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A long-term business loan is one that typically covers a repayment period of three to 10 years.

In some ways, spreading out payments over longer periods of time gives you more flexibility and more manageable payments, but there are downsides to a long-term business loan as well.

Regardless of whether you need short- or long-term financing, it’s important to understand the differences and the numerous options available. Keep reading to learn more on long-term business loans and how you can make the wisest financial decisions for small business financing.

What Is a Long-Term Business Loan?

A long-term small business loan, while usually covering three to 10 years, can extend as long as 25 years. In contrast, short-term business loans typically have terms that are less than three years. Short-term loans also tend to come with higher interest rates because the lender is taking on more risk due to the faster repayment schedule.

The following are a few common characteristics of long-term business loans:

•  Higher loan amounts than short-term business loans

•  Lower interest rates compared to short-term financing

•  Collateral is often needed

•  Qualifications will vary by lender but generally include an established business history, a strong credit history, and proof of financials

Long-Term Business Loans Uses

When it comes to uses for business loans, small businesses typically choose long-term financing to cover larger investments that support the growth of the business. Since long-term business loans have longer repayment terms, they aren’t typically used for emergency expenses or cash flow issues.

Long-term small business loans may be useful for the following purposes:

•  Real estate purchases

•  Building renovations

•  Equipment financing

•  Debt refinancing

•  Purchasing another business

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Who Is Eligible for a Long-Term Business Loan?

While eligibility requirements for long-term loans vary based on the financial institution, businesses that meet the following criteria have the best shot at securing a long-term business loan:

•  Established for more than two years

•  Strong business and personal credit

•  Proven track record of generating revenue

•  Collateral to offer

•  Borrowers who own a large percentage of their business

Lenders will also generally assess your debt-to-income (DTI) ratio to evaluate how much debt you are carrying in proportion to your annual revenue. Carrying a large sum of debt may affect your ability to qualify for a long-term small business loan.

Typical Rates and Fees for Long-Term Small Business Loans

Rates and fees vary depending on the type of long-term loan you choose and what the lender determines you’re eligible for, but typically, the annual percentage rate (APR) is lower for long-term loans than for short-term loans.

In addition to the business loan interest rate, there may be fees associated with your long-term business loan, including:

•  Application or origination fees: Charge for processing your application and setting up the account.

•  Underwriting fees: Help cover costs of verifying documents and credit reports.

•  Prepayment penalties: Some lenders may charge fees if you pay back the loan early.

•  Service fees: Cover ongoing costs related to your account.

Who Offers Long-Term Business Loans?

You may associate long-term business loans with traditional banks or credit unions, but there are a growing number of alternative lenders who offer online business loans. Banks and credit unions may be able to offer better rates and terms to well-qualified borrowers, but usually have more stringent loan qualifications than online lenders.

Common Long-Term Business Loan Terms

Business loan terms vary depending on the type of lender, loan amount, what the funds are being used for, and borrower qualifications. Generally, long-term business loans range from three to 25 years, though some terms may be shorter or longer. Loans through the SBA often have the longest terms, while alternative lenders typically have terms of less than five years.

Pros and Cons of Long-Term Business Loans

Lenders offer financing that can be useful for a number of small business investments, but there may be times when a short-term business loan may be preferable to a long-term loan. Before making any final decisions on whether to choose a long-term small business loan or short-term financial product, check out some pros and cons for long-term financing.

Pros of Long-Term Lending Options

Lower monthly payments

Borrowers may consider a long-term business loan because they typically offer lower installment payments than a short-term loan. Even if you borrow a significant amount of money, you may be able to work with the lender to choose a loan repayment term that can accommodate your business’s needs. Of course, longer terms mean paying more in interest over the life of the loan.

Lower interest rates

Choosing a long-term business loan doesn’t guarantee a lower interest rate, but in general, long-term business loans offer better rates than short-term loans for well-qualified borrowers. Interest rates may also be impacted by the borrower’s credit history and other factors. Securing favorable rates can help lower your monthly payments or make the loan less expensive in the long-term.

