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How to Apply for a Business Loan



  • Small business lending from financial institutions can help small businesses start up or grow.
  • Applying for short-term loans through financial institutions like a bank or credit union requires significant documentation.
  • Small business loan requirements vary by lender, but the proper preparations for a business loan application increase your chances of approval.
  • Avoid common mistakes by maintaining good records, working with professionals and understanding repayment terms.

Many small businesses require loans to start out or scale up, but figuring out how to apply for a small business loan can be confusing. Also, submitting a loan application can be an intimidating process, because it requires you to give a bank or credit union significant visibility into your business’s financial performance and projections.

Fear not! Landing a small business loan doesn’t have to be difficult. It just takes a little bit of knowledge to successfully navigate the application process and best position your business for lender approval. This guide will walk you through the process of securing a small business loan from start to finish. We’ll also introduce you to the concept of alternative lending, which might be useful for businesses unable to qualify for a conventional small business loan.

What is a small business loan?

A small business loan is a type of financing provided to an entrepreneur for the express purpose of opening or growing a small business. These include term loans from banks and credit unions. Depending on the lender, small business loans could range in value from a few hundred dollars to several million.

One common type of small business loan is the U.S. Small Business Administration’s 7(a) loan. It is one of the loan programs administered by the SBA through banks, which are the actual lenders; however, the SBA guarantees the loan, reducing risk for the lending institution if the borrower defaults. This lowers costs and opens up approval to a wider swath of candidates. SBA 7(a) loans range in value from $500 to $5.5 million.

Small business loans are generally structured in a familiar way. The lender provides a principal amount, which is paid back with interest over a predetermined amount of time. For example, if a bank gives a business a one-year loan of $10,000 with an annual percentage rate (APR) of 10%, the borrower usually pays back the loan plus interest in 12 monthly installments. In this case, the monthly payment would be about $880. When the loan is fully repaid, the borrower will have paid the lender the principal amount of $10,000 plus $550 in interest payments.

Small business loans are generally among the more affordable types of funding to secure. Depending on the lender’s requirements and the borrower’s circumstances, the interest rates for small business loans generally range from 2% to 8%.


Editor’s note: Looking for a small business loan? Fill out the questionnaire below to have our vendor partners contact you about your needs.


How to qualify for a small business loan

If all that sounds good, you might be ready to apply for small business lending. Before you rush off to the bank and fill out the paperwork, though, you should take some time to organize your documentation and consider what the lender will want to see. Taking these steps prior to filling out your loan application will improve your chances of approval.

So, what do you need?

“Applying for a conventional small business loan can be challenging,” said Rob Misheloff, founder of Smarter Finance USA. “Many providers (particularly banks and SBA lenders) don’t specify their requirements for qualification. Consequently, many small business owners spend hours preparing documents for conventional loans only to be denied, which can be a daunting and frustrating process.”

Misheloff recommends preparing the following documents before applying for a loan:

  • Two to three years of financial statements and/or tax returns
  • Accounts receivables reports
  • Minimum three months’ worth of bank statements
  • A business plan
  • Proof of ownership

Business loan application requirements

Every lender is a bit different, but these are the common factors that influence a loan application – with a closer look at why they matter.

Credit score

For an unsecured business loan, a lender will examine your personal finances, including your credit history. In this case, you will be the individual guaranteeing the small business loan, so your personal finances are important to lenders.

“Maintain a good personal credit score,” said Rob Stephens, founder of CFO Perspective. “Banks will require a personal guarantee on the debt, so good personal finances improve the odds of getting a loan.”

Cash flow

If your business is already established, your cash flow is an important consideration for a lender. They will examine your sales, revenue and expenses to determine whether you will have sufficient liquid capital each month to meet your repayment obligations.

“You need to gather cash flow statements for at least the last year,” said Jesse Silkoff, founder of MyRoofingPal. “Have them looked at by a professional so you can make sure everything is in order.”

