Guide
Tips on getting a business loan — and managing the debt after
Getting approved and staying comfortable afterwards are two different skills. Most advice covers only the first.
On this page
Most guidance on business loans stops at approval, as though the money arriving were the end of the problem. It is the beginning of a different one. Getting approved and staying comfortable afterwards are separate skills, and the second is where businesses more often come unstuck.
This covers both: how to present a file that gets a good answer, and how to service the result without it becoming the thing that runs your business.
1. Before you apply
Two questions are worth settling honestly before you approach anyone, because they determine whether the borrowing helps.
What is the money for, precisely? "Growth" is not an answer an underwriter can assess, and more importantly it is not one you can assess. A specific use — 40 tonnes of stock ahead of the season, a second van, sixteen weeks of payroll while a contract ramps — lets you estimate the return and pick the right product. Vague purposes correlate strongly with borrowing the wrong amount on the wrong terms.
What can you actually service? Lenders generally want a debt service coverage ratio of at least 1.25 — $1.25 of operating income for every $1 of debt payments. Run that calculation yourself first, on your weakest trading months rather than your average, particularly for products that collect daily or weekly. If the answer is uncomfortable, the offer is too large regardless of what you are approved for.
2. What underwriters actually weigh
Requirements vary, but nearly every provider assesses the same four things, and strength in one can offset weakness in another.
- Time in businessMany revenue-based products want at least six months; bank and SBA products typically want two years or more.
- RevenueUsually monthly or annual deposits, verified from bank statements. Revenue-based products lean on this far more heavily than on credit.
- Credit profileOften the owner's personal credit as well as the business's, particularly for lower-cost and 0% products.
- IndustrySome sectors are restricted or priced differently based on the provider's own loss history, regardless of how your business is performing.
Lenders also look for evidence that you have invested your own time or money into the business. An owner with nothing at stake is a harder file to approve, and this is stated explicitly in SBA guidance.
3. Assembling the file
The single highest-leverage thing you can do is arrive with a complete file. This is not about impressing anyone. It is that lenders move at the speed of your worst-organised document, and each round trip costs you the time to find the document plus the time your file spends waiting to be picked back up.
- Business and personal tax returns, ideally two years
- Profit and loss statements, current
- Balance sheet, current
- Cash flow projections
- Corporate documentation — formation papers, ownership structure, licences
- Recent business bank statements, typically three to twelve months
- A short written explanation of the amount requested and its use
Clean books beat good books Underwriters are not primarily looking for impressive numbers; they are looking for numbers they can rely on. Consistent, reconciled statements from a properly separated business account do more for a marginal file than an extra few points of margin. Commingled personal and business finances are one of the most common reasons an otherwise sound application stalls.
4. Shopping without damaging your credit
A soft pull checks your credit without affecting your score, and you can do it repeatedly with no consequence. A hard pull is recorded and can lower your score slightly, and several in a short window compound — which matters enormously if you are comparing.
So: pre-qualify on soft pulls first, across as many providers as you like, and establish where you stand before spending a single hard inquiry. Ask explicitly which type is being run before you submit anything, because some providers run a hard inquiry before showing you a single number.
When you do have offers, compare them on total dollar cost over the full term with all fees included — not on headline rates, which are quoted in incompatible units across this market. Our guide to comparing cost of capital works through the conversion.
5. Managing the debt afterwards
The money lands and the discipline shifts. A few habits separate borrowing that works from borrowing that quietly takes over.
- Spend it on what you saidPurpose drift is the most common failure mode. Money borrowed for stock and spent on general costs still has to be repaid, but without the return that justified it.
- Automate the payment and treat it as fixedDebt service belongs alongside rent and payroll, not in the discretionary pile that gets settled with whatever is left.
- Track the real cost as you goEspecially on daily-draw products, where the amount leaving is easy to lose sight of. Total it monthly and compare it to what the borrowing is earning.
- Keep a buffer that is not the credit facilityA line of credit held open as emergency cover is sensible. Relying on drawing it further when the buffer is already drawn is not.
- Do not stackTaking a second advance while a first is running means two providers drawing on the same daily revenue. Many agreements prohibit it, and it is the most reliable route from a cash problem to a solvency problem.
6. If repayment becomes difficult
The single most useful piece of advice here is to make contact early. Providers have restructuring options — deferrals, extended terms, temporary reductions — and those options narrow considerably once payments have already been missed. A call made three weeks before a problem is a different conversation from a call made three weeks after.
Be wary of solving a debt problem with more debt at a higher price. Refinancing into cheaper, longer money is a legitimate move; taking an advance to cover the payments on an existing advance is not, and it is how manageable situations become unmanageable ones.
7. Common questions
How much should I borrow?
The amount the specific purpose requires, not the maximum you are approved for. Approval limits are set by what the provider is willing to risk, which is a different question from what your business can comfortably service.
Does it help to apply to several lenders at once?
Pre-qualifying widely on soft pulls, yes. Submitting full applications with hard inquiries to many providers simultaneously, no — the inquiries compound and can worsen the terms you are subsequently offered.
Should I pay off early?
On an APR product, usually yes: interest accrues on the outstanding balance, so early repayment saves real money — check for prepayment penalties first. On a factor-rate product, the cost is fixed at the outset and does not fall, so there is no saving in paying early.
Is a personal guarantee negotiable?
Occasionally in scope or amount, rarely in existence. It is very common in small business lending, including most SBA loans. Read it carefully rather than treating it as boilerplate — it makes you personally liable if the business cannot repay.
Figures on this page describe each funding type generally, based on published market ranges. They are not offers, and they are not specific to any one company. Your own rate, amount and terms depend entirely on the provider’s underwriting and your qualifications. Nothing here is financial advice.