Invoice Factoring: Is Selling Your Invoices Still Worth It?

You have a business idea, a plan, and the drive to make it work. But when you start looking for funding, you hit a wall. Most lenders want one-two years of operating history, strong revenue, and established credit. When you are just getting started, you have none of that. So, do startup business loans actually exist, or is the whole concept a myth?

The short answer: yes, they exist. But the landscape looks very different from what established businesses have access to. There is no single product labeled "startup business loan" sitting on a shelf waiting for you. Instead, there are several funding paths specifically designed for new businesses, each with different requirements, costs, and tradeoffs. At Fundwell, we work with new business owners regularly and help them navigate these options, so we know which paths actually lead to funding and which are dead ends.

This guide breaks down what is realistically available, what you need to qualify, and how to give yourself the best shot at getting funded as a new business.

Why Getting a Business Loan as a Startup Is Harder

It is not your imagination. Lenders are more cautious with new businesses, and the numbers confirm it. According to the Bureau of Labor Statistics, about one in five new businesses close within their first year, and nearly half do not survive past five years. A major reason? Insufficient capital. Newer firms are also significantly less likely to receive the full amount of financing they request compared to established businesses. The primary reason is risk. A business with no track record gives lenders very little to evaluate beyond the owner's personal credit and the strength of their business plan.

That said, "harder" does not mean "impossible." It means you need to know where to look and what to prepare. The lenders and products that work for a five-year-old company generating $500,000 in annual revenue are different from the ones that work for a business that launched three months ago.

Startup Business Loan Options That Actually Work

If you are a new business owner looking for capital, these are the realistic funding paths available to you. Each has its own qualification criteria, and the right one depends on how far along your business is and what you need the money for.

SBA Microloans

The SBA Microloan program provides up to $50,000 through nonprofit intermediary lenders, with the average microloan coming in around $13,000 according to current SBA data. These loans are specifically designed for startups and newer businesses that cannot qualify for larger SBA programs. Interest rates typically range from 8% to 13%, and repayment terms go up to six years. Many microloan providers also offer business training and mentorship as part of the package, which can be valuable when you are still building your operational foundation.

The tradeoff is the loan size. If you need more than $50,000, you will need to look at other options or combine a microloan with additional funding.

SBA 7(a) Loans

The SBA 7(a) program is the most widely used government-backed small business loan, with maximums up to $5 million. While these loans are available to startups, the qualification bar is higher than microloans. You will typically need a strong personal credit score (680+), a solid business plan, and often some form of collateral or personal guarantee. Current SBA 7(a) interest rates range from approximately 9.75% to 14.75%.

An encouraging trend: according to SBA loan program performance data, more than half of all SBA 7(a) loans approved in early 2025 were for amounts under $150,000, suggesting these loans are increasingly accessible to smaller and newer businesses.

Business Lines of Credit

A business line of credit gives you revolving access to capital that you draw from as needed. Some online lenders offer lines of credit to businesses with as little as six months of operating history. This can be a smart first move for startups because it provides a financial safety net without requiring you to borrow a fixed amount upfront. You only pay interest on what you use, and the funds replenish as you pay them back.

Business Credit Cards

Business credit cards are one of the most accessible forms of startup funding. Many do not require business revenue or operating history since approval is based largely on your personal credit. Cards with 0% introductory APR periods can effectively provide interest-free short-term financing for the first 12 to 18 months. Beyond the funding itself, using a business credit card responsibly builds your business credit history, which opens doors to larger financing down the road.

Revenue-Based Financing

Once your startup begins generating revenue, even if you are only a few months in, revenue-based financing becomes an option. Instead of evaluating your credit score or years in business, RBF providers focus on your monthly revenue to determine how much you can borrow and what your repayment looks like. Payments flex with your sales, so if you have a slow month, you pay less. This makes RBF particularly well suited for startups with growing but unpredictable revenue. Fundwell's revenue-based financing works exactly this way, and we regularly fund businesses that are less than a year old.

Equipment Financing

If your startup needs specific equipment to operate, equipment financing uses the equipment itself as collateral. Because the lender can repossess the asset if you default, these loans are easier to qualify for and often available to newer businesses. You can typically finance 80% to 100% of the equipment cost, with terms that match the useful life of the asset. This is a practical option for startups in industries like construction, manufacturing, food service, and healthcare where equipment costs are a major barrier to getting started.

Microloans from Nonprofit Lenders

Beyond the SBA program, numerous nonprofit organizations and community development financial institutions (CDFIs) provide microloans to startups. These lenders are mission-driven and often focus on underserved communities, women-owned businesses, veteran-owned businesses, and minority entrepreneurs. Qualification requirements tend to be more flexible than traditional lenders, and many offer business coaching alongside the funding.

Personal Loans

When your business is too new to qualify for any business financing, a personal loan is sometimes the bridge that gets you started. Personal loans are based entirely on your personal credit and income, with no business requirements. The risk is significant, since you are personally liable for repayment regardless of how the business performs. This approach works best for small initial amounts when you have strong personal credit and a clear plan for transitioning to business financing as the company grows.

Startup Funding Options That Do Not Require Repayment

Not all startup funding comes in the form of a loan. These alternatives provide capital without creating debt, though each comes with its own tradeoffs.