Monthly payments

Not every lender will have the same repayment schedule, but long-term small business loans are typically paid in monthly installments. In contrast, short-term loans may have repayment terms that require borrowers to repay weekly or biweekly, depending on the loan product. Monthly installments can give borrowers more flexibility with cash flow since they don’t need to make payments as frequently.

Lower fees

Long-term business loans may have fees, but generally not as many as short-term financial products, like invoice factoring or merchant cash advances. Costs like factoring fees, bank wire fees, and invoice processing fees are more common with short-term funding options and can add to the cost of the loan significantly.

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Cons of Long-Term Business Loans

Longer approval process

Since long-term loans are often for larger sums of money, the approval process can be more rigorous to ensure that borrowers are capable of paying back the loan on time. For example, you may be required to provide a form of collateral and prove a history of strong revenue performance to secure the loan. While this may be accessible for a well-established business, small business startups or those with limited credit history may struggle to qualify for long-term business loans.

Lenders may also take longer to review applications for long-term loans. If you need funding quickly, a long-term business loan may not be ideal since time to funding could be longer than your business can withstand.

Need strong credit

Long-term small business loan lenders typically require borrowers to have a strong credit history, generally a credit score of around 600 or higher is preferred. If you have less than stellar credit, it may be difficult to secure a long-term business loan, especially from a bank. Online lenders may offer more options for long-term business loans for bad credit, but interest rates are often higher than those available from traditional lenders.

More documentation to prove creditworthiness

In addition to credit scores, lenders likely want to see more documentation that shows your business’s credibility. They may want to see profit and loss statements, bank statements, tax returns, and other proof of revenue and business history.

Total cost can be high

It’s important to note that while interest rates may be relatively low on long-term small business loans, interest will accrue over the life of the loan, which can be expensive. Consider the total interest you will be charged over the life of the loan to evaluate.

Recommended: What Is the Minimum Credit Score for a Business Loan?

Types of Long-Term Business Loans

Under the umbrella of long-term business loans, there are a number of options offered by lenders and the U.S. Small Business Administration (SBA) to assist businesses as they scale and grow. Below are common types of long-term loans for small businesses.

SBA Loans

SBA loans are backed by the U.S. Small Business Administration and offered by banks and other approved lenders.

For borrowers that qualify, an SBA loan can be an option to consider if you’re in need of a long-term small business loan. However, getting approved for an SBA loan can be a long, competitive process because of their favorable rates and terms.

The SBA 7(a) and SBA 504 loan programs offer long-term financing for qualified small businesses. Depending on the amount of funding you need and what it will be used for, one program may be more suitable for your needs than the other.

•  SBA 7(a): Long-term small business loans that can be used for nearly any business-related purchase. The maximum loan amount is $5 million, and loan terms may extend up to 25 years, depending on what the funds will be used for.

•  SBA 504: Small business loans aimed at helping businesses renovate or modernize their operation. The funds can be used for purposes like purchasing new land, remodeling, or buying new equipment. The maximum loan amount is $5.5 million and loan terms can extend up to 25 years.

Term Loans

A term loan is where your business receives a fixed amount of money for which the lender sets a specified repayment schedule. You pay back the amount borrowed plus interest in installments over the agreed-upon term. The business loan term is based on a borrower’s qualifications, loan amount, and other conditions set by the lender.

Business Line of Credit

A business line of credit can be used by businesses of all sizes to help manage cash flow and other working capital expenses. A creditor gives you access to funding up to an approved amount, with interest charged only on unpaid balances.

Repayment terms for a business line of credit differ from traditional loans because borrowers are not charged interest on the whole amount they’re approved for; you only pay interest on what you spend, similar to a credit card.

With revolving lines of credit, the approved credit limit replenishes after the balance is paid in full, allowing borrowers to have access to funds for extended periods of time.

Equipment Financing

Equipment financing can be an option to consider for well-established businesses that want to invest in equipment. This may include machinery, vehicles, medical devices, and office equipment. With this type of loan, the equipment itself acts as collateral.

Loan terms can range from several months to 10 or more years. They may match the amount of time a business expects to make use of the equipment. The potential benefit of purchasing expensive equipment with a five-year business loan, for example, comes if your business can still get the items it needs to function and grow without the financial stress of a large, one-time purchase.