Debt-to-income ratio

It’s not just your cash flow that might concern a lender. Debt-to-income ratio shows how leveraged your business is already. If you have a significant amount of debt on the books, it will be harder to secure another loan. Usually, lenders prefer to see less than a 30% debt-to-income ratio when issuing a new small business loan.

Business plan

When you receive a small business loan, the lender will likely want to know your plans for the money. After all, their interest is now dependent on your continued business success. Bring a detailed business plan to your lender to help convince them you’re a safe bet for a loan.

“Once you have your documentation and reports assembled, you need to write up a business plan,” Silkoff said. “Keep in mind the goal here is to show your company is financially stable and to define a use for the funds you hope to receive.”

A business plan is critical, Stephens added, especially when you don’t have a sufficient history of strong cash flow to persuade a lender.

“Be ready to show a history of steady, strong cash flow, or a business plan with a strong likelihood of sufficient cash flow to repay the debt,” Stephens said.


Sometimes a lender will require you to put up collateral to guarantee a loan. Collateral is some asset of value that a lender can fall back on if you default. For example, when you take out a mortgage to buy real estate, that real estate becomes the collateral. Foreclosure occurs when a borrower defaults on a mortgage, and the lender claims the property as recompense.

Once you’ve applied for a loan and submitted all the necessary documents, the ball is in the lender’s court. They’ll review your documentation and determine whether you should be approved or denied for the loan you are requesting.

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

Loan approval can take just a few weeks or as long as a few months depending on the lender and specific type of small business loan. SBA 7(a) loans, for example, can take up to 90 days to approve. A small business bank loan, on the other hand, could be approved as quickly as in two weeks.

If you need funding tomorrow, a small business loan won’t cut it. Small business loans are intended for starting or growing a business, not providing working capital. If you need money quickly to keep the lights on and the employees working, consider alternative lending options like a merchant cash advance or invoice factoring. These options are much more expensive than a small business loan but can provide funding in as little as 24 hours.

What payback terms can you get for your small business loan?

While small business loans vary by specific type and lender, they tend to have several things in common. These are some of the elements of a small business loan you are likely to see regardless of the lender you approach:

  • Short terms: Small business loans tend to be short-term loans, with many ranging from three to five years. However, some small business loans carry up to a 10-year term. It’s also not unheard of for SBA 7(a) loans to come with a 25-year term, but these circumstances are less common.
  • Fixed interest rate: Most small business loans have a fixed interest rate. This means the APR the lender quotes you will remain the same over the life of the loan if you are approved. A fixed interest rate makes planning to repay your loan much easier than a variable interest rate, which can fluctuate with the market.
  • Value: While small business loans can reach the multimillions in value, it is far more common for a small business loan to range from $10,000 to $500,000. These loans are commonly used to start or expand a business – think buying inventory and equipment, securing a location, and so on.

There are also repayment terms beyond the structure of the loan to look out for, Misheloff said. Two big ones are blanket liens and covenants.

“[Blanket liens are] a lien on every asset owned by the business,” Misheloff said. “Blanket liens can restrict further borrowing capabilities because they can restrict another lender’s ability to repossess assets or otherwise seek remediation of a loan gone bad.

“Loan covenants may stipulate that certain ratios (i.e., debt to assets or profitability ratios) must remain within a certain range,” he added. “If the ratios fall below a certain number, the loan may become due and payable immediately.”

Understanding the repayment terms of a loan, from the structure to individual clauses in the deal you sign, is critical to successfully paying it back. If possible, have an attorney review the terms of a loan alongside you before you sign. [Read related article: Hidden Gotchas in Your Business Loan Repayment Terms]

What are common mistakes to avoid when applying for a business loan?

Once you’re approved, it might be appealing to just take the money and run, but take a breath and think things through first. Make sure you avoid the most common mistakes small business owners make when accepting a small business loan.