Small Business Grants

Federal and state governments, private foundations, and corporations offer grants to small businesses. The USA.gov notes that while there are no federal grants specifically for starting a business, several targeted programs exist, though most are targeted at specific industries like research, technology, or exporting. Private grants often focus on underrepresented founders, including women, minorities, and veterans. The upside is obvious: free money with no repayment. The downside is intense competition and a lengthy application process with no guarantee of success.

Crowdfunding

Platforms like Kickstarter, Indiegogo, and GoFundMe let you raise capital from your future customers and supporters. Crowdfunding works best for consumer-facing businesses with a product people can get excited about. It doubles as market validation, since a successful campaign proves demand before you invest heavily in production. The tradeoff is the effort required to create and promote a compelling campaign, plus platform fees that typically run 5% to 10% of the amount raised.

Friends and Family

Many startups get their initial funding from personal networks. If you go this route, treat it like a professional transaction. Put the terms in writing, clarify whether the money is a loan or an equity investment, and set clear expectations about repayment or returns. The personal relationships at stake make clear documentation more important, not less.

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What Lenders Look For in a Startup Loan Application

Even with limited business history, there are concrete steps you can take to strengthen your application and improve your chances of getting funded.

Personal Credit Score

When your business is new, your personal credit score carries most of the weight. Traditional banks and SBA lenders generally want to see scores of 680 or higher. Online lenders may work with scores as low as 550 to 600. Before applying, check your credit and address any errors or outstanding issues that could be dragging your score down.

Business Plan

A strong business plan is not optional for startup financing. Lenders need to see that you understand your market, have realistic financial projections, and have a clear strategy for generating revenue and repaying the loan. Your plan does not need to be 50 pages long, but it should clearly cover your business model, target market, competitive landscape, revenue projections, and how you plan to use the funds.

Industry Experience

Lenders want to know that the person behind the business has relevant experience. If you are opening a restaurant, having 10 years of restaurant management experience matters. Your track record in the industry signals to lenders that you understand the operational realities and are not going in blind.

Collateral or Personal Guarantee

Because startups lack business assets and operating history, many lenders require either collateral (personal real estate, equipment, savings) or a personal guarantee. This means you are putting personal assets on the line, which increases the lender's confidence but also increases your risk. Some loan options require no collateral, particularly online lenders and revenue-based financing, though they may charge higher rates to compensate.

Financial Documentation

Even without years of business financials, you can prepare documentation that demonstrates readiness. Most lenders will want to see:

• Personal tax returns (two to three years)
• Personal bank statements (three to six months)
• Business bank statements if available
• Projected profit and loss statement
• Cash flow projections
• Business registration documents and EIN

How to Improve Your Chances of Getting Approved

Getting a loan as a startup requires more preparation than an established business. These steps can meaningfully improve your odds.

• Start building business credit immediately. Open a business bank account, get a business credit card, and pay everything on time. Even a few months of positive credit history makes a difference.
• Separate your personal and business finances. This is one of the first things lenders look for. A dedicated business bank account shows you are running a legitimate operation.
• Start small and build up. Your first business loan does not need to be $500,000. A smaller loan that you repay successfully creates a track record that makes the next, larger loan easier to get.
• Apply to the right lenders. Do not waste time applying at a traditional bank if you have six months of history and a 620 credit score. Target online lenders, SBA microloans, and alternative financing options where your profile actually fits.
• Get your financials in order before you apply. Clean, organized financial documents signal competence. Messy or incomplete paperwork signals risk, even if the underlying business is solid.
• Consider a co-signer. If your personal credit or financial profile is borderline, a co-signer with strong credit can help you qualify for better terms.

Common Mistakes to Avoid When Seeking Startup Funding

New business owners often make avoidable errors that cost them time, money, or both.

• Borrowing too much too soon. It is tempting to take every dollar offered, but excess debt in the early stages can cripple a business before it has a chance to grow. Borrow what you need, not what you can get.
• Ignoring the total cost of borrowing. A fast approval with a high factor rate can end up costing significantly more than waiting a few weeks for a lower-rate option. Always calculate the total repayment amount before signing. Our guide on business loan rates by credit score can help you benchmark what you should expect to pay.
• Mixing personal and business finances. This makes accounting harder, complicates tax filings, and signals to lenders that you are not running a professional operation.
• Not having a repayment plan. Before borrowing, map out exactly how your business will generate the revenue to make payments. If the math does not work on paper, it will not work in practice.
• Falling for predatory lenders. Some lenders target desperate startup owners with extremely high rates and unfavorable terms. If the deal sounds too good or the pressure to sign is too high, walk away. The SCORE, a nonprofit partner of the SBA, offers free mentorship and resources to help new business owners evaluate loan options and avoid predatory terms.

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Get Your Startup Funded

Startup business loans do exist, but finding the right one requires knowing where to look and being prepared when you apply. The funding landscape for new businesses is broader than most people realize, spanning SBA microloans, lines of credit, revenue-based financing, equipment loans, grants, and more.

The most important thing is to match the financing to where your business is right now. Do not force a fit with a product you are not ready for. Start with what you qualify for, use it wisely, repay it on time, and each successful step opens the door to larger and more favorable financing as your business grows.

Fundwell helps startup and early-stage business owners find the right funding option through a single, simple application. Whether you need a small business loan, a line of credit, or flexible revenue-based financing, we match you with the best fit for your situation. See what you qualify for today.