Commercial Real Estate Loans

A commercial real estate loan allows you to purchase a building or property that’s to be used for business purposes. This may include office space, a retail shop, a factory, or a warehouse.

The property being purchased acts as collateral, which can be beneficial to businesses that don’t have other forms of collateral to offer. The loan amount you’re approved for will depend on the loan-to-value (LTV) ratio, which is the size of loan compared to the value of your property.

Commercial real estate terms will vary based on factors including the loan amount, borrower qualifications, and lender requirements.

A commercial real estate loan can help businesses grow by enabling borrowers to purchase the space they need to increase production and sales. Similar to equipment financing, these long-term business loans allow business owners to make large real estate purchases without the financial strain of paying for the property all at once.

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Applying for a Long-Term Business Loan

Preparation is key when learning how to apply for a business loan. Lenders typically require extensive documentation as part of the application and approval process, so it may be helpful to have a game plan as you are preparing to apply.

Generally, you will need to take the following steps to prepare and apply for a long-term business loan:

1. Understanding Qualifications

As you start to research lenders, take note of their minimum qualifications. Businesses that may be eligible for long-term business loans will typically:

•  Be well-established and in business over two years

•  Have strong personal and business credit histories

•  Be able to show proof of annual revenue

2. Checking Your Business and Personal Credit

This could help you determine what you may qualify for, which can be particularly important for long-term business loans that may require a higher credit score than some shorter-term financing options.

Recommended: How to Check Your Credit Score for Free

3. Preparing Documentation

Applying for a long-term small business loan will usually require more documentation than a short-term business loan. Lenders may ask you to provide documents like:

•  Personal and business tax returns

•  Personal and business credit scores

•  Profit and loss statements

•  Business licenses, permits, or other legal documentation

•  Personal and business bank statements

•  Proof of collateral

4. Choosing a Lender

Compare lenders based on factors including how much funding you need, your business goals, and your qualifications as a borrower. To help get organized and start narrowing down your options, it may be helpful to answer the following questions:

•  How much financing do I need?

•  What is the money being used for?

•  How soon do I need funding?

•  Can I honestly afford a long-term loan?

5. Reviewing Loan Terms Carefully

Reviewing loan terms carefully after choosing a lender for a small business loan is essential because it ensures you fully understand the financial obligations and conditions you are agreeing to. This includes comprehending the interest rates, repayment schedule, and any associated fees, which can significantly impact your cash flow and overall cost of borrowing.

6. Applying

After you’ve chosen a lender for a long-term small business loan and reviewed the loan terms, the next step is to fill out the application and provide any required documents. Some lenders may allow you to prequalify for a loan by performing a soft credit pull, which won’t typically impact your credit scores. When applying, lenders perform a hard credit pull, which may impact your credit score.

Additional Funding Options for Small Businesses

If you’re looking for additional financing options for business-related expenses, the following options may be worth considering for a small business loan.

Microloan

Typically, microloans are offered by nonprofit organizations and peer-to-peer lenders for smaller loan amounts. If you only require a small amount of financing and don’t qualify for a larger loan, a microloan may help you get the funding you need to cover basic expenses. SBA microloans are also available and may have advantages like longer terms and better interest rates than other short-term lending options.

Peer-to-Peer (P2P) Lending

Peer-to-peer lending removes the financial institution that typically facilitates the loan process, allowing borrowers and investors to connect directly. Borrowers may find more favorable rates and simpler terms than other lending options.

Online P2P networks help match borrowers and investors based on your business needs and purpose. After the loan is approved, money transfer and payments occur directly through the P2P platform.

Inventory Financing

Inventory financing is an asset-based business loan used to purchase more inventory, which can help maintain consistent cash flow during seasonal spikes in sales. The inventory itself serves as collateral, and lenders offer financing based on a percentage of that inventory’s value. If you default on the loan, the lender can seize the inventory that you’ve used as collateral.