Borrowing too much money

It might seem obvious, but borrowing money means you’ll have to pay it back with interest. If you don’t have the ability to repay your loan, you’re going to default. That means hard-to-repair damage to your credit score and the loss of any collateral you put up to secure the loan. If you personally guaranteed the loan, a default would also damage your personal credit score and put your own assets on the line, including your home.

“Small businesses shouldn’t borrow more than they can afford to pay back,” said Misheloff.

The moment you are approved for a loan, you should examine the terms and craft a repayment strategy. Debt is a useful tool to an entrepreneur, but failure to plan for how you’ll repay that debt could be the start of a vicious cycle of taking out more loans to cover your existing debts.

Failing to maintain strict documentation

Keeping strict documentation, both of the loan agreement and your business’s financial performance, can help you satisfy the terms of a loan with ease.

“Get a copy of the loan documents before you sign them, and actually read them,” Stephens said. “If you don’t want to read them, pay a CPA or attorney to read them.”

Stephens also recommends keeping a detailed cash flow projection to identify ahead of time when your cash might be low. That way, you can prepare to find additional liquid capital to service your debt, rather than be taken by surprise.

Triggering defaults by accident

Defaults are often associated with missed payments, but other issues could lead to default, depending on the terms of the loan.

“Realize that loan default can be triggered by many things other than missing payments,” Stephens said. “It may be caused by failing to comply with any terms of the agreement, a false statement by the borrower at any point to the lender, or a material adverse change in the borrower’s financial condition.”

You can avoid triggering defaults by always paying on time and thoroughly understanding all the repayment terms of the loan. If you maintain strict documentation, you can periodically review the terms of the loan to ensure you remain compliant with any covenants.

Can you qualify for a small business loan with bad credit?

Typically, small business lenders look for borrowers with a credit score that’s at least in the mid-600 range. Some lenders are more willing to work with low credit scores than others, though, so it’s important to shop around before giving up.

“Local banks can sometimes be more forgiving and offer more favorable rates,” Silkoff said.

However, if even local banks won’t look twice at your application because of a bad credit score, there are other loan options for businesses with bad credit. Generally, these are provided by private companies known as alternative lenders or online lenders. They tend to be more expensive, but they’re also more flexible in how they can be used, and they tend to be approved more quickly than conventional small business loans.

Borrowing responsibly can help grow a business

Taking on debt isn’t necessarily a bad thing. It can help you grow your business and position yourself for future success that would otherwise not be possible. However, irresponsible borrowing puts a business at risk of financial ruin. If you’re considering taking out a small business loan, always consult with a professional accountant first. It’s also wise to have an attorney review any loan documents before you sign them. Finally, when accepting a loan, always have a clear strategy to pay back the lender. If you keep those aspects of borrowing in mind, you should be able to make a small business loan work well for you.

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Bad Credit

Home Equity Loan With Bad Credit: Can It Be Done?



Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

Home equity loans let you turn your equity into cash, which you can use to pay for home improvements, unexpected medical expenses, or any other bills you might be facing.

Generally, lenders require at least a 620 credit score to qualify for a home equity loan. If your score isn’t quite there yet, though, you still have options.

Here’s how you may be able to get a home equity loan with bad credit:

  1. Check your credit and try to improve it
  2. Find out your debt-to-income ratio
  3. Find out how much equity you have
  4. Think about bringing on a cosigner
  5. Shop around for the best rates
  6. Consider alternatives to bad credit home equity loans

1. Check your credit and try to improve it

To start, head to and pull your credit. You get one free report from all three credit bureaus per year.

Once you have your credit report, check it for errors and evidence of identity theft, such as accounts you don’t recognize and credit cards that aren’t yours. Reporting these to the credit bureau can help improve your score. So can taking these steps:

  • Pay all your bills on time: Payment history — or your track record of payments — accounts for 35% of your score, so make it a point to pay all of your bills on time, every time.
  • Pay down your debts: Lenders want to see a credit utilization rate of 30% or less — meaning your balances account for 30% or less than your total available credit.
  • Keep credit cards open: How long your accounts have been open impacts 15% of your credit score, so avoid closing accounts — even once you’ve paid them off.
  • Avoid applying for new cards: This will result in hard credit inquiries, which can hurt your score.

