needs.
• 504 loans: Perfect for big-ticket items like commercial real estate or equipment. These loans are secured against property, so you’ll need to put up some kind of asset.

Pros:

• Backed by the SBA and available through lenders nationwide
• Competitive interest rates for different loan programs
• Open to startups and borrowers with bad credit
• Supports underserved communities

Cons:

• The application process can be lengthy
• It takes longer to receive funds compared to some other loans

Business lines of credit

Lines of credit work like business credit cards, but with a bigger punch. They're great for covering larger expenses than a typical credit card can handle. With a business line of credit, you get a higher funding limit, making it perfect for those midsize expenses that don’t fit neatly into your usual budget.

How it works is that you get a credit limit and a draw period, basically a time frame during which you can borrow money. You’re then able to borrow, repay, and borrow again as many times as you need within that period. This makes it super handy for covering cash flow gaps, especially if your revenue is a bit unpredictable but you still have bills to pay.

Some lenders might only require you to pay interest during the draw period. Interest rates usually start around 7.5% to 9%, but they can climb up to 60% with some lenders. Once the draw period is over, you’ll need to pay back what you owe, but you might be able to renew your line of credit for continued access.

Pros:

• Helps with cash flow
• Easier to qualify for than some loans
• Builds a relationship with your lender
• Can help build your own business credit
• Reusable as you repay

Cons:

• May come with extra fees not found in other business loans
• Interest rates can be higher than some loans
• Short repayment periods
• No business credit card rewards
• Draw period limits how long you have access to the funds

Equipment financing

If you’re eyeing some new equipment, like a high-tech coffee machine or more advanced POS software, this loan is tailored just for that. You borrow specifically for the equipment and pay it off over time.

How much you can borrow depends on what you’re buying, but most banks and online lenders are pretty flexible. You might be able to cover the full cost of your equipment with this type of loan. Repayment usually happens in fixed monthly installments, though some lenders might let you pay quarterly or annually.

Interest rates are influenced by your business’s finances, revenue, and personal credit history, as well as the equipment itself. Since the equipment secures the loan, interest rates are often lower compared to unsecured loans.

Pros:

• Fast funding when you need it
• No need for additional collateral
• Flexible repayment terms

Cons:

• Can only be used for equipment
• Might require a down payment
• Larger loan amounts can mean higher monthly payments
• The loan term could outlast the equipment’s useful life

TIP: A business loan might not be your only option. There's a ton of other alternatives  out there including personal loans and crowdfunding. Check out our full guide on small business financing options to learn more about what some other business owners are doing, other small business financing options, and how to get a startup business loan with no money.

Eligibility and business loan requirements

What will you need to qualify for a business loan? Here’s the rundown on the key stuff:

Credit score

Your business credit score and your personal credit score might both be relevant when it comes to getting a loan. It’s a snapshot of your financial health and tells lenders how reliable you are at repaying debts. Most lenders prefer a score of 680 or higher, but some might go lower or higher depending on the loan type and amount. If your score isn’t where you want it to be, there are still options available. You might just face higher interest rates or stricter terms.

Business plan

Your business plan should lay out what your business does, your goals, and how you plan to use the loan money. Include details like your target market, competition, and how you plan to grow. The more thorough and realistic your plan, the better. It shows lenders you’ve got a clear strategy and know what you’re doing.

Financial projections

Lenders want to see that you’re not just dreaming big but also planning sensibly. Financial projections include forecasts of your revenue, expenses, and profits over the next few years. That will include cash flow, profit and loss and balance sheet projections based on solid data and realistic assumptions. They help SBA lenders understand your business’s future cash flow and ensure you’ll be able to handle the loan payments. Basically, they want to see that your business is heading in a positive direction and can support the extra debt.

Collateral information

Collateral something valuable you offer as security for the loan.Security could be anything from equipment and real estate to inventory. If you default on the loan, the lender can claim the collateral to recover their money. Providing collateral can make it easier to obtain a loan and may also get you better terms.

With these elements in place, you’ll be in a strong position to get the funding you need.

Four steps to apply for a business loan

If you’ve decided that a business loan is right for you, it’s time to apply.Here’s your game plan:

1. Identify your loan needs 

Understand exactly what you actually need the cash for (you don’t want to take on debt without good reason). Whether it’s buying equipment, covering day-to-day expenses, or expanding your business empire, know your goal. Be specific—this will help you choose the best business loan. Small business loans (including SBA loans) are the most common choice for many businesses.

2. Research and compare lenders

Compare online lenders, traditional banks, and even credit unions to see who’s offering the best interest rates and terms. Don’t just jump at the first financial institution that says yes—look at the annual percentage rates (APRs), repayment terms, and whether they offer SBA-backed loans or standard business loans. 

3. Gather financial information

You’ll need to show lenders that your business is worth the risk. Have your business plan, financial projections, and revenue numbers ready. They’ll want to know all about your business’s health, so be prepared to flaunt those numbers (think annual revenue, profit margins, and expenses). If you’ve got business assets or collateral (hello, equipment or real estate), mention that too—it can make lenders more likely to lend you money.

4. Submit the loan application

Once you’re ready to submit your business loan application, be aware that some lenders (especially those offering SBA guaranteed loans) take a little longer to approve, so be patient. If all goes well, you'll be signing that loan agreement and getting the funds to fuel your next big business move in no time!

There’s a good chance that lenders may come back with more questions, so be ready with your facts and figures.

Tips to maximize your loan approval chances

So, you’ve done your research, got your docs ready, and now it’s time to really seal the deal. Here are some quick tips to boost your chances of getting that loan approved and keeping your business dreams alive.

Improve credit score

If your personal credit score or business credit score isn’t quite where it should be, take some time to boost it before applying. Pay off debts, reduce credit card balances, and make sure there are no errors on your credit report (you’d be surprised how often this happens). The higher your score, the better the interest rates and terms you’ll snag!

Prepare a strong business plan 

This is your chance to show lenders you know what you’re doing and how the loan will help your business grow. Be clear about your business needs, how you plan to spend the money, and—most importantly—how you’ll pay it back. Lenders want to know that you've got your act together, so make sure your plan is tight and leaves no room for doubt.

Create a clear cash flow forecast 

A realistic cash flow forecast isn’t just useful for lenders to see you can handle monthly paymentsIt gives you a great insight into your own financials. Comparing your forecasts against your actuals will tell you a lot about whether your business is behaving the way you expected, giving you confidence if you’re getting it right, and raising alarms if there’s a chance you’ll run low on cash.

TIP: If you're unsure about what a cash flow statement is, check out our how to make a cash flow statement guide for a step-by-step breakdown that simplifies the process and helps you get a clear picture of your business's finances.

Fast-Track your growth with Epos Now Capital

Epos Now Capital offers a straightforward finance solution that may be right for you if you accept card payments. Whether you need to invest in marketing, manage your cash flow, or just tackle an unexpected expense, this financing solution has your back—offering small and medium-sized enterprises (SMEs) up to $1 million in funding, with repayments linked to your card takings.

No complicated paperwork, no hidden fees, and best of all, no fixed monthly payments. You only repay when your customers pay you. Why Epos Now Capital?

• Financing from $1,000 to $1,000,000
• No interest, no early repayment fees
• Cash in less than 48 hours
• Payments match your cash flow

If you're an Epos Now customer, you’re already halfway there! No need to switch payment providers, and best of all, there's no need for a business plan. Just apply, get your cash, and keep your business rolling.

Liked this blog? Check out our other financial resources including out 'What is a good current ratio' guide and our guide on 'how to calculate gross profit margins'.