Frequently Asked Questions

Can I get a business loan with no revenue?

It is difficult but not impossible. SBA microloans, personal loans, business credit cards, and some nonprofit lenders will consider applicants without business revenue. Qualification typically depends on your personal credit score, business plan, and in some cases, collateral or a personal guarantee. Once your business begins generating even modest revenue, significantly more options open up.

What credit score do I need for a startup business loan?

Requirements vary by lender. SBA and traditional bank loans generally require personal credit scores of 680 or higher. Online lenders may accept scores as low as 550 to 600. Business credit cards can be accessible with scores in the 600 to 650 range. The stronger your personal credit, the more options you have and the better terms you can expect.

How much can a startup borrow?

Loan amounts range widely depending on the type of financing. SBA microloans provide up to $50,000. SBA 7(a) loans go up to $5 million, though most startup approvals are for much smaller amounts. Business credit cards may offer limits of $5,000 to $50,000. Revenue-based financing amounts depend on your monthly revenue. For most startups, initial funding in the $10,000 to $150,000 range is realistic.

How long does it take to get a startup business loan?

Online lenders and alternative financing providers can fund within one to five business days. SBA loans take four to eight weeks or longer. Business credit cards can be approved instantly or within a few days. The timeline depends on the lender, the complexity of your application, and how quickly you provide requested documentation.

Do I need a business plan to get a startup loan?

For SBA loans and traditional bank loans, yes, a business plan is typically required. For online lenders, business credit cards, and some alternative financing options, a formal business plan may not be required, but having one strengthens your application regardless of where you apply. It demonstrates that you have thought through the business opportunity and have a realistic plan for generating revenue and repaying the loan.

Every business has bills that need paying before the revenue rolls in. Payroll, rent, inventory, supplies, insurance. These day-to-day costs do not wait for your customers to pay their invoices or for your busy season to arrive. According to the Federal Reserve's Small Business Credit Survey, 56% of small businesses struggle to cover operating expenses, and 51% deal with uneven cash flow. Working capital loans exist to solve exactly this problem.

Whether you are bridging a seasonal gap, stocking up on inventory before a big quarter, or simply keeping the lights on while waiting for receivables to clear, working capital financing gives you the breathing room to run your business without interruption. At Fundwell, working capital solutions are one of the most common reasons business owners come to us, and we have seen how the right funding at the right time can make or break a growing company. This guide covers what working capital loans are, how they work, the different types available, and how to get one.

What Is Working Capital

Before diving into loans, it helps to understand what working capital actually means. In simple terms, working capital is the money your business has available to cover its short-term obligations. It is the difference between what you own right now (current assets) and what you owe right now (current liabilities).

How to Calculate Working Capital

The Export-Import Bank and other federal agencies even use working capital as a key metric when evaluating business health. The formula is straightforward.

Working Capital = Current Assets - Current Liabilities

Current assets include cash, accounts receivable, inventory, and any other assets you can convert to cash within a year. Current liabilities include accounts payable, short-term debt, payroll obligations, and taxes due within the same period.

For example, if your business has $200,000 in current assets and $150,000 in current liabilities, your working capital is $50,000. That means you have $50,000 of cushion to cover daily operations after meeting all your short-term obligations.

What Is a Good Working Capital Ratio

You can also measure working capital as a ratio by dividing current assets by current liabilities. Using the same example above, $200,000 divided by $150,000 gives you a working capital ratio of 1.33.

Most financial experts consider a ratio between 1.2 and 2.0 to be healthy. A ratio below 1.0 means your liabilities exceed your assets, which signals potential trouble meeting short-term obligations. A ratio significantly above 2.0 could mean you are sitting on too much idle cash or inventory that could be deployed more effectively. The ideal range depends on your industry, but for most small businesses, landing between 1.2 and 2.0 indicates you are in a solid financial position.

Why Working Capital Matters for Your Business

Positive working capital means you can pay employees, suppliers, and other obligations on time without scrambling for cash. It also gives you the flexibility to take advantage of opportunities as they come up, like a bulk discount from a supplier or an unexpected large order. Negative or thin working capital, on the other hand, forces you into reactive mode. You end up making decisions based on what you can afford this week rather than what is best for the business long term.

What Is a Working Capital Loan

A working capital loan is a form of short-term business financing designed specifically to cover everyday operating expenses rather than long-term investments like equipment or real estate. Think of it as fuel for your daily operations. It keeps the engine running when there is a gap between money going out and money coming in.

How Working Capital Loans Work

Working capital loans typically provide a lump sum or a revolving credit line that you repay over a short period, usually six to 24 months. Depending on the lender, repayments may be made monthly, weekly, or even daily. The amount you can borrow depends on your revenue, creditworthiness, and the type of financing you choose. Unlike loans for specific assets like equipment or real estate, working capital loans generally do not require you to specify exactly how the funds will be used. This flexibility is one of their biggest advantages.

What You Can Use Working Capital Loans For

Working capital financing can cover virtually any short-term business expense. Common uses include:

• Covering payroll during slow periods
• Purchasing inventory ahead of peak season
• Paying rent, utilities, and insurance premiums
• Funding marketing campaigns or short-term projects
• Bridging the gap while waiting for customer payments
• Taking advantage of vendor discounts for early or bulk payment

Pros and Cons of Working Capital Loans

Working capital loans solve a real problem, but they are not the right fit for every situation. Here is how the benefits and drawbacks stack up.

