How Hard is it to Get a Business Loan? - Credibly (2024)

Whether you’re starting a new business or looking to expand, securing capital is crucial. Beyond retained earnings, business loans are the most common source of this funding. Yet more than 80% of loan applications are denied. So, how hard is it to get a business loan?

Several factors influence access to financing, depending on the type of loan you seek. Each loan option has different considerations to meet, and some are much harder to secure. The amount you can borrow, how you can use the money, and the term lengths vary widely.

Why Is it Hard To Get a Business Loan? (Top Reasons Loans Get Denied)

There are several individual issues that affect how hard it is to get a business loan. Here are some typical issues that affect small business owners:

1. Poor Credit Histories

Most lenders will check your personal credit score as well as your business’s credit history before they approve a loan. While you may still qualify for a loan, a low score can have a big impact on your interest rate. Luckily, you have the power to improve your business and personal credit score.

Hiring an accountant is a good way to help you improve your credit scores, and many lenders will see it as a good sign that you’ve consulted an expert for financial advice.

2. Limited Cash Flow

If your annual revenue doesn’t exceed your expenses, you will have difficulty securing a bank loan. Improving your cash flow before you get a loan can feel like a chicken-and-egg scenario. However, unless you can prove you can pay a loan back, it’s much harder to secure business financing.

3. Weak Business Plan

Many lenders, but not all, will evaluate your business plan to assess the risk of offering financing. A strong business model may mean you won’t need to offer collateral. However, if it’s clear that you haven’t put enough thought into your operating model, your application is likely to get tossed.

Take the time to create a thorough summary of your products, market, and financials. If you haven’t formed a solid business plan, your chances of securing a loan from a bank or alternative lender will be much lower.

4. Not Enough Business History

Many lenders will look at how long you’ve been in business when they consider lending to assess the risk. If you haven’t opened the doors yet, or your business is still too new to get a reliable read on your cash flow, you may have trouble with traditional business loans.

5. Too Many Applications

While it may seem like the best way to ensure you get funding is by applying everywhere, lenders see this as a red flag. If your credit report shows multiple requests for loans, the lender may assume you’re desperate or inexperienced.

If you want to pre-qualify for a loan, make sure that your lender of choice only does a “soft credit pull” to ensure it doesn’t affect your record.

6. High Debt

Lenders will check your business’s debt-to-income ratio to determine whether or not you can borrow more. Their formulas vary, but if your annual net operating income covers less than half of your debt, you may have to wait until you’ve paid down your current debt.

Your personal debt-to-income ratio will also factor into this equation. If a lender sees that your personal finances are dire, they may not trust you to manage money for your business.

Stop Fretting Over How Hard It Is To Get a Business Loan (Get These Types of Business Loans Instead)

How difficult is it to get a business loan? While all of the personal factors above will play a role in your acceptance, not every type of loan weighs them equally.

1. Business Term Loans

These loans have long been the most popular source of business funding for borrowers. They can come from traditional lenders, like a bank, or online lenders. You can expect term lengths of 5 years or less, and they can help you access capital within a few days.

Business term loans offer a fixed rate or flat fee interest so that payments will stay predictable. It’s also simple to find out how much you can borrow. However, they have regulated restrictions, so it can be hard to meet the qualifications. For these loans, it’s a good idea to check with local institutions that prefer to invest in the community.

2. Short-Term Loans

A short-term business loan can help you access up to $400,000 within a couple of days.

They typically require repayment in less than a year. While they may have a higher nominal interest rate, the shorter payment period means you pay less to borrow.

Combined with the lower borrowing limits, short-term loans aren’t as risky as longer-term alternatives, and they can help you build your business credit score.

3. Lines of Credit

A credit line offers increased flexibility for spending. Rather than loaning you a set amount, you can spend up to a maximum limit. With credit lines, you only pay interest on what you owe. Credit lines are often the easiest way for a business to increase its spending potential because they come with a wide range of limits and interest rates.

Some lines of credit use collateral, such as equity in property or stocks, to secure them. Others are unsecured. These will base the maximum limit and interest on your income and credit reports. A business credit card is a common type of unsecured credit line.

4. SBA Loans

The Small Business Administration is a government agency dedicated to helping businesses secure loans. Rather than offering to finance, they guarantee to finance a significant amount of a small business loan to lower the risk for lenders. They favor disadvantaged companies that may have difficulty securing traditional loans.

There are several types of SBA loans. They typically have terms in the range of 10-25 years. Some of them require extensive scrutiny, and you may need to offer collateral. SBA loans are notoriously slow-moving. While they are easy to apply for and offer good interest rates, many of them get rejected.

5. Equipment Financing

Equipment financing helps businesses get equipment and technology to expand business operations. You can use them to purchase things like vehicles, manufacturing equipment, or other operating supplies. Software, computers, or infrastructure equipment such as solar panels and HVAC systems also qualify as equipment.

They work similar to a personal auto loan, and the interest rate can be reasonably low depending on your credit.

The equipment you’re purchasing acts as the collateral, so you won’t need to worry about securing the loan. You may also choose to lease equipment for a monthly payment.

6. Merchant Cash Advances

While it’s not a loan, merchant cash advances (MCA) can be helpful for businesses with poor credit or no collateral. The provider will offer you a cash advance based on your projected sales. They will establish your fees based on a risk assessment.

MCAs offer flexible remittance plans. You can set up your account to automatically deduct a certain percentage of your credit and debit card sales. This means that even when sales are down, you’ll still be able to afford payments. Alternatively, you can choose fixed daily or weekly withdrawals, so you’ll always know exactly how much you owe.

It’s Not Hard To Get a Business Loan When You Have the Right Support and Guidance

Finding the best type of business financing requires careful planning. If your business is still in those delicate first few years, having access to funding can make or break you. At Credibly, we don’t want you to jump through hoops to secure a loan.

That’s why we offer right-sized capital using a comprehensive suite of loans and other financing options tailored to your unique business needs. Our flexible, transparent rates and terms are designed to support the business community. Better yet, we’ll get you funded in days, not weeks or months.

At Credibly, we know you’re more than a bank statement. Our process goes beyond the numbers to get to know you and your future business potential. We can help you unlock the resources you need at every stage to help your business grow. Our loan experts are ready and waiting to provide support and advice throughout our relationship.