The Takeaway

Long-term small business loans in 2025 offer a valuable financial tool for entrepreneurs looking to make significant investments in their companies. With extended repayment periods, lower interest rates, and the flexibility to fund major projects without the immediate burden of high monthly payments, these loans can provide the necessary capital to drive growth and innovation.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What is a long-term business loan?

Long-term business loans are those with longer terms, typically from three to 10 years. The borrower pays back the loan amount plus interest in regular installments over the agreed-upon loan term. Loan terms and interest rates are determined by the lender and can give borrowers the flexibility of manageable payments and favorable APRs.

What are the longest business loan terms?

Long-term business loan terms vary depending on the type of lender, loan amount, what the funds are for, and borrower qualifications, but generally range anywhere from three to 10 years. Loans through the SBA often have the longest terms, with 7(a) loans capping out at 25 years.

How can I get a long-term business loan?

Long-term business loans typically have stringent application requirements due to the increased risk to the lender. Therefore, it may be helpful to build credit and wait until your business is well-established before applying. When you’re ready to apply for long-term business financing, look at lenders’ minimum qualifications, check your business and personal credit score, compare lenders, and gather the necessary documents required for the application.

What are the advantages of a long-term business loan?

Long-term business loans typically have lower interest rates, smaller monthly payments, and longer repayment terms, which can help businesses make large purchases without the financial burden of a one-time payment or short-term loan.

Can you get a 20-year business loan?

If you have excellent business credit and an established business, you would be a candidate for a 20-year business loan.

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Unsecured business loans provide a vital source of funding for entrepreneurs and small business owners. Unlike traditional loans, these financial tools don’t require collateral, making them an attractive option for those looking to secure capital quickly.

Keep reading to learn the key features, benefits, and considerations of unsecured business loans, helping you decide if this type of financing is right for your business.

Unsecured Business Loans Explained

An unsecured business loan is a small business loan in which the lender does not require collateral. Instead, the lender relies heavily upon the creditworthiness of the applicant. Some lenders may also ask for a personal guarantee from applicants.

Personal Guarantees

A personal guarantee is a written promise to personally pay back the loan in the event that your business cannot. This differs from collateral because a personal guarantee is not linked to any specific asset, which may offer some borrowers more freedom when looking for small business loans.

However, it’s important to keep in mind that, when a business defaults on the loan repayment, the personal guarantee may allow the lender to seize personal assets, which could include checking and savings accounts, cars, and even a house.

Unsecured Business Loan Rates

Unsecured business loan rates are typically higher than the interest charged on a secured loan, because the lender is taking on more risk. Even without collateral or a personal guarantee, lenders can still take legal recourse when an unsecured loan isn’t repaid. They may send outstanding accounts to debt collection agencies or sue to ensure the money gets paid back.

Unsecured vs Secured Business Loans

The primary difference between an unsecured business loan and a secured business loan comes down to collateral. Secured business loans are those that require collateral in the form of a valuable asset, while unsecured loans do not.

While collateral is the main factor that separates these two types of loans, there are a few other differences to note:

•  Secured loan amounts are typically determined by the loan-to-value ratio (LTV) of your collateral. Lenders use loan-to-value ratio to determine how much they choose to lend based on the value of the collateral. For example, real estate that’s not considered “ready-to-go” may result in a loan amount that’s smaller than a piece of property that’s completely paid off. Lenders may also look at LTV differently, so it’s important to consult with individual lenders about how they calculate asset values.

•  Collateral can be business or personal assets. These may include real estate, vehicles, jewelry, collectibles, stocks and bonds, cash savings, and assets that can be converted into cash.

•  Secured loans typically have longer repayment terms. Because a secured loan poses less risk, lenders typically give longer repayment periods compared to unsecured loans.

Examples of secured loans are mortgages, secured auto loans, home equity lines of credit, and commercial equity lines of credit (CELOC). Examples of unsecured loans include student loans, unsecured personal loans, and business signature loans.

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Pros and Cons of Unsecured Business Loans

The following pros and cons might be helpful when deciding if unsecured business financing is right for you:

Pros of Unsecured Business Loans

•  Faster potential turnaround time: No matter what type of business loan you’re seeking, lenders will likely conduct a thorough check on your qualifications. But an unsecured business loan typically requires less time to approve (since lenders do not need to vet and verify collateral).

