Business Loans: Types, Requirements & What Lenders Look For

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Types of business loans

SBA 7(a)

The SBA's main loan program. Up to $5 million for working capital, equipment, buying a business, refinancing business debt or buying owner-occupied property. Partly guaranteed by the SBA, so lenders can offer longer terms.

Best for: Most small businesses with steady cash flow.

SBA 504

Long-term, fixed-rate financing for owner-occupied commercial real estate and major equipment. Typically about 50% from a bank, 40% from a Certified Development Company (CDC) and around 10% from you (more for startups or special-purpose buildings).

Best for: Buying or building your own premises.

SBA Express

A faster version of 7(a) for smaller amounts, up to $500,000, often used for lines of credit and working capital.

Best for: Quicker decisions on smaller needs.

SBA Microloans

Loans up to $50,000 made through nonprofit intermediaries, often with business coaching.

Best for: Startups and very small businesses.

Owner-occupied commercial mortgage

A loan to buy or refinance a building your business uses. For SBA loans your business generally must occupy at least 51% of an existing building (60% of a new one).

Best for: Businesses tired of paying rent.

Investment commercial real estate

Loans for properties you lease to others, such as retail, office, warehouses or apartment buildings with 5+ units. Lenders focus on the property's income and your experience.

Best for: Investors buying income property.

Equipment financing

Loans or leases where the equipment itself is the main collateral, from trucks and machinery to medical equipment.

Best for: Buying vehicles, machinery or technology.

Business line of credit

A credit line you draw on and repay as needed, usually renewed each year.

Best for: Seasonal cash flow and short-term needs.

Business acquisition loan

Financing to buy an existing business, often through SBA 7(a). Lenders look at the business's historical cash flow, a valuation and your experience to run it.

Best for: Buying a business or a partner's share.

Invoice financing or factoring

Cash now against unpaid customer invoices. Factoring sells the invoices; invoice financing borrows against them.

Best for: Businesses with slow-paying customers.

Merchant cash advance

An advance repaid from a share of future card sales. Fast, but often very expensive. Treat it as a last resort and compare the true cost.

Best for: Short-term emergencies only.

Investor (DSCR) loans

For 1–4 unit rental properties, qualified on the rent instead of your personal income.

Best for: Residential rental investors.

What lenders look at: the "5 Cs" of credit

1. Character and credit

Your personal and business credit history, any past bankruptcies, liens or defaults, and your experience in the industry. Every owner with 20% or more is usually checked and asked to guarantee the loan.

2. Capacity (cash flow)

Can the business repay? Lenders compare the cash the business generates with all its loan payments: the debt service coverage ratio (DSCR). Many want at least 1.15 to 1.25, meaning $1.15 to $1.25 of cash flow for every $1 of payments. They use your tax returns, not just projections.

3. Capital (your investment)

How much of your own money is in the business or the deal. For SBA loans to startups and business purchases, expect to put in at least 10%; commercial property and riskier deals often need 15% to 30%.

4. Collateral

Assets that secure the loan: the building or equipment being financed, business assets, and sometimes personal real estate. SBA loans can't be declined only for lack of collateral, but lenders must take what's available.

5. Conditions

What the money is for, the state of your industry and local economy, how long you've been in business, and how much you depend on a few customers.

Time in business

Two or more years of tax returns makes approval much easier. Startups need a detailed business plan, realistic projections, owner experience in the same field and more money down.

Is my type of business eligible?

Most for-profit businesses qualify for some kind of financing. For SBA loans the business must generally:

Be for-profit, operate in the US and meet the SBA's size standards for its industry.

Be owned by people who meet SBA eligibility rules. Under rules effective October 1, 2026, owners and required guarantors generally must be US citizens or US nationals.

Use the money for a sound business purpose and show it can repay.

Usually not eligible for SBA: lending and investment firms, passive real estate investors (landlords), speculative businesses, businesses earning most revenue from gambling, pyramid sales, lobbying, and any business that is illegal under federal law.

Lenders also look harder at higher-risk industries and startups, and may ask for more equity or collateral.

Documents to gather

Business tax returns, last 2 to 3 years
Personal tax returns for each 20%+ owner, last 2 to 3 years
Year-to-date profit and loss statement and balance sheet
Business debt schedule (who you owe, balances, payments)
Recent business bank statements (often 3 to 12 months)
Personal financial statement for each owner (SBA Form 413 for SBA loans)
Accounts receivable and payable aging reports
Articles of organization, operating agreement or bylaws, EIN, licenses
Business plan and projections (startups and expansions)
Resumes showing owners' experience
For property or equipment: purchase contract, quotes, lease
For buying a business: purchase agreement, seller's tax returns and financials, valuation

Business loan readiness check

Eight quick questions. You'll see how ready you look, which loan types may fit, and what to prepare.

Common questions

How long does my business need to be open to get a loan?

Many banks look for at least two years of business tax returns. Newer businesses and startups can still qualify for some SBA loans, but lenders expect strong owner experience in the same industry, a solid business plan and more money put in by the owners.

What credit score do I need for a business loan?

It varies by lender and loan type. Banks often look for good personal credit (commonly the high 600s or above) for every owner who will guarantee the loan, along with a clean business credit history. Recent late payments, collections or tax liens are the biggest concerns.

Do I have to personally guarantee a business loan?

Usually, yes. SBA loans require a personal guarantee from anyone who owns 20% or more of the business, and most bank loans to small businesses require one too.

Can I get an SBA loan to buy rental properties?

Generally no. Passive real estate investment isn't an eligible SBA use. Investors usually use DSCR (investor) loans instead, which qualify on the property's rental income.

How long does an SBA loan take?

Often 30 to 90 days for an SBA 7(a) loan, depending on how complete your paperwork is, the size of the loan and whether real estate is involved. SBA Express loans can be quicker.

What is a merchant cash advance?

A fast advance repaid from a share of your future card sales. It's easy to get but often very expensive when you work out the real yearly cost. Compare carefully and read every term before you sign.

Business loans: what lenders need to say yes

Types of business loans

SBA 7(a)

SBA 504

SBA Express

SBA Microloans

Owner-occupied commercial mortgage

Investment commercial real estate

Equipment financing

Business line of credit

Business acquisition loan

Invoice financing or factoring

Merchant cash advance

Investor (DSCR) loans

What lenders look at: the "5 Cs" of credit

1. Character and credit

2. Capacity (cash flow)

3. Capital (your investment)

4. Collateral

5. Conditions

Time in business

Is my type of business eligible?

Documents to gather

Business loan readiness check

Common questions

Your next step

Talk through your business loan