How Long Does It Take to Get a Business Loan?
Business owners seek loans for many reasons: strategic acquisitions, operational expansions, equipment or asset purchases, cash flow shortfalls, and emergencies. Yet, in many cases, the business loan application process is fraught with inconsistencies and uncertainties. It can be hard to tell how long it will take to go from application to approval to accessing funds, which isn’t ideal. This is especially true in time-sensitive situations that demand efficient solutions.
In everyday practice, the amount of time it takes to access business loan funding varies and depends on many different factors, including:
- The type of financial institution or lender you use
- The type of loan you’re seeking
- The amount of money you’re looking to borrow
Let’s take a closer look to determine how these various factors impact the typical business loan timeline.
Borrowing Through a Bank
There are definite advantages to borrowing through traditional banks. Banks have strong government-backed safeguards in place, reducing risk for their customers. You can deal with people face-to-face. If you’re a longtime client of a specific financial institution, you may also qualify for special rates and other advantages that can save you money on the overall cost of your loan.
However, traditional banks tend to maintain strict eligibility standards. They have a reputation for approving loan applications at relatively low rates, especially for borrowers seeking financing for a start-up or an operational company that has yet to strongly establish itself.
Despite those caveats, borrowing from a bank or credit union still holds considerable appeal from a convenience and strategic perspective. Actual timelines vary, but the typical process unfolds like this:
- Call the bank to arrange a meeting with a business loan officer. Sometimes these meetings can be set for the same day, but depending on the loan officer’s availability, sometimes there is a waiting period of 24 to 48 hours or longer.
- In the meantime, gather documentation that the bank needs to evaluate your application. This will vary from case to case, so be sure to ask if you’re not sure what to bring to the meeting.
- After submitting a formal application during the meeting, you usually need to wait another 48 to 72 hours for an approval decision.
- If your loan is approved, the bank will usually release your funding within 24 hours or on the next business day.
So, if you plan to go through a traditional bank, you should expect the entire process to take at least five to seven business days.
Obtaining an SBA Loan
The Small Business Administration (SBA) is an initiative of the U.S. federal government. It works like this:
- Banks and financial institutions gain formal approval to participate in the SBA lending program and become official partners.
- Partner lenders process and make decisions on loan applications.
- The U.S. federal government guarantees a set percentage of each loan (usually around 80%) to reduce risk for the lender.
For banks and financial institutions, this means the government will cover the stated percentage of an SBA loan if the borrower defaults on their repayment obligations. For example, if an SBA-approved lender authorizes an 80% government-backed loan of $100,000 and the borrower does not repay the money, the federal government will cover $80,000 or 80% of the lender’s loss.
The SBA program greatly reduces the risks lenders face, which theoretically makes it easier for qualified borrowers to get approved. However, SBA loans require extensive documentation and are notorious for taking a very long time to complete.
If you’re lucky, you might be able to navigate the SBA loan process in about 30 days. For most borrowers, timelines of 60 to 90 days are more typical. In some cases, approval can take as much as 180 days to complete. Rarely, SBA loans can even take longer than six months to access.
SBA loan programs are great for both banks and borrowers, but they can take time.
Borrowing Through an Online Lender
Online lenders have driven a great deal of business loan innovation. These companies belong to a wider industry known as the financial technology or “fintech” sector. Many of them make use of advanced digital assets like algorithms and artificial intelligence (AI) to evaluate incoming loan applications. These refined technologies enable them to generate very accurate insights into borrower characteristics, which in turn allows them to make loan decisions far more quickly than traditional banks.
These advantages come with some trade-offs. Business loans from online and alternative lenders generally carry higher fees and interest rates, especially if your credit score is outside the optimal range. However, online lenders approve a much higher proportion of applications, making their loans more accessible to a broader base of potential customers.
Online lenders are also useful if you’re in need of quick cash. In many cases, applications take only a few minutes to complete and double as a kind of loan pre-approval. A large number of online lenders can set you up with funding within 24 hours of submitting your application. Some are a little faster, offering same-day service. Others may take a little longer, but 48 to 72 hours is the norm even at the high end of the range.
Additional Factors Affecting Loan Processing and Funding Timelines
The aforementioned timelines apply to standard term loan or business line of credit applications. If you’re seeking a different type of financing, such as a commercial mortgage, merchant cash advance, or accounts receivable financing, you will probably need to submit additional supporting documentation. In many cases, this could add a day or more to the usual timeline.
Other factors that influence the amount of time a traditional, online, or alternative lender may take to process your application include:
- The loan amount: All lenders tend to spend a little more time on due diligence when processing requests for loan amounts toward the high end of available ranges.
- Credit queries: Some loan types do not require a “hard” credit check and can be completed with a single application step. These loans tend to conclude more quickly than those that demand a comprehensive review of the applicant’s borrowing history.
- The completeness of your application: If you accidentally or purposely omit necessary or important details from your loan application, it will take longer for the lender to assess your request and release your funding. The process will be delayed until you provide the missing information.
In any case, prevailing wisdom suggests the following general rule of thumb: A bank or SBA loan could be a great option for those with time and excellent credit. On the other hand, online and alternative lenders could be a great solution for those who need money more urgently and/or have challenges related to their credit history.
What You Can Do to Expedite the Process
To make the business loan application process run as quickly and smoothly as possible, here are a few things you can do:
- Review your credit report in advance of preparing your application. Identify, challenge, and correct any inaccuracies your report contains before you make your loan request.
- Round up commonly requested documents before applying. These include financial statements that specify your business revenues, as well as personal and business tax remittances from at least the past two or three years.
- Lenders will also likely ask you for business leases, property ownership documents, or valid business licenses if they apply.
- Be honest when filling out application forms. The lender will almost certainly find you out if you misrepresent yourself, and this could land you in legal hot water.
- Respond quickly if the lender requests further information.