•  Lenders can’t seize property (without a court order): One of the risks of a secured business loan is having valuable assets seized if you default on the loan. With an unsecured business loan, lenders cannot seize business or personal property (without a court order), because no collateral has been pledged to the lender.

•  Unsecured loans may be discharged if you file for bankruptcy: In the unfortunate event that your business has to file for bankruptcy, an unsecured business loan may be discharged, meaning you may not be liable for a business debt.

•  Lenders may have fewer restrictions on how you use funds: Unsecured business loans may give you more flexibility on how you can use the funds compared with secured business loans. Borrowers cannot, of course, use business loan funds for illegal purposes.

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Cons of Unsecured Business Loans

•  Unsecured loans may have higher interest rates: The risk involved in providing an unsecured business loan can be significantly higher for lenders. Consequently, unsecured loans typically have higher interest rates for borrowers than the rates on a secured loan.

•  Eligibility requirements: Without collateral, lenders may rely more heavily upon other eligibility requirements — factors like a loan applicant’s credit score, financial history, and business revenue. If you have poor credit or lack sufficient revenue, a lender may deny your application for an unsecured business loan.

•  Smaller loan amounts: Due to the increased risk that comes with no collateral, lenders may not offer large loan amounts. With a collateralized loan, lenders are more protected and may offer more funding.

•  Personal guarantee may be required: Even though an unsecured business loan doesn’t require specific collateral, lenders may want a personal guarantee so they know the loan will be paid in the event of default. When you sign a personal guarantee, you are still responsible for paying back the loan even if your business dissolves, and lenders can still legally pursue a borrower’s personal assets, even if they aren’t noted as collateral.

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When Does an Unsecured Business Loan Make Sense?

An unsecured business loan makes sense when you need quick access to capital without pledging collateral, especially if you have a solid credit profile and a proven revenue stream. These loans are ideal for short-term financing needs or for businesses that want to preserve their assets.

An unsecured business loan is often a good choice when:

•  You lack valuable assets to pledge as collateral.

•  You need funds quickly without lengthy approval processes.

•  Your business has strong credit and stable cash flow.

•  You want to avoid risking personal or business property.

•  You’re covering short-term expenses or seizing growth opportunities.

Key Features to Consider in an Unsecured Business Loan

Here are the key features to consider in an unsecured business loan:

•  Interest rates: Unsecured loans often have higher interest rates due to the lack of collateral. Compare rates from different lenders to find the best deal.

•  Loan terms: Review the repayment period and payment structure. A longer term business loan may lower monthly payments but increase total interest paid.

•  Loan amount: Ensure the loan amount is sufficient for your business needs without overburdening your finances.

•  Eligibility criteria: Understand the lender’s requirements, such as credit score, business revenue, and industry experience.

•  Fees and conditions: Be aware of any origination fees, prepayment penalties, or other conditions that can add to the cost of the loan.

Types of Unsecured Business Funding

Financing a business with unsecured business loans offers a number of options for different types of small businesses. Check out the following unsecured loan types to learn more about your options:

Short-Term Loan

What is it? Short-term business loans give borrowers a sum of money upfront, which is then repaid with interest over a time set by the lender. Short-term unsecured business loans typically have terms of 18 months or less.

Why choose it? If you need a fast business loan that’s unsecured and you can repay fairly quickly, a short-term loan may help. Short-term loans may also be easier to get with poor credit, no credit, or minimal business history.

Keep in mind: Unsecured, short-term loans usually have much higher interest rates than other loan options because lenders are taking on more risk. Borrowing amounts may also be lower.

Loan With Personal Guarantee

What is it? Unsecured business loans with a personal guarantee are those in which the borrower signs a legal promise to repay the loan if the business defaults on the loan.

Why choose it? Loans with a personal guarantee can help borrowers get financing when they don’t have a well-established business, collateral, or creditworthiness to qualify for other forms of business financing on their own.

