Getting a business loan is harder than getting a personal loan, and the difficulty depends almost entirely on your business's age, your personal credit history, and how much money you need
Banks do not lend to businesses the way they lend to people. When you borrow for a car or a house, the bank holds collateral — they can repossess the car or foreclose on the house if you stop paying. A business is harder to repossess. So banks protect themselves by looking at your personal credit score, your business's cash flow, and often your personal assets as backup. If your business is brand new, has uneven income, or you have a credit score below 680, most traditional banks will say no.
The difficulty also depends on what you are borrowing for. A loan to buy equipment that holds its value is easier to get than a loan to cover operating costs or payroll. Banks want to know the money will generate income that lets you pay them back — not just keep the business alive.
Key Takeaways
- Traditional banks require a business to be at least two years old, show consistent profit, and have a personal credit score of 680 or higher.
- You will need to provide tax returns, bank statements, a business plan, and often a personal may provide — meaning you are personally liable if the business cannot pay.
- The entire process from process to funding usually takes four to eight weeks, and rejection is common even with decent credit.
- If a traditional bank declines you, the next options are credit unions, online lenders, or the Small Business Administration (SBA), each with different speed and cost trade-offs.
- The amount you can borrow is usually capped at two to three times your annual business profit, or sometimes at your personal net worth.
What banks examine before they say yes or no
A bank's lending decision rests on five things: your personal credit score, your business's age, your business's profit history, the collateral you can offer, and your personal net worth. If any one of these is weak, the loan becomes much harder to get.
Personal credit score matters because the bank sees it as a signal of whether you pay your debts. Most banks want a score of 680 or higher. If yours is below 650, traditional banks will almost certainly decline. Your score reflects your payment history on credit cards, personal loans, and any past bankruptcies or collections. A business can be profitable and still have an owner with poor credit — the bank will still say no.
Business age is a hard threshold for most traditional banks. They want to see at least two years of tax returns. A business younger than that is considered too risky because it has not survived a full business cycle. Some banks will go down to 18 months if your personal credit is excellent, but one-year-old businesses are almost always rejected by traditional lenders.
Profit history means the bank wants to see that your business actually makes money. They will ask for your last two years of tax returns and your current year's profit-and-loss statement. They are looking for consistent or growing profit, not just revenue. A business that brings in $500,000 but spends $480,000 to do it is not attractive to a lender — the bank needs to see that you have money left over to pay them back.
Collateral is something of value the bank can seize if you do not pay. This might be business equipment, inventory, accounts receivable (money your customers owe you), or real estate. The bank will lend you less than the collateral is worth — usually 50 to 80 percent of its value — because they need a cushion if they have to sell it quickly.
Personal net worth is what you own minus what you owe. Banks often require a personal may provide, which means you are personally responsible for the loan if the business cannot pay. They want to know you have assets they could pursue if that happens. If you have no savings, no home equity, and no other assets, the bank sees you as having nothing to lose by walking away from the business.
The documents you will need to gather
Before you walk into a bank or submit an online process, collect these documents. Having them ready speeds up the process and shows the bank you are organized.
Personal documents: Your personal tax returns for the last two years, your personal credit report (you can get this free at annualcreditreport.com), and a personal financial statement listing your assets and debts.
Business documents: Your business tax returns for the last two years (or one year if the business is 18 to 24 months old), your current year's profit-and-loss statement and balance sheet, and your business bank statements for the last three to six months. If you are a sole proprietor, the bank may treat your business and personal finances as the same thing, so the line between personal and business documents blurs.
Business plan: A one- to three-page document explaining what your business does, who your customers are, how you make money, and what you plan to do with the loan. This does not need to be elaborate — banks care more about whether you have thought through how the loan will help the business than about polished writing.
Collateral documentation: If you are offering equipment, real estate, or inventory as collateral, bring documentation of what it is and what it is worth. For real estate, this might be a recent appraisal or property tax assessment. For equipment, a list with purchase dates and current condition.
How the approval process actually works
Once you submit your process, the bank assigns it to a loan officer. That person reviews your documents, pulls your credit report, and may call your accountant or business references. They are looking for red flags: missed payments, tax liens, lawsuits, or a business that is losing money.
If the loan officer thinks you are a reasonable risk, they send your process to the bank's underwriting department. Underwriters are more conservative than loan officers — their job is to catch problems. They verify your income by contacting your bank and sometimes your customers. They may order a commercial credit report on your business, which is separate from your personal credit report and reflects how you have paid business vendors and creditors.
If underwriting approves you, the bank sends you a loan agreement. This is a long document that spells out the interest rate, the repayment schedule, what happens if you miss a payment, and what collateral secures the loan. You sign it, and the bank funds the money — usually by depositing it into your business bank account.