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Types of Working Capital Financing

Working capital is not a single product. It is a category of financing with several options, each suited to different situations. Understanding the differences helps you choose the most cost-effective path.

Business Lines of Credit

A business line of credit is one of the most flexible working capital tools available. You get approved for a maximum amount and draw funds as needed, paying interest only on what you use. Once you repay, those funds become available again. Lines of credit are ideal for businesses with recurring but unpredictable cash flow needs, like covering payroll during a slow month or bridging the gap between invoicing and payment. For a deeper comparison, see our guide on business line of credit vs term loan differences.

Short-Term Loans

A short-term business loan gives you a lump sum upfront with a fixed repayment schedule, typically over three to 18 months. These are a good fit when you know exactly how much you need and can predict when your revenue will cover the repayment. Short-term loans from online lenders can fund in as little as one to two business days, making them a practical option when speed matters.

SBA Working Capital Loans

The SBA 7(a) Working Capital Pilot program allows small businesses to borrow against their accounts receivable and inventory through an SBA-backed revolving line of credit. SBA working capital loans offer lower interest rates than most alternatives, but the application process takes longer and requires more documentation. If you have the time and meet the qualification criteria, SBA loans can be one of the most affordable working capital options available.

Revenue-Based Financing

Revenue-based financing is an increasingly popular working capital solution, especially for businesses with variable income. Instead of fixed monthly payments, you repay a percentage of your monthly revenue. When sales are strong, you pay more. When things slow down, your payments drop automatically. This built-in flexibility makes RBF well suited for seasonal businesses, e-commerce companies, and any business where revenue fluctuates month to month. At Fundwell, revenue-based financing is one of our most requested products because it aligns repayment with what a business can actually afford at any given time.

Invoice Financing

If your business invoices other companies and waits 30, 60, or 90 days for payment, invoice financing lets you unlock that trapped cash. A lender advances you 80% to 90% of the invoice value upfront, and you receive the balance (minus fees) when your customer pays. This is not technically a loan. It is an advance on money you have already earned, which makes it one of the least risky forms of working capital financing for B2B businesses.

Merchant Cash Advances

A merchant cash advance (MCA) provides a lump sum in exchange for a percentage of your future credit card sales. While MCAs offer fast access to capital, they are one of the most expensive forms of financing available. Effective APRs can range from 40% to over 350%. For most business owners, other working capital options like a line of credit or revenue-based financing provide similar speed with far more favorable terms. We covered MCAs in depth in our guide to merchant cash advances if you want to understand the full picture before considering this route.

Here is how these working capital options compare at a glance:

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How to Qualify for a Working Capital Loan

Qualification requirements for working capital financing are generally more flexible than those for long-term business loans. Here is what most lenders look for.

Credit Score Requirements

Traditional banks and SBA lenders typically require personal credit scores of 680 or higher. Online lenders are more flexible, with many accepting scores as low as 550 to 600. Some forms of working capital financing, like invoice financing and revenue-based financing, place less emphasis on your credit score and focus more on your business's revenue and financial health. Fundwell evaluates your full financial picture rather than relying on a single credit score, which helps business owners who may not fit neatly into a traditional bank's criteria.

Time in Business and Revenue

Most lenders want to see at least six months to one year of operating history and minimum annual revenue between $50,000 and $100,000. SBA lenders may have higher thresholds. The key metric lenders care about is whether your business generates enough consistent revenue to cover loan payments alongside your existing expenses. Having three to six months of bank statements that show steady deposits goes a long way toward demonstrating this.

Documentation You Will Need

The documentation required depends on the lender and loan type. Traditional banks and SBA lenders will ask for more, while online lenders keep it streamlined. At minimum, expect to provide:

• Three to six months of business bank statements
• Business tax returns (one to two years for banks and SBA)
• Profit and loss statement
• Balance sheet
• Proof of business ownership and a valid ID

With Fundwell, the process starts with a simple application and a few months of bank statements. From there, we match you with the right product and walk you through anything else needed for your specific financing type.

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Working Capital Loan Rates and Costs

Cost is one of the most important factors when choosing working capital financing. The cheapest option on paper is not always the best value when you factor in speed, flexibility, and total repayment.

Interest Rates by Lender Type

Working capital loan rates vary widely depending on where you borrow. According to the Federal Reserve Bank of Kansas City, traditional bank rates for short-term business loans range from approximately 6% to 12% APR. SBA working capital loans fall between 9.75% and 14.75% based on the current prime rate. Online lenders charge anywhere from 8% to over 80% APR, with most creditworthy borrowers landing in the 10% to 30% range. Revenue-based financing is quoted as a factor rate, typically between 1.1 and 1.5, which means you repay 10% to 50% more than the amount advanced.

Common Fees

Beyond the interest rate or factor rate, watch for fees that can increase your total cost of borrowing. These commonly include:

• Origination fees of 1% to 6% of the loan amount
• Draw fees on lines of credit, charged each time you access funds
• Maintenance fees or annual fees for keeping a credit line open
• Prepayment penalties that charge you for paying off the balance early
• Late payment fees that add up quickly on daily or weekly repayment schedules

Always ask for a full fee breakdown before signing. A loan with a low interest rate and high origination fees can end up costing more than a slightly higher rate with no fees.

