Here are six things to keep in mind before you apply for your business loan.


1. The amount of time you’ve been in business matters. If your business has at least three years of documented financial performance, you may be eligible to apply for a loan with banks (national and local), credit unions, the Small Business Administration (SBA) or an online small business lender.

Been in business less than three years but at least one year? You may qualify for some SBA loans, for funding through local business incubators, or through some online lenders. If you’ve been in business for less than one year, you may qualify to borrow through the SBA’s microloan program (maximum loan amounts are $35,000), or some online lenders. 

2. Your personal credit may be part of the approval process. If you don’t have an established business credit history a small business lender may require that your personal finances, including your credit history and credit score, be part of the lending decision. While some online small business lenders may place less emphasis on your credit history/score compared to traditional lenders, they generally require that your business meet a minimum amount of monthly sales or revenue criterion to offset their risk.

3. The easier the application, the less favorable the terms may be. Many online small business lenders tout an efficient application and funding processes that’s handled entirely online. Compared to the significant amounts of paperwork and time required to secure a small business loan through a traditional lender, that convenience may be an ideal fit for your needs. However, it’s important to understand the terms of any loan or financing arrangement, particularly when there’s a simple approval process: Many online small business lenders charge interest rates that are at least twice as high as traditional lenders, according to an analysis by the Board of Governors of the Federal Reserve System. 

4. Small business loans can be structured in a variety of ways. If you apply for a small business loan through a bank, credit union or the SBA, the amount borrowed, terms of the loan, and repayment plan may be fairly straightforward: You borrow a certain amount of money, pay interest/fees on the loan, and repay what you borrow monthly, in a fixed amount. Though some online lenders also provide small business loans using this structure, many include creative financing arrangements, like merchant cash advances, invoice factoring or asset-based loans that use your equipment as collateral. These types of small business loans may be a valuable tool your business can leverage to ensure a healthy cash flow, but make sure you understand the total costs associated with such financing and how the repayment of what you borrow is structured.

5. How much you want to borrow has bearing on your options. It can be difficult to secure financing through a traditional lender when you don’t need to borrow a significant amount of money. If you intend to borrow no more than a few thousand dollars, or simply want to know that you have access to financing in case of emergency, online lenders may be a more suitable choice for your needs (though some will finance up to $200,000). 

6. It pays to shop around. Interest rates remain at historic lows, and the small business lending space includes plenty of competition. Some online lenders allow customers to access small business financing from any number of lenders at the same time, which empowers borrowers to take advantage of more competitive loan rates that may become available in the market (especially once you’ve begun to establish more years in business, and a credit history.