Keep in mind: There are limited and unlimited personal guarantees. Limited guarantees give lenders the ability to collect a certain amount of money or a specific percentage of the outstanding balance. Unlimited personal guarantees mean that the borrower is responsible for the entire balance of the loan and the lender can legally pursue payment for the outstanding balance.

Business Line of Credit

What is it? A small business line of credit is where borrowers receive a set credit limit and use funds up to that limit, with interest paid on the money that gets withdrawn. Some lines of credit are revolving (aka able to be replenished), while others terminate when the balance is paid off.

Why choose it? If your business experiences seasonal fluctuations, a cyclical sales cycle, or has emergency expenses, a business line of credit can be helpful in supplementing cash flow. It’s typically easier to qualify for a business line of credit, because funding amounts are generally smaller and limited to shorter terms.

Keep in mind: Opening a business line of credit may have additional fees and costs to be aware of. In some cases, lines of credit offer smaller borrowing limits than a long-term loan.

Invoice Factoring

What is it? With invoice factoring, businesses receive a sum of cash when a factoring company purchases unpaid invoices at a discount. Funds can be used toward working capital and other smaller expenses. The factoring company takes ownership of the invoices, so they are responsible for collecting payment directly from customers. Technically, invoice factoring is not a loan but rather a cash advance based on invoices.

Why choose it? Invoice factoring can assist businesses that offer products and services with irregular billing cycles and B2B companies that deal regularly in customer invoices. Factoring companies offer a percentage of the value on outstanding invoices, giving the business faster access to cash.

Keep in mind: The cost of invoice factoring can be quite high. It may include additional fees and a variable APR if there are late payments from customers. Businesses also lose control over collections, so it’s important to make sure that factoring companies use ethical collections processes.

Peer-to-Peer Lending

What is it? With peer-to-peer (P2P) business lending, borrowers receive funding directly from other individuals, thus eliminating the need for a financial institution to act as a go-between. Borrowers and private investors connect using online platforms, and funding can happen quickly.

Why choose it? For small businesses and entrepreneurs that need cash quickly with competitive rates, P2P loans are one possible option.

Keep in mind: Loaned amounts are typically smaller than traditional loan offerings, and you may need excellent credit to qualify for larger loan amounts.

Merchant Cash Advance

What is it? A merchant cash advance (MCA) gives cash up front in return for repayment taken as a percentage of the borrower’s credit card sales. Automatic withdrawals are often set up for daily or weekly payments to make the repayment process quick and timely.

Why choose it? If you need quick access to cash or your credit is poor and you are in search of a business loan with no collateral, merchant cash advances may help.

Keep in mind: You pay for the convenience of merchant cash advances, making them one of the most expensive unsecured business loan options — which means borrowers need to be extra careful about the lenders they work with.

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6 Steps to Apply for an Unsecured Business Loan

Since unsecured business funding doesn’t rely on collateral, many lenders will need adequate proof that a borrower is able to repay their loan. Whether you’re seeking a loan from a bank or an alternative loan provider, it could be helpful to review these steps when preparing to apply:

1. Determine How Much Funding You Need

The amount of funding you need plays a role in the type of unsecured business financing you apply for. If you simply need quick cash to cover a repair or emergency expense, you may consider a business line of credit or a short-term loan. In contrast, if you need enough to cover larger expenses over a period of time, you may seek an unsecured loan with a personal guarantee.

Here are some factors you may want to keep in mind when deciding how much cash is needed:

•  What is the loan going to pay for? Is it absolutely necessary?

•  What monthly payment can you afford?

•  What is your ideal loan term?

•  What is your budget?

•  Do you have other sources of funding?

2. Understand What Your Business Qualifies For

Each lender or funding company will have their own eligibility requirements that can also vary, depending on the type of financing you apply for. Before applying, make sure that you meet general eligibility requirements for unsecured business funding.