Learn More: How Your Credit Score Impacts Mortgage Rates

2. Find out your debt-to-income ratio

Lenders will also consider your debt-to-income ratio (DTI) when you apply for a home equity loan. This indicates how much of your monthly income goes toward paying off debt.

How to calculate DTI: Add up your monthly bills and loan/credit card payments, and divide the total by your monthly income. Multiply that amount by 100.

For example, if you have $2,000 in debt payments and make $6,000 per month, your DTI would be 33% ($2,000 / $6,000 x 100).

Most lenders want a DTI of 43% or lower. A low DTI can help improve your chances of getting a loan, especially if you have a lower credit score, since it indicates less risk for the borrower.

3. Find out how much equity you have

How much equity you have in your home, as well as your loan-to-value ratio, will determine whether you qualify for a home equity loan — and how much you can borrow. To find out yours, you’ll need to get an appraisal, which is a professional evaluation of your home’s value. The national average cost of a home appraisal is $400, according to home remodeling site Fixr.

Once the appraisal is finished, you can calculate your loan-to-value ratio by dividing your outstanding mortgage loan balance by your home’s value.

For example: If you have $100,000 remaining on your home, and the appraisal determines it’s worth $200,000, then you have an LTV of 50% ($100,000 / $200,000). This also means you have 50% equity in the home.

Most lenders will only allow you to have a combined LTV of 85% — meaning your existing loan, plus your new home equity loan can’t equal more than 85% of your home’s value.

In this example, you’d be able to borrow $170,000 (85% of $200,000) across both your initial mortgage loan and your new home equity loan. Since your existing loan still has $100,000 on it, that’d mean you could take out a home equity loan of up to $70,000.

4. Think about bringing on a cosigner

Bringing in a family member or friend with excellent credit to cosign your bad credit loan can help your case, too. If you do go this route, make sure they understand what it means for their finances. Though you may not intend for them to make payments, they’re just as responsible for the loan as you.

Tip: If you fail to repay the loan as agreed, it could hurt the other individual’s credit score or result in collections against both of you. Make sure you’re upfront and transparent about what cosigning your loan may mean for them.

5. Shop around for the best rates

A lower credit score will typically mean a higher interest rate, so it’s incredibly important you shop around and compare your options before moving forward. Get rate quotes from at least three to five lenders, and make sure to compare each loan estimate line by line, as fees and closing costs can vary, too.

Credible makes comparing rates easy. While Credible doesn’t offer rates for home equity loans, you can get quotes for a cash-out refinance — another strategy for tapping your home equity. Get prequalified in just three minutes.

Get the cash you need and the rate you deserve

  • Compare lenders
  • Get cash out to pay off high-interest debt
  • Prequalify in just 3 minutes

Find My Loan
No annoying calls or emails from lenders!

6. Consider alternatives to bad credit home equity loans

A bad credit score can make it hard to get a home equity loan — especially one with a low interest rate. If you’re finding it difficult to qualify for an affordable one, you might consider one of these alternatives:

Cash-out refinance

Cash-out refinances replace your existing mortgage loan with a new, higher balance one. You then get the difference between the two balances in cash.

Find Out: Credit Score Needed to Refinance Your Home

Personal loans

Personal loans offer fast funding, and you don’t need collateral either. Rates can be a bit higher than on home equity loans and refinances, though, so it’s even more important to shop around. A tool like Credible can help here.

Check Out: Home Equity Loan or Personal Loan: How to Choose the Best Option

Compare multiple lenders

If you have bad credit, there are still ways to tap your home equity or borrow cash if you need it. Head to Credible to see what personal loan options and mortgage refinance rates you might qualify for. With Credible, you can easily compare prequalified rates from all of our partner lenders without leaving our platform.