The entire process takes four to eight weeks for a traditional bank. Online lenders can move faster — sometimes in one to two weeks — but they usually charge higher interest rates and may have stricter requirements about how you use the money.
Why banks say no, and what to do next
The most common reasons for rejection are: your business is too new, your personal credit score is too low, your business is not profitable, or you do not have enough collateral. If a traditional bank declines you, you have other options, though each comes with trade-offs.
Credit unions sometimes have looser lending standards than banks, especially if you are a member. They may accept a business that is 18 months old instead of two years, or overlook a lower credit score if you have a strong personal relationship with the credit union. Interest rates are often lower than online lenders. The downside is that the approval process is slower — sometimes eight to twelve weeks — and you have to be a member.
Online lenders approve faster — sometimes in days — and have looser credit requirements. But they charge much higher interest rates, sometimes 10 to 30 percent annually compared to 6 to 10 percent at a bank. They also often require weekly or daily repayment, which can strain cash flow. Use online lenders only if you need money urgently and can afford the higher cost.
The Small Business Administration (SBA) does not lend money directly. Instead, it guarantees loans made by banks and online lenders, which means the SBA promises to pay the bank back if you do not. This may provide makes banks willing to lend to riskier borrowers — people with lower credit scores, newer businesses, or less collateral. SBA loans take longer to process — eight to twelve weeks — but the interest rates are lower than online lenders and the terms are more flexible. You explore through a bank or online lender that participates in the SBA program, not directly to the SBA.
Friends and family loans are faster and have no credit requirements, but they risk your personal relationships. If the business struggles and you cannot repay, you may damage a relationship you value. If you go this route, treat it like a real loan: put the terms in writing, set a repayment schedule, and pay interest (even if it is lower than a bank would charge).
How much you can borrow, and what it will cost
The amount a bank will lend you is usually capped at two to three times your annual business profit. If your business makes $100,000 a year in profit, expect to borrow between $200,000 and $300,000 at most. Some banks use your personal net worth instead — they will lend you up to a percentage of what you own. The exact formula varies by bank and by the type of loan.
The cost of the loan depends on the interest rate and the repayment term. A traditional bank might charge 6 to 10 percent interest on a three- to five-year loan. An online lender might charge 10 to 30 percent on a one- to three-year loan. The difference matters: a $50,000 loan at 8 percent over five years costs you about $9,300 in interest. The same loan at 20 percent costs you about $27,000 in interest.
Some loans also have origination fees — a percentage of the loan amount the bank charges upfront to process the process. These range from 1 to 5 percent. A $50,000 loan with a 3 percent origination fee costs you $1,500 before you even start repaying the principal.
When a personal may provide means you are personally liable
Most business loans require a personal may provide. This means you are signing a document that says if the business cannot pay the loan, you will pay it personally. The bank can come after your personal assets — your savings, your house, your car — to collect.
This is why your personal credit score and personal net worth matter so much. The bank is not just lending to your business; it is lending to you, with the business as the primary way you will repay. If the business fails, the bank expects you to cover the debt from your personal finances.
Some lenders will release you from the personal may provide after you have made on-time payments for a certain period — usually three to five years. Ask about this when you are negotiating the loan terms. It is not may provide, but it is worth requesting.
Frequently Asked Questions
Can I get a business loan if my business is less than two years old?
Most traditional banks will decline you, but some credit unions and online lenders will consider businesses that are 12 to 18 months old. You will need excellent personal credit, strong collateral, and a clear explanation of how the loan will help the business grow. SBA loans sometimes have more flexibility on business age than traditional banks.
What if my business is profitable but I have bad personal credit?
Traditional banks will likely decline you because they weight personal credit heavily. Your best options are credit unions (which may overlook lower credit if you have a relationship with them), online lenders (which care more about business cash flow than personal credit), or SBA loans (which are designed for borrowers with weaker credit profiles).
Do I have to put up collateral?
Most loans require collateral or a personal may provide, or both. Unsecured loans — loans with no collateral — exist but are rare and come with much higher interest rates. If you have strong personal credit and your business is very profitable, you might find an unsecured option, but expect to pay for the privilege.
How long does it take to get the money after I am approved?
Once the bank approves you and you sign the loan agreement, funding usually happens within one to five business days. The bank deposits the money into your business bank account. The entire process from process to funding takes four to eight weeks at a traditional bank, one to two weeks at an online lender, and eight to twelve weeks for an SBA loan.
What happens if I miss a payment?
The loan agreement spells out the consequences. Usually, you have a grace period of 10 to 15 days before the bank charges a late fee. If you miss multiple payments, the bank can declare the loan in default and demand when ready repayment of the entire balance. This can trigger a lawsuit and damage your personal and business credit. If you think you will miss a payment, contact the bank when ready — some will work with you on a temporary payment plan.