How to Compare the True Cost

The most reliable way to compare working capital options is to look at the total cost of capital, which is the total amount you will repay minus the amount you borrowed. For products quoted with an APR, this is relatively straightforward. For factor-rate products like revenue-based financing or merchant cash advances, multiply the advance amount by the factor rate. A $100,000 advance with a 1.25 factor rate means $125,000 in total repayment, or $25,000 in cost. Comparing total cost of capital across your options gives you a clear, apples-to-apples picture regardless of how different lenders quote their pricing.

How to Choose the Right Working Capital Solution

With several options available, picking the right one comes down to matching the financing structure to your specific business needs.

Match the Financing to Your Cash Flow Pattern

If your cash flow is relatively steady, a short-term loan with fixed payments may be the simplest and most affordable option. If your revenue swings significantly from month to month, revenue-based financing or a line of credit provides more flexibility. If you are waiting on large invoices from B2B clients, invoice financing targets the exact problem without adding traditional debt to your balance sheet.

When a Line of Credit Makes More Sense Than a Loan

If you are not sure exactly how much you need or when you will need it, a line of credit gives you ongoing access to capital without committing to a fixed repayment schedule. You only pay for what you use, and the funds replenish as you pay them back. For businesses that experience periodic cash crunches rather than a single shortfall, a line of credit is usually more cost-effective than taking out multiple short-term loans.

When to Consider Revenue-Based Financing

Revenue-based financing makes the most sense when your business has strong monthly revenue but unpredictable timing. Seasonal businesses, e-commerce companies, and service businesses with project-based income all benefit from repayments that flex with their sales. It is also a strong option for business owners whose credit score does not reflect their actual ability to repay, since RBF providers focus primarily on revenue performance. Fundwell's revenue-based financing is built around this exact principle, matching your repayment to what your business actually earns each month.

When a Working Capital Loan May Not Be the Right Fit

Working capital loans are designed for short-term needs, and using them for the wrong purpose can create more problems than they solve.

If you need funding for a long-term investment, like purchasing real estate, major equipment, or making an acquisition, a term loan or SBA loan with a longer repayment period will typically be more affordable and better structured for that purpose. Using short-term working capital financing for long-term expenses means higher costs and a repayment timeline that does not match the return on your investment.

Similarly, if your business is consistently unable to cover operating expenses regardless of timing, a working capital loan may provide temporary relief but will not fix the underlying issue. In that case, reviewing your pricing, costs, and business model is a more sustainable path forward than layering on additional debt.

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Keep Your Business Moving with the Right Funding

Cash flow gaps are a normal part of running a business. What matters is how you manage them. Working capital loans give you the flexibility to keep operations running, pay your team on time, stock inventory when you need to, and take advantage of opportunities without waiting for receivables to clear.

The key is choosing the right type of working capital financing for your situation. Whether that is a line of credit for ongoing flexibility, revenue-based financing that adjusts to your sales, or a short-term loan for a specific need, the right solution keeps your business moving forward without unnecessary cost or risk.

Fundwell offers multiple working capital options through a single, fast application. See what you qualify for today and get the funding your business needs to keep growing.

Frequently Asked Questions

How fast can you get a working capital loan?

It depends on the lender. Online lenders and alternative financing platforms like Fundwell can often approve applications within hours and fund within one to three business days. Traditional banks may take one to four weeks, and SBA loans can take four to eight weeks or longer due to the additional documentation and government guarantee process.

Do working capital loans require collateral?

Most working capital loans do not require specific collateral like real estate or equipment. However, many lenders require a personal guarantee, which means you are personally responsible for repaying the loan if the business cannot. SBA working capital loans may use a blanket lien on business assets. Unsecured options are available, particularly through online lenders, though they typically come with higher interest rates.

Can startups get working capital loans?

Some lenders work with businesses that have as little as six months of operating history. Online lenders and revenue-based financing providers tend to be more flexible with newer businesses, provided you can show consistent monthly revenue. SBA microloans are another option for startups. Traditional banks generally require at least two years of operating history for working capital products.

What is the difference between a working capital loan and a term loan?

A working capital loan is typically a short-term product (six to 24 months) designed to cover everyday operating expenses. A term loan is longer-term financing (one to ten years) intended for larger investments like equipment, real estate, or business expansion. Working capital loans usually have faster funding and more flexible qualification requirements, while term loans offer lower rates and larger amounts.

How much working capital does a small business need?

A common rule of thumb is to maintain enough working capital to cover three to six months of operating expenses. However, the right amount depends on your industry, business model, and cash flow patterns. Seasonal businesses may need more working capital heading into their slow season, while businesses with steady recurring revenue may need less. Calculating your working capital ratio (current assets divided by current liabilities) and targeting a ratio between 1.2 and 2.0 is a practical way to gauge whether you have enough.

Getting a small business loan can feel overwhelming, especially if you have never applied for one before. Between credit requirements, document checklists, and dozens of lender options, it is easy to get lost before you even start. The good news is that the process is more straightforward than most people think, and a majority of businesses that apply for financing receive some or all of the amount they request, according to the Federal Reserve's Small Business Credit Survey.

