How Hard is it to Get a Small-Business Loan?

Written by Eddy Hood

How-Hard-to-Get-a-Business-LoanMany people believe that getting a small-business loan is utterly impossible. This unfortunate belief leads many people to think that they simply can’t create a small business, and thus what may have become an amazing enterprise never becomes a reality. Is it hard to get a business loan? Certainly it is. Is it impossible? Of course not.

So how hard is it to get a business loan? Is it a realistic choice for every type of person? To answer this question, let’s look at what a bank or alternative lender looks at when they try to judge whether or not to support your small-business idea:

Risky Business

When securing financing, it’s important to see your business from the lender’s perspective. Would you invest in this? Is this business going to be profitable? How easy is it to get your money back, or how hard is it? To get a business loan, you need to assure them that it will be successful enough that the lender won’t lose money. Surely, investors know that every investment has inherent risk, but in order to be financially viable, they need to be at least 90% sure that you will not default on your loan. That’s pretty confident. The lenders will examine the following:

  1. Solvency or Cash Flow: How much money will be going into the business, and does that suggest profitability?
  2. Collateral: Should they have to liquidate the business, will there be enough valuable assets to make up the difference in the loan?
  3. Legal and Tax Liability: Is the business any kind of financial or legal risk?
  4. Diversification: Will your revenue stream be concentrated from one source, or will it be more diverse, with the opportunity for more income from alternative places?

Your Character

The way you present yourself is very important, as business is about interpersonal relationships as much as it is about numbers. The people lending to you want to make sure that you are a responsible, trustworthy person. Of course, everyone thinks that they are, but banks will closely examine past finances to make sure that they have proof of your trustworthiness:

  1. Years in Business: Is this a first-time entrepreneur (who is less likely to be successful) or a more experienced entrepreneur who has failed (who is more likely to be successful)?
  2. Credit History: This is the one bit of financial proof that you can pay a loan back on time.
  3. Your Equity: The banks want to know that you are personally invested in the project.
  4. Your Personal Guarantee: Do you guarantee that this will be successful, to the point that you’ll be personally responsible for it if it’s not?
  5. Your Branding: Are you capable of pitching and marketing your idea?


When you are applying for a business loan, your financial documents should be meticulously detailed. You should also have extensive plans outlining how you will achieve success. This should seem reasonable and logical: Blowing your potential success out of proportion will not help you here. When projecting your income for the year, it shouldn’t seem like wishful thinking. When preparing for this aspect of your interview, working with an experienced accountant like those at Ignite Spot would help. An online, outsourced bookkeeping firm can help you to compile this data in a more professionally presentable way.

  1. Cash Flow Forecast: Are the projections reasonable and logical, or are they overblown?
  2. Business Model: Will the business be organized in an adaptable or rigid way?

More Helpful Tips

  1. Ask yourself the hard questions before they do.
  2. Work with an accounting firm from the beginning, like Ignite Spot, to help present financial information.
  3. Build a long-standing good relationship with that specific bank.
  4. Always be realistic; don’t overestimate your potential income.

Is it hard to get a business loan? It depends on a variety of factors, including you! If you’re interested in putting your best foot forward with the bank, feel free to contact Ignite Spot at 855-694-4648 and learn about our services. Download our free audiobook, which is full of profit-building workshops and more helpful business advice.

Learn More About Similar Accounting Topics: 

Understanding the Accrual Accounting Method

What Does Equity Mean?

The Difference Between Cash Basis and Accrual Basis Accounting

The Purpose and Practice of The General Ledger

How to Write Off Bad Debt

What is a Trial Balance?

How to Reconcile Accounts

What is a Credit Memo?

Is Inventory an Asset?

What is the Cash method of Accounting?

What is Activity Based Costing?

Self Employment and FICA

Employer FICA Rates

Affordable Care Act and Small Business Requirements

Generally Accepted Accounting Principles (GAAP)

Know Your Options in Small Business Finances

The Effects of Small Business Bankruptcy

How Do Small Business Loans Work?

The Importance of a Business Plan

Choosing the Best Small Business Credit Card

What are Retained Earnings?

What is a Business Investment and How Should It Be Accounted For?

Understanding Different Entity Types

How Much Capital Is Needed to Start a Small Business?

Getting Involved in Business and Communicty Organizations

What are Business Liabilities?

What is Business and Financial Leverage?