About the author

Aly J. Yale

Aly J. Yale

Aly J. Yale is a mortgage and real estate authority and a contributor to Credible. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.

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A Look Back At Housing 2020: Rental Housing Gets Riskier



According to the American Housing Survey cited in a recent article, there are about 48 million rental housing units in the United States ranging from single-family homes to large multifamily apartment complexes. Of those 48 million units about 23 million are owned by individuals, according to a recent Rental Housing Finance Survey; that’s more than half of the occupied units in the country. Yet private rental housing providers have been under relentless attack in recent years increasing risks and costs. This has worsened in 2020 as I have pointed out. More risk means fewer housing units and higher prices, not a good outlook for the future.

Any business based on renting assets is based on risk. Think about the last time you went bowling. When you rent the shoes, the person behind the counter often will hold a driver’s license? Why? It’s a way of offsetting the risk that you’ll go home with the shoes either on purpose or accidentally. Nobody wants to deal with a lost driver’s license. Offsetting this risk has absolutely nothing to do with you or your trustworthiness; it is uniformly applied and routine.

Housing providers have to similarly offset the risk of allowing a stranger occupy their private property. There are several ways of doing this, including using credit checks. But lately, politicians are beginning to eliminate the credit check from the tools that housing providers can use to offset risk. Minneapolis for example has eliminated credit checks arguing that they are a “barrier” to housing.

Is race a factor in bad credit and thus a barrier to people of color to get housing? The fact is, yes, African American people have more credit issues. But would eliminating credit checks help them? The answer is, “No.”

An article in the Washington Post, “Credit scores are supposed to be race-neutral. That’s impossible,” is emblematic of how this issue plays among the public and policy makers. The author says two contradictory things. First,

“This would lead one to think that credit-score calculations can’t be biased. But factors that are included or excluded in the algorithms used to create a credit score can have the same effect as lending decisions made by prejudiced White loan officers.”

Then she writes,

“One quick way to impact your credit history is a court-ordered judgment. And Black borrowers are more likely to fare badly when taken to court by their creditors. Debt-collection lawsuits that end in default judgments also disproportionately go against Blacks, according to a 2020 Pew Charitable Trusts report.”

Logically, the right way to state this is that credit measures are biased against people who have default judgments against them, and African Americans have higher rates of defaults. Then the next question would be, “Why?” The most obvious answer is the right one, poverty is disproportionately concentrated among people of color.

But eliminating credit checks for housing won’t help that problem. If a housing provider is unable to evaluate risk based on past financial performance her only option will be to raise rents and deposit amounts in case there is a problem; that extra cash would provide a buffer if a resident stops paying rent. This won’t help anyone with less money. What’s the response to that? Ban rent increases by imposing rent control! That’s a bad idea too and won’t help either.

The answer is to figure out how people who have less money and therefore have more issues making ends meet can solve that problem and improve their credit scores. The author of the Washington Post article makes a sensible suggestion: include steady rent payments in credit scores. Some housing providers do, and it’s a great idea. But it is a positive one that actually helps the family; banning quantitative measures of past financial performance doesn’t.

The danger that unfolded in 2020 is that justifiable outrage about racism could lead to interventions that don’t address poverty and it’s negative consequences like default judgments but elimination of accepted measures of those consequences. Eliminating the evidence of poverty – struggling to pay bills – doesn’t help pay the bills! At best, these kinds of measures sweep the problem under the rug ensuring higher rents and making housing a risky business only big corporations will be able to do.

The answer is to address the broader underlying issues of poverty and increasing housing production. When there is more supply of housing providers compete with providers for residents and will be forced to bargain with potential residents, even those with dings or dents or completely destroyed credit. Housing abundance solves a housing problem while eliminating measure of risk only makes that risk higher and actually creates a housing problem.

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Can My Cosigner Take My Car?



Cosigners don’t get any rights to the vehicle they signed the loan for. However, if the cosigner is trying to take your car, it may be time to take some action.