Without collateral, some lenders may need more proof that you are capable of repaying the loan. The following factors may contribute to your eligibility:

•  Personal and business credit history

•  Minimum amount of time in business

•  Business finances/revenue

•  Monthly cash flow

•  Business bank accounts

3. Decide Which Type of Unsecured Business Funding Is Right for You

You can now assess which type of unsecured business funding aligns with your needs and qualifications (and it may not be a loan). Some options include:

•  Short-term loans

•  Loans with a personal guarantee

•  Business lines of credit

•  Invoice factoring

•  Merchant cash advances

•  P2P lending

4. Compare Lenders and Financing Options

Many lenders offer some type of unsecured business loan, including banks, credit unions, online lenders, P2P platforms, and commercial lenders. Their loan products may differ, so it’s important to review their fees, interest rates, loan terms, qualifications, and any other conditions associated with the specific type of financing you’re pursuing.

5. Prepare Documentation

Before completing an application for an unsecured business loan, gather all necessary documentation. This may include:

•  Business financial records

•  Personal and business credit reports

•  Cash flow projections

•  Business plan

•  Identifying information, which may include citizenship

•  Business legal documents

•  Business and personal tax returns

6. Submit an Application

After you’ve chosen a lender or financing company and gathered the necessary documents, follow the company’s instructions to apply. You may want to check with them to determine the average turnaround time — following up, as necessary, on the application.

Alternatives to Unsecured Business Loans

If you have collateral to offer, or simply desire alternatives to an unsecured loan, the following loan options may be helpful:

Restaurant Loans

Restaurant loans are useful for financing costs associated with starting or expanding a restaurant business. Many different types of lenders offer restaurant loans, including traditional banks, alternative lenders, or P2P lenders.

Franchise Financing

A franchising loan can help with the expenses associated with starting or expanding a franchise business. Traditional lenders may offer franchise financing, but there are also franchise companies who specialize in providing loans to franchise owners.

Equipment Financing

Equipment loans help businesses purchase business-related equipment. Loan terms are typically equal to the expected life span of the equipment, and the equipment acts as collateral for the loan. Interest rates can vary depending on the industry, type of equipment, and borrower qualifications.

Personal Business Loans

A personal business loan may be useful if you don’t qualify for other types of loans. Borrowers can use the funds for personal and business expenses, offering more financial flexibility. Not all lenders wish to make personal loans for business purposes. You can check with any lender you’re considering before you apply to make sure there are no restrictions against business use.

Inventory Financing

Inventory financing is a type of loan that helps businesses pay for the cost of purchasing inventory. It allows you to use your existing inventory as collateral, making it easier to obtain funds to buy more stock, especially when you need to scale up operations or take advantage of bulk purchasing discounts.

Microloans

Microloans may help support small business owners who do not have access to larger sources of funding. They are generally offered by nonprofits, government agencies, or private lenders and can be used for a variety of business-related expenses.

Commercial Real Estate Loans

Commercial real estate loans (CREs) are specifically for the purchase, refinance, or renovation of a commercial property. “Commercial” refers to the property as one that produces income for the business. These types of properties can include offices, retail storefronts, and warehouses.

Recommended: Business Loan vs. Personal Loan: Which Is Right for You?

The Takeaway

An unsecured business loan offers flexibility and accessibility for businesses in need of capital without the requirement of collateral. While it comes with higher interest rates and stricter eligibility criteria, it can be a valuable financial tool for meeting short-term needs and supporting growth. Carefully consider your options and shop around to find the best terms and rates for your business.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

How much money can I get with an unsecured loan?

Some lenders may offer small business loans up to $5 million without a collateral requirement. You may need good credit to qualify for large loan amounts.

Does the SBA offer unsecured loans?

Some U.S. Small Business Administration (SBA) loan intermediaries may offer unsecured loans, but SBA loans generally require collateral and a personal guarantee of the business owner. SBA loan lenders can set their own lending and credit requirements.

What are typical interest rates for unsecured business loans?

Typical interest rates for unsecured business loans range from 6% to 99% or more, depending on the lender, your credit score, and the loan terms. Rates can vary widely, so it’s important to shop around and compare offers to find the most competitive rate.

Can I get an unsecured business loan with bad credit?

Yes, you can get an unsecured business loan with bad credit, but it’s harder and usually comes with higher interest rates and stricter terms. Lenders may require strong business revenue, a personal guarantee, or collateral substitutes. Building credit or seeking alternative financing can increