How Easy Is It to Get a Business Loan?

How easy is it to get a small business loan? According to a study from a few years ago, out of the small businesses (with less than $5 million in revenue) that applied for a bank loan in a three-month period, only 34 percent were successful. According to a different study, 23 percent of business owners who were turned down didn’t even know why they were denied. Startups are by far the most difficult businesses to get loans for; entrepreneurs tend to rely on their personal savings, credit cards, venture capitalists, angel investors, and crowdfunding rather than banks.

Is it easy to get a business loan? Usually not. The median small business loan is around $135,000, and unlike with mortgages, the banks are taking a huge risk on whether or not they’re getting that money back: According to Bloomberg, about 80 percent of small businesses fail within the first 18 months. Banks aren’t going to risk that much capital on a startup, especially one run by someone who doesn’t appear to know what they’re doing.

The answer to the question, “Is it easy to get a business loan?” is no. But it’s not impossible! These are some things to keep in mind when figuring out if it will be difficult for you.

What Traditional Banks Look At

  • “Good Character”: If you feel like you’re being scrutinized under a microscope, you are, in a sense. One of the factors a lender will often look at when you’re applying for a business loan is this very vague notion: your character. Luckily, that usually relates to numbers, like your credit score, rather than one person’s opinion.
  • The Purpose: No one wants to accidentally support a pyramid scheme, so the nature of the business should be clear, especially for SBA-guaranteed loans like the 7(a) loan program.
  • The Likelihood You’ll Be Able to Pay it Back: How easy is it to get a small business loan? That depends on how easy will it be for you to prove that you can pay it back, even if the business fails. You’ll often need to have some sort of collateral along with a strong business plan to prove that this is a secure investment.

Making a Lender 95 Percent Positive

This last factor is often the most important. Most traditional small business loans are offered at an interest rate between six and nine percent. To protect themselves in case you default on the loan, banks will set an interest rate that is higher than the probability that you won’t pay the loan back. That means that you need to make them at least 95 percent sure that you’ll be able to pay it back (since typical interest rates start out around 6 percent). The answer to the question, “Is it easy to get a business loan?” depends on your ability to give them that confidence.

The Information You Should Have

In order to get to that high level of confidence with a traditional lender, come prepared with quite a bit of paperwork. Note that all of this information should be thorough and generally positive.

  • Your personal credit history
  • Your business credit history
  • Personal and business financial statements
  • Projected financial statements
  • A detailed business plan
  • A year’s worth of cash-flow projections
  • Personal guarantees from principal owners
  • Tax forms
  • Other legal documents

What Most People Don’t Realize About Getting Small Business Loans

There are only a handful of ways to be perfect, and there are numerous ways to fail.

  • Enthusiasm is important, but detailed, realistic plans are more important. You shouldn’t be either apathetic or vague.
  • Understand that your business credit history is different from your personal credit history. These are two different factors, though they are closely linked.
  • Banks hate lawsuits, too. If you’re in a field or industry plagued with lawsuits, you might qualify for a loan but the bank still might be lending-shy.
  • There are other means of getting a loan. When asking, “How easy is it to get a small business loan?” many people focus on getting traditional loans from brick-and-mortar banks, which can be difficult. But there are other business funding options for getting fast, flexible financing, like merchant cash advances, equipment loans, and other kinds of lending.

While getting a business loan may be hard when going the traditional route, it’s much less stressful when you’re working with an experienced online lender like BFS Capital. Apply for a small business loan today.