Cosigners and Ownership

Can My Cosigner Take My Car?Cosigners can’t take the vehicle they cosigned for because their name isn’t listed on the title. A cosigner isn’t responsible for making the monthly payments, maintaining car insurance, or really anything else. Cosigners simply lend you their good credit score to help you get approved for the auto loan, and if you can’t make payments, the lender can require them to pick up the slack.

Since you’re the primary borrower on the vehicle and your name is listed on the car’s title, you have ownership rights. Your cosigner can’t come to your residence and take possession of the vehicle – even if they’re the one making the car payments right now.

If you do default on the loan and the vehicle is repossessed, the cosigner still can’t take the car.

But My Cosigner Did Take My Car!

If your cosigner did somehow take your keys and your vehicle without permission, it’s considered theft. If you want to take action, you can report the car as stolen.

However, a better first step is probably contacting the cosigner and letting them know that they don’t have any ownership rights (if you want to maintain a relationship with them). You can ask them to return the vehicle and explain that their name isn’t on the title.

Removing a Cosigner From a Car Loan

If things are dicey with your cosigner, then it may be time to consider removing them from the auto loan. The easiest way to remove a cosigner is by refinancing.

Refinancing is when you replace your current loan with another one. You can work with your current lender or another one, but most borrowers look for another lender to refinance with.

You don’t need a perfect credit score to refinance your car loan – it just has to be good or better than it was when you first got the loan. Another common requirement of refinancing is that you’ve had the loan for at least one year.

Other common requirements for refinancing are:

  • You’ve stayed current on payments throughout the loan
  • You have equity or your loan balance is equal to the vehicle’s value
  • Your car has less than 100,000 miles and is less than 10 years old

Most borrowers usually refinance to lower their loan payments. Since you’re replacing your current auto loan with another one, many borrowers try to qualify for lower interest rates or extend their loan to lower their payments. If your credit score has improved, you may even be able to get a better interest rate and remove your cosigner!

Can’t Refinance to Remove the Cosigner?

Refinancing isn’t in the cards for everyone. However, another efficient way to remove a cosigner is by selling the car. Cosigners don’t have to be present at the sale of the vehicle, since they don’t have to sign the title to transfer ownership.

If you sell the car and get an offer large enough to cover the entire balance of your loan, you and the cosigner can walk away from the auto loan scot-free.

However, many borrowers need cosigners because their credit score isn’t the best. If you want to sell your vehicle to remove your cosigner, but you’re worried you can’t get a car loan by yourself, consider a subprime auto loan for your next vehicle.

Bad Credit Auto Loans

Since many traditional car lenders don’t work with borrowers who have poor credit histories or lower credit scores, they often ask them to bring a cosigner. But what if you don’t want a cosigner (or can’t get one) on your next auto loan? Enter subprime car loans.

Subprime lenders are teamed up with special finance dealerships, and they operate remotely. When you apply for financing with a special finance dealer, you work with the special finance manager who acts as the middleman between you and the lender.

You need documents to prove you’re ready to take on an auto loan – typical things like check stubs, proof of residency, valid driver’s license, a down payment, and other assorted items depending on your credit situation. If you qualify, the lender determines what your maximum car payment can be, and you choose a vehicle you qualify for from there.

What sets subprime auto loans apart from traditional car loans is that they assist borrowers in tough credit situations and offer the opportunity for credit repair. Some in-house financing dealerships that don’t check credit reports don’t report their auto loans, which means your timely payments don’t improve your credit score.

Finding a Car Dealership Near You

The best way to improve your credit score is by paying all your bills on time. Payment history is the most influential piece of the credit score pie. There are many lenders willing to work with bad credit borrowers, you just have to know where to look!

Here at Auto Credit Express, we’ve already done the searching, and we’ve created a nationwide network of dealers that are signed up with subprime lenders. Get matched to a dealership in your area, with no cost and no obligation, by filling out our car loan request form.

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