Business Finance Guide · Loans
Get the right small business loan, not just any loan
Loan types, real approval rates and how to put together an application lenders approve.
A small business loan can fund inventory, equipment, a new location or a slow season, but the right type of loan matters as much as the approval itself.
Borrowing is routine for small businesses. In the Federal Reserve’s 2025 Small Business Credit Survey of 6,525 employer firms, 44% used loans on a regular basis and 38% applied for a loan, line of credit or merchant cash advance in the prior 12 months. The most common reasons were to pay operating expenses (56% of applicants) and to expand or pursue a new opportunity (46%).
Getting the money is harder. Only 42% of applicants received the full amount they sought, and approval odds varied widely by product, lender and the age and size of the business.
The main types of small business loans
Small business loan types
| Best for | Typical term | Speed | Cost | |
|---|---|---|---|---|
| Bank term loan | Expansion, equipment, refinancing | 1-10 years | Weeks | Lower; needs strong credit |
| SBA 7(a) loan | Most purposes, up to $5 million | Up to 10 years; 25 for real estate | Weeks to months | Capped by SBA |
| SBA 504 loan | Buildings and long-life equipment | 10, 20 or 25 years | Weeks to months | Fixed rate |
| Equipment loan | Vehicles, machines, kitchens | Life of the equipment | Days to weeks | Moderate; equipment is collateral |
| Line of credit | Seasonal gaps, short-term needs | Revolving, renewed yearly | Days to weeks | Interest only on what you use |
| Microloan | Startups, up to $50,000 | Up to 7 years | Weeks | Moderate; often includes coaching |
| Online term loan | Fast cash, thinner credit | 3 months-5 years | Days | Higher |
| Merchant cash advance | Last resort | Repaid from daily sales | Days | Highest; not a loan |
Match the loan to the use. Long-lived assets such as a building or a delivery van belong on long-term loans; short gaps in cash belong on a line of credit. Paying for a 20-year asset with a two-year loan squeezes cash flow, and paying for payroll with a 10-year loan leaves you paying for last year’s wages long after they are gone.
Approval odds by product
Products backed by a specific asset, such as equipment loans and mortgages, had the highest full approval rates in 2025. SBA loans had the lowest full approval rate and the highest denial rate, partly because their thorough underwriting serves borrowers who could not get credit elsewhere on reasonable terms.
Applicants fully approved, by product (2025)
Share of loan, line of credit and cash advance applicants for each product. Source: Federal Reserve Banks, 2026 Report on Employer Firms (2025 Small Business Credit Survey).
Older and larger firms get approved more often
Time in business and revenue are two of the strongest signals in the survey. Firms in business more than 20 years were fully approved 63% of the time, compared with 48% for firms five years old or younger. Firms with more than $10 million in revenue were fully approved 76% of the time; firms under $100,000, only 37%.
Applicants fully approved, by annual revenue (2025)
Source: Federal Reserve Banks, 2026 Report on Employer Firms. Not adjusted for credit risk or profitability.
What a loan really costs
Compare loans by total cost, not only the monthly payment. A longer term lowers the payment but raises the total interest. Use the calculator to test your own numbers; the default shows a $150,000 loan at 10.5% for 10 years.
Small business loan payment calculator
Estimates only. Fees, variable rates and payment schedules change the real cost; ask each lender for the APR.
What lenders look for: the five C’s of credit
- Character: your credit history, business history and reputation.
- Capacity: cash flow to make payments. Many banks look for $1.25 of cash for every $1.00 of loan payments.
- Capital: how much of your own money is in the business.
- Collateral: assets the lender can claim if the loan is not repaid.
- Conditions: the purpose of the loan, the economy and your industry.
Lenders weigh both your business and personal credit. In 2025, 59% of firms with debt had signed a personal guarantee.
How to apply, step by step
Your loan application plan
- Define the needWrite down the amount, the use and how the loan will be repaid from cash flow.
- Check your creditPull your personal reports and your business credit files and fix errors.
- Gather documentsTwo to three years of business and personal tax returns, year-to-date profit and loss statement and balance sheet, bank statements, debt schedule, formation documents and licenses.
- Write a short planOne or two pages on the business, the market and how the money creates revenue. Lenders read this closely for startups.
- Start with your own bankSmall banks fully approved 57% of applicants in 2025, the highest of any lender type.
- Compare offers by APR and total costInclude origination fees, prepayment penalties and collateral requirements.
- Get free helpSCORE mentors and the Small Business Development Center review loan packages at no cost.