This guide walks you through everything you need to know about getting a small business loan, from qualification requirements and loan types to a step-by-step application process and what to do if you get denied. Whether you are launching a new venture or scaling an established business, the right funding can make all the difference. At Fundwell, we have helped thousands of business owners navigate this process and secure over $1 billion in funding, so we have seen firsthand what works and what trips people up.

What You Need to Qualify for a Small Business Loan

Before you start comparing lenders, it helps to understand what they are looking for. While every lender has its own criteria, most evaluate the same core factors when deciding whether to approve your application.

Credit Score Requirements

Your credit score is one of the first things lenders check. Most traditional banks and credit unions look for a personal credit score of 680 or higher, though some will consider applicants with scores as low as 620. Online and alternative lenders tend to be more flexible, with some accepting scores in the 500 to 580 range.

If your business has been operating for a while, lenders may also check your business credit score through agencies like Dun & Bradstreet, Experian Business, or Equifax Business. A strong business credit profile can help you qualify for better rates and larger loan amounts.

Time in Business

Most traditional lenders prefer businesses that have been operating for at least two years. This track record gives them confidence that your business can generate consistent revenue and handle debt payments. If your business is newer than two years, you still have options. SBA microloans, revenue-based financing, and some online lenders work with businesses that have as little as six months of operating history.

Annual Revenue

Lenders want to see that your business brings in enough money to cover loan payments on top of existing expenses. Minimum revenue requirements vary widely. Traditional banks may require $250,000 or more in annual revenue, while many online lenders set their minimums between $50,000 and $100,000 per year. Some providers, including Fundwell, focus primarily on your monthly revenue trends rather than rigid annual thresholds, which can open doors for growing businesses that are profitable but have not yet hit the revenue benchmarks larger banks require.

Cash Flow and Debt Service Coverage

Beyond raw revenue, lenders look at your cash flow to determine whether your business can comfortably handle additional debt. Many use the debt service coverage ratio (DSCR), which divides your net operating income by your total debt payments. A DSCR of 1.25 or higher is generally considered healthy, meaning your business generates 25% more income than it needs to cover its debts. If your DSCR falls below 1.0, most lenders will view your application as high risk.

Collateral and Personal Guarantees

Some loans require collateral, which is an asset the lender can seize if you default. Common forms of collateral include real estate, equipment, inventory, and accounts receivable. Secured loans typically offer lower interest rates because the lender takes on less risk.

Many lenders also require a personal guarantee, which means you agree to repay the loan from your personal assets if the business cannot. Unsecured loans exist, but they generally come with higher rates and stricter revenue requirements. Understanding these tradeoffs early helps you choose the right loan structure for your situation.

Types of Small Business Loans

Not every loan works for every situation. The right choice depends on how much you need, how quickly you need it, and what you plan to use the funds for. Here is a breakdown of the most common options.

Term Loans

A term loan gives you a lump sum of money upfront that you repay in fixed installments over a set period, typically one to ten years. These are a good fit for large, one-time investments like buying equipment, expanding to a new location, or funding a major project. Interest rates from traditional banks typically range from 6.3% to 11.5%, according to recent Federal Reserve data.

SBA Loans

SBA loans are partially guaranteed by the U.S. Small Business Administration, which reduces the lender's risk and allows them to offer more competitive rates. The most popular program is the SBA 7(a) loan, which can be used for working capital, equipment, real estate, and debt refinancing. Current SBA 7(a) fixed rates range from approximately 9.75% to 14.75%, depending on loan size and terms. The tradeoff is a longer approval process, often four to eight weeks, and more extensive paperwork than other options.

For smaller funding needs, the SBA Microloan program provides up to $50,000 through nonprofit intermediary lenders, making it a good option for newer businesses that may not qualify for a full SBA loan.

Business Lines of Credit

A business line of credit works like a credit card for your business. You get approved for a maximum amount and draw funds as needed, paying interest only on what you use. Lines of credit are ideal for managing cash flow gaps, covering seasonal expenses, or handling unexpected costs. Once you repay what you borrowed, the funds become available again.

Equipment Financing

If you need to purchase machinery, vehicles, or other equipment, equipment financing uses the equipment itself as collateral. This often makes approval easier and rates lower compared to unsecured options. Loan terms typically match the expected useful life of the equipment, and you may be able to finance up to 100% of the purchase price.

Revenue-Based Financing

Revenue-based financing (RBF) provides a lump sum that you repay as a fixed percentage of your monthly revenue. When sales are strong, you pay more. When business slows down, your payments decrease automatically. This flexibility makes RBF especially useful for businesses with seasonal or variable income. Unlike traditional loans, RBF providers focus more on your revenue history than your credit score, and funding can happen in as little as 24 hours. Fundwell's revenue-based financing option is one of our most popular products for exactly this reason, particularly among business owners who want predictable repayment without the rigidity of a fixed monthly bill.

Invoice Financing

If your business invoices other companies and waits 30, 60, or 90 days for payment, invoice financing lets you borrow against those outstanding invoices. You receive a percentage of the invoice value upfront, typically 80% to 90%, and the rest (minus fees) when your customer pays. This is a practical way to smooth out cash flow without taking on traditional debt.

The following table compares these loan types at a glance:

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How to Get a Small Business Loan in 7 Steps

Once you understand your options, the application process becomes much more manageable. Follow these steps to give yourself the best chance of approval.

