Getting a business loan ranges from moderately difficult to very challenging, depending on the lender type and your qualifications. Traditional bank and SBA loans have the highest rejection rates, while alternative lenders and or alternative financing options like merchant cash advances may offer easier approval for businesses with lower credit scores or limited history.
Key takeaways:
- Credit score, cash flow, and time in business are the three most critical factors determining loan approval difficulty
- Alternative lenders typically approve loans in hours, compared to 2-3 months for SBA loans
- Minimum requirements vary widely: credit scores from 550-680+, monthly revenue from $20,000+, and 6 months to 2+ years in business
- Improving your credit score and reducing debt before applying significantly increases approval chances
What factors make getting a business loan difficult? The primary barriers include poor personal or business credit scores (below 620), insufficient cash flow to demonstrate repayment ability, and limited time in business (under 2 years). Traditional lenders also scrutinize your debt-to-income ratio, business plan strength, and recent credit inquiries when making approval decisions.
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. 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 the typical issues that affect small business owners:
- Poor credit histories – Most lenders require a minimum personal credit score of 620-680 for traditional loans, though some alternative lenders accept scores as low as 500-550. A low score can significantly increase your cost of capital or result in denial.
- Limited cash flow – Lenders typically require monthly revenue of at least $15,000-$20,000 for working capital loans. If your annual revenue doesn’t exceed your expenses, you will have difficulty securing a bank loan.
- Weak business plan – Many lenders 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, but insufficient planning often results in rejection.
- Not enough business history – Most traditional lenders require at least 2 years in business, while alternative lenders may accept businesses with 6-12 months of operating history.
- Too many applications – Multiple loan inquiries on your credit report signal desperation to lenders. Always request a “soft credit pull” when pre-qualifying to avoid damaging your credit score.
- High debt – Lenders check your debt-to-income ratio; if your annual net operating income covers less than 50% of your debt, you may need to pay down existing obligations first. Your personal debt-to-income ratio also factors into this equation.
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.
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.
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Business loan and alternative financing types that may be easier to qualify for
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.
Business financing types comparison
| Loan type | Approval difficulty | Typical timeline | Credit requirements | Best use case |
| Short-term loans | Low to Moderate | 4-48 hours | 550+ credit score | Quick capital needs, bridging gaps |
| Lines of credit | Moderate | 1-2 weeks | 700+ credit score | Flexible ongoing expenses |
| SBA loans | High | 2-3 months | 680+ credit score | Large purchases, real estate |
| Long-term loans | Moderate to High | 1-6 months | 620+ credit score | Long-term investments, expansion |
| Equipment financing | Low to Moderate | 1-7 days | 550+ credit score | Purchasing equipment, vehicles |
| Merchant cash advances | Low | 4-48 hours | 550+ credit score | Businesses with steady card sales |
1. Short-term loans
Difficulty rating: Low to moderate – Easier approval requirements with credit scores as low as 550 accepted, but higher costs may offset the accessibility.
A short-term business loan can help you access up to $600,000 in as fast as 4-48 hours.
They typically require repayment in terms up to 24 months. While they may have a higher nominal cost of capital, the shorter payment period means you pay less total over the life of the loan.
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.
2. Lines of credit
Difficulty rating: Moderate – Approval depends heavily on revenue consistency and credit history, with limits ranging from $5,000 to $300,000+.
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.
3. SBA loans
Difficulty rating: High – Extensive documentation required, 2-3 month approval timeline, and 680+ credit score typically needed, but offers the lowest interest rates.
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.
4. Long-term loans
Difficulty rating: Moderate to high – Requires strong credit (620+), established business history, and thorough documentation, but offers predictable payments and competitive rates.
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 10 years or less, and alternative lenders can help you access capital within 1-6 months.
Business term loans offer a fixed rate or flat fee interest so that payments will stay predictable. Interest rates typically range from 7-20% depending on creditworthiness and lender type. 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.
5. Equipment financing
Difficulty rating: Low to moderate – Equipment serves as collateral, making approval easier even with credit scores of 550+. Approval typically takes 1-7 days.
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
Difficulty rating: Low – Requires a minimum 550 credit score; approval based primarily on monthly card sales volume. Funding typically available within 4-48 hours.
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, with factor rates typically ranging from 1.1 to 1.5.
MCAs offer flexible remittance plans. You can choose to reconcile your previous month’s sales to better manage your cash flow. 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.
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Getting a business loan is easier with the right support
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 have 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.
Frequently asked questions
What credit score do you need for a business loan? Credit score requirements vary by loan type: traditional bank loans typically require 680+, SBA loans need 680+, while alternative lenders may approve borrowers with scores as low as 550.
How can I improve my chances of loan approval? Improve your personal and business credit scores, reduce existing debt, prepare thorough financial documentation, and ensure your monthly revenue exceeds $15,000-$20,000 before applying.
How long does it take to get approved for a business loan? Approval timelines can range from 4-48 hours for alternative lenders and merchant cash advances to 2-3 months for SBA loans. Traditional bank loans typically take 2-4 weeks or more.
Can I get business financing with bad credit? Yes, options like merchant cash advances, equipment financing, and some short-term loans accept credit scores below 600. However, expect higher interest rates and lower borrowing limits.
What documents do I need to apply for a business loan? Most lenders require bank statements (3-6 months), tax returns, profit and loss statements, business licenses, and a valid ID. SBA loans require additional documentation including a detailed business plan.