Free advisers at the Sacramento Valley Small Business Development Center and the SCORE Sacramento chapter help owners prepare loan packages, and the SBA’s free Lender Match tool connects you with SBA lenders in the region.
How much should you borrow?
Borrow enough to finish the project with a cushion, but no more than your cash flow can repay comfortably. Start from your profit and loss statement: take your average monthly cash from operations and divide by the 1.25 coverage many banks expect. If the business generates $10,000 a month, a loan payment of about $8,000 is the most a lender is likely to approve, and a lower payment leaves room for a slow season.
Under-borrowing is also a risk. Owners who request too little sometimes run out of money halfway through a build-out, then must return to the lender in a weaker position. Price the whole project, including installation, permits, training and a contingency of 10% or more.
Questions to ask every lender
- What is the annual percentage rate (APR), including all fees?
- Is the rate fixed or variable, and what is it tied to?
- What collateral and personal guarantees are required?
- Is there a prepayment penalty?
- Are there financial covenants, such as minimum cash balances or coverage ratios?
- How long will approval and funding take?
- What happens if I miss a payment?
Common mistakes
- Comparing only monthly payments. A longer term can hide a much higher total cost.
- Applying to many lenders at once. Multiple credit checks and incomplete applications slow you down. Start with one or two strong fits.
- Using short-term money for long-term assets. Match the term to the asset.
- Signing without reading the guarantee. Know exactly what personal assets are at risk.
Key terms
- APR: the yearly cost of credit, including interest and most fees, expressed as a percentage.
- Collateral: assets pledged to secure a loan.
- Debt service coverage ratio: cash available for loan payments divided by the payments.
- Covenant: a condition in a loan agreement, such as keeping a minimum cash balance.
- Personal guarantee: a promise by an owner to repay the loan personally if the business cannot.
The bottom line: know what you need and why, start with your own bank, bring a complete package and compare offers on APR and total cost. A well-matched loan is a growth tool; a mismatched one becomes a monthly burden.
Free help in the Sacramento region
You do not have to work through these decisions alone. SCORE Sacramento pairs owners with volunteer mentors, many of them retired executives, bankers and accountants, at no cost. The Sacramento Valley Small Business Development Center offers free one-on-one advising on financing, budgeting and financial statements. The SBA’s Sacramento District Office can explain loan programs and connect you with lenders, and community lenders such as California Capital and Opening Doors serve owners who need smaller loans or extra support. Browse our Business Resources and the free business help guide for more.
Key takeaways
- 38% of small firms applied for a loan, line of credit or cash advance in 2025; 42% of applicants got the full amount.
- Equipment loans had the highest full approval rate (71%); SBA loans the lowest (32%).
- Firms over 20 years old and over $10 million in revenue were approved far more often.
- Match the loan term to the life of what you are buying, and compare offers by APR and total cost.
- Start with your own bank: small banks fully approved 57% of applicants.
Frequently asked questions
What credit score do I need for a small business loan?
There is no single minimum. Banks often look for personal scores in the high 600s or above for conventional loans, while online lenders and microlenders may accept lower scores at a higher cost.
How long does it take to get a small business loan?
Online lenders can fund in days. Bank and SBA loans usually take several weeks to a few months, depending on the loan size and how complete your application is.
Can a startup get a small business loan?
Yes, but it is harder. Startups often use SBA microloans, SBA 7(a) loans with a strong plan and owner investment, equipment loans, or community lenders that include coaching.
Do I need collateral for a small business loan?
Often, yes. Lenders usually take business assets as collateral and ask owners to sign a personal guarantee. For SBA 7(a) loans of $50,000 or less, SBA does not require collateral.
What documents do I need for a business loan?
Expect business and personal tax returns, a recent profit and loss statement and balance sheet, bank statements, a debt schedule, formation documents, licenses and a short explanation of how you will use and repay the money.
Sources
- Federal Reserve Banks: 2026 Report on Employer Firms (2025 Small Business Credit Survey)
- SBA: 7(a) loans
- SBA lender resources: Types of 7(a) loans, terms, guaranty and maximum rates
- SBA: 504 loans
- SBA: Microloans
- SBA: Lender Match
Keep reading on Inksight
- Business Credit vs. Personal Credit: What Every Small Business Owner Should Know
- How to Choose a Business Structure in California: Sole Proprietorship, LLC, S Corp or C Corp
- Business Banking 101: How to Choose and Open a Business Bank Account
- Small Business Funding Options: Loans, Grants and Investors
- Business Resources: all guides →