1. Define Why You Need the Funding

Start by getting clear on what the money is for. Lenders will ask, and a specific answer builds confidence. There is a big difference between "I need working capital" and "I need $75,000 to purchase inventory ahead of our peak season, which historically increases revenue by 40%." The more precise your purpose, the stronger your application.

2. Calculate How Much You Need to Borrow

Borrowing too little can leave you short, while borrowing too much increases your costs and debt burden. List every expense the loan needs to cover, get actual quotes where possible, and add a small buffer of 10% to 15% for unexpected costs. This level of detail shows lenders you have done your homework and have a realistic plan.

3. Check Your Credit Scores

Before applying anywhere, check both your personal and business credit scores. You can get your personal credit report for free at AnnualCreditReport.com and check your business credit through Dun & Bradstreet, Experian, or Equifax. If your scores need improvement, you may want to spend a few months paying down debt and correcting any errors before applying. Even small improvements can mean better rates and terms.

4. Gather Your Financial Documents

Having your documents ready before you apply speeds up the process significantly. Most lenders will ask for some combination of the following:

• Business and personal tax returns (two to three years)
• Bank statements (three to six months)
• Profit and loss statements
• Balance sheets
• Business plan or executive summary
• Articles of incorporation or business license
• Government-issued photo ID

Online and alternative lenders often require less documentation. Some only need a few months of bank statements and a simple application to get started.

5. Research and Compare Lenders

Do not accept the first offer you receive. Compare at least three to four lenders across different categories: your current bank, an SBA lender, and one or two online or alternative lenders. Look beyond the interest rate and compare total cost, fees, repayment terms, prepayment penalties, and funding speed. A loan with a slightly higher rate but no origination fee and faster funding might save you money in the long run. One advantage of working with a platform like Fundwell is that you can explore multiple loan types through a single application, which saves time and lets you compare options side by side.

6. Submit Your Application

Once you have chosen a lender, submit your application with all required documents. Be responsive throughout the process. Lenders may request additional information, and delays on your end can push back your timeline by days or weeks. Traditional bank and SBA loans typically take two to eight weeks for approval, while online lenders can often provide a decision within one to three business days.

7. Review Your Loan Offer Carefully

Before signing anything, read the entire loan agreement. Pay close attention to the interest rate (fixed or variable), total repayment amount, payment frequency, origination and closing fees, prepayment penalties, and any personal guarantee requirements. If anything is unclear, ask the lender to explain it. A few hours of careful review can save you thousands of dollars over the life of the loan.

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Where to Get a Small Business Loan

Where you apply matters almost as much as what you apply for. Different lender types serve different needs, and understanding the tradeoffs helps you find the right fit.

Traditional Banks and Credit Unions

Banks and credit unions offer the lowest interest rates, but they also have the strictest qualification requirements. Expect to need strong credit (680+), at least two years in business, and solid financials. The application process is thorough and can take several weeks. If you have an existing relationship with a bank, that can work in your favor, as some institutions offer preferred rates to current customers.

SBA Lenders

SBA loans are issued by approved lenders (banks, credit unions, and some online platforms) but backed by the federal government. This guarantee means lenders can offer more favorable terms than they otherwise would. The FDIC recommends comparison shopping among SBA lenders, since terms are negotiated between you and the individual lender within SBA guidelines.

Online and Alternative Lenders

If speed and accessibility matter more than getting the absolute lowest rate, online lenders may be the right choice. Many offer streamlined applications you can complete in minutes, with decisions in one to three days and funding shortly after. Requirements are typically more flexible. Some work with credit scores as low as 500 and businesses with as little as six months of history. The tradeoff is that rates can be higher than traditional banks, but for businesses that need capital quickly or do not qualify for conventional financing, this path gets you funded when time matters.

Fundwell falls into this category, but with a few key differences. Rather than offering a single loan product, Fundwell matches you with the right financing option from multiple products, including term loans, lines of credit, revenue-based financing, and SBA loans. The application takes minutes, approvals can come the same day, and you work with a real person throughout the process. That combination of speed, flexibility, and human support is what sets the best online lenders apart from both traditional banks and purely automated platforms.

Here is how these lender categories compare:

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How Much Does a Small Business Loan Cost

Understanding the true cost of a loan goes beyond the advertised interest rate. Here is what you should factor into your calculations.

Interest Rates by Loan Type

Interest rates vary significantly depending on the type of loan, your creditworthiness, and the lender. As a general benchmark, traditional bank loan rates ranged from 6.3% to 11.5% in the third quarter of 2025, according to the Federal Reserve Bank of Kansas City. SBA 7(a) loan fixed rates currently fall between 9.75% and 14.75%, based on the current prime rate of 6.75%. Online lenders can charge anywhere from 8% to well over 50%, depending on the borrower's risk profile.

Fees to Watch For

Interest is not the only cost of borrowing. Common fees that can increase your total cost include:

• Origination fees, typically 1% to 6% of the loan amount, deducted at funding
• Application or underwriting fees, charged by some lenders regardless of approval
• Prepayment penalties, which charge you for paying off the loan early
• Late payment fees, usually a flat fee or percentage of the missed payment
• Draw fees on lines of credit, charged each time you access funds

Always ask for a complete fee schedule before committing to any loan. A loan with a low interest rate but high origination fees may end up costing more than an alternative with a slightly higher rate and no fees.

