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Choosing and qualifying for a loan for your small business can be a pretty daunting task. With so many different lenders and business loan products to choose from, you may have the urge to just pick one and call it a day. But before you can move forward, it’s critical you take the time to determine what you’ll actually qualify for, and how much money you can afford to borrow.

The whole process can feel exhausting, but the last thing you want to do is spend the time filling out a ton of loan applications, only to get rejected. So save yourself the hassle by following these four steps to get a business loan.

1) Figure Out What You Can Afford

Before you can get your hands on the cash you need, you need to determine how much you can actually afford to borrow. Sure, it would be nice to get a quick million dollars, right? But if you’re requesting an unrealistic amount of money, lenders may be quick to deny your loan application.

The best way to determine how much debt you can afford to take on, is by calculating your debt-service coverage ratio (DSCR). The DSCR is the ratio lenders will use to determine how much cash your business has available for servicing its debt and whether or not you’ll be able to pay back the proposed loan.

The way each lender will calculate your DSCR varies, but the two most popular ways of calculating it are:

Annual Net Operating Income + Depreciation & Other Non-Cash Charges /

Interest + Current Maturities of Long-Term Debt


EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) /

Interest + Current Maturities of Long-Term Debt

Calculate your business’s debt service ratio and find out what size business loan lenders will assume you can afford.

2) Check Your Personal Credit Score

Your personal credit score is one of the first things a lender will look at when it comes to approving or denying your loan application. If your credit score is in bad shape—or you’re not sure what shape it’s in at all—it’s time to do a little investigating.

Before you send in any loan applications, pull your credit report to see where your stand. You want this number to be in tip top shape, so be sure to scan your report for any mistakes that could be negatively affecting your score. Any errors you find should be reported to the credit bureaus for review.

Other factors affecting your score are things like any new credit, length of credit history, types of credit in use, and the amount of money you owe. So make sure you pay down any debt, don’t open or close any new credit lines, and pay your bills on time (naturally).

The higher your credit score the better rates you’ll get for your loan. You can get a loan with 550+ but once you reach 640+, you’ll start to see more decent rates.

3) Know What Loan Products are Available to You

With so many different loan products to choose from, it can be hard to keep them all straight, but in order to get the best loan for your business, you need to familiarize yourself with the options.

Your lowest-cost options will always be a bank loan or a line of credit. But make sure you’re paying attention to what your needs are. If you need money quickly, a bank loan won’t be for you, as it could take months to secure.

Also consider what you’re planning to purchase. Would you rather receive a lump sum of cash for a few specific purchases, or would you prefer having the ongoing spending flexibility provided by a line of credit? Asking yourself these questions will help you narrow your options and get the loan that will best work for you and your business.

4) Gather the Necessary Documents

Once you know what you can afford, and what you qualify for, you should have a pretty good idea of what loan product you’re going to apply for. Some online lenders don’t require much to determine your loan eligibility, but others require a hefty amount of paperwork that you’ll want to have prepared, including your business bank statements, balance sheet, profit and loss statements, business debt schedule, personal tax return, and your business tax return.

And while you’re at it, make sure your LLC documentation and other legal documents are in order.

Keep Your Spirits High

The process of selecting, applying, and qualifying for a business loan can seem like it’s never ending, but there is a light at the end of the tunnel! If you focus on these four steps, it should make getting a loan a lot less complicated and help you get the financing you need.