Calculating the True Cost of a Loan

The annual percentage rate (APR) is the most reliable way to compare loan costs because it includes both the interest rate and most fees. For a deeper look at how credit affects your rate, see our breakdown of business loan interest rates by credit score. For non-traditional products like revenue-based financing, lenders may quote a factor rate (such as 1.2 or 1.3) instead of an APR. To understand the real cost, multiply your loan amount by the factor rate. For example, a $100,000 advance with a 1.3 factor rate means you will repay $130,000 total. Knowing how to compare these different pricing structures helps you make an informed decision.

What to Do If Your Loan Application Is Denied

Getting turned down is more common than you might think, and it does not mean you are out of options. Understanding why you were denied and what to do next can get you closer to the funding you need.

Understanding Why You Were Denied

Lenders are required to provide a reason for denial. The most common reasons include insufficient credit history or a low credit score, inadequate time in business, weak cash flow relative to the loan amount, too much existing debt, and incomplete or inaccurate application information. Knowing the specific reason allows you to address it directly rather than guessing.

Steps to Strengthen Your Next Application

If your credit score was the issue, focus on paying down existing balances and ensuring your credit report is accurate. If cash flow was the concern, look for ways to increase revenue or reduce expenses before reapplying. Building a longer operating history by waiting three to six months can also make a meaningful difference. Some business owners also benefit from opening a business credit card and using it responsibly to build a separate credit profile for their company.

Alternative Funding Options

If traditional lenders are not the right fit right now, several alternatives may work for your situation. Platforms like Fundwell specialize in connecting business owners with the right funding option based on where they are today, not just where a bank thinks they should be.

• Revenue-based financing focuses on your business revenue rather than your credit score, with flexible repayments that adjust to your sales
• SBA microloans offer up to $50,000 through nonprofit lenders with more lenient qualification criteria
• Business credit cards can provide short-term funding and help you build credit history simultaneously
• Crowdfunding platforms let you raise capital from customers and supporters, though this works best for consumer-facing businesses
• Grants, while competitive, are available through the SBA and various state and local programs with no repayment required

The key is matching the funding type to your current situation rather than forcing a fit with a product you do not yet qualify for.

Tips for Improving Your Approval Odds

Beyond meeting basic requirements, these practical steps can strengthen your application and help you secure better terms.

• Prepare a clear business plan. Even if the lender does not formally require one, a concise plan that explains your business model, market, and financial projections demonstrates competence and builds lender confidence.
• Separate your business and personal finances. Open a dedicated business bank account if you have not already. This makes your financials cleaner and shows lenders you run a legitimate operation. The FTC recommends establishing your business credit profile as a separate entity.
• Build your business credit proactively. Open a business credit card, pay vendors on time, and work with suppliers who report to business credit bureaus. Even a few months of positive reporting can improve your profile.
• Apply for the right loan amount. Requesting more than your financials support is a common reason for denial. Be realistic about what your cash flow can handle and borrow accordingly.
• Consider offering collateral or a co-signer. If your credit or revenue is borderline, offering an asset as collateral or bringing in a co-signer with strong credit can tip the scales in your favor.
• Time your application wisely. Apply when your business financials look their strongest. If you know your Q4 numbers will be better than Q2, waiting a quarter can mean the difference between approval and denial.

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Find the Right Funding for Your Business

Getting a small business loan does not have to be complicated. Start by understanding what lenders are looking for, explore the loan types that match your needs, and prepare a strong application. If you do not qualify for one type of financing today, there are alternative paths that can help you access capital while you build your credit and operating history.

The most important step is the first one. Whether you need a small business loan, a line of credit, or a flexible funding option like revenue-based financing, exploring your options puts you in control. The right funding partner will be transparent about costs, fast when you need them, and supportive throughout the process.

See what you qualify for today and take the next step toward growing your business.

Frequently Asked Questions

What credit score do I need for a small business loan?

It depends on the lender. Traditional banks typically look for personal credit scores of 680 or higher. SBA lenders often require 680 as well, though some may accept 650 with strong financials. Online and alternative lenders may approve borrowers with scores as low as 500 to 580. Your business credit score also matters for larger loan amounts and better terms.

How long does it take to get approved for a business loan?

Approval timelines vary widely by lender type. Online lenders can often provide a decision in one to three business days, with funding shortly after. Traditional bank loans typically take two to six weeks. SBA loans have the longest timeline, often four to eight weeks or more, due to the additional paperwork and government guarantee process.

Can I get a small business loan with no collateral?

Yes. Many online lenders and alternative financing providers offer unsecured loans that do not require collateral. Revenue-based financing and some business lines of credit also do not require you to pledge specific assets. However, unsecured options generally come with higher interest rates, and most lenders will still require a personal guarantee.

What is the easiest type of business loan to get?

Revenue-based financing and short-term online loans tend to have the most accessible qualification criteria. These options focus more on your recent revenue and business performance than your credit score or time in business. Business credit cards are another relatively easy form of financing to access, especially for smaller funding needs.

How much of a down payment do I need for a business loan?

Most small business loans do not require a down payment. Term loans, lines of credit, and revenue-based financing typically provide the full requested amount without an upfront payment. SBA loans may require a down payment of 10% to 20% for certain programs, particularly SBA 504 loans used for real estate or large equipment purchases. Equipment financing may also require a down payment of 10% to 20%, depending on the lender and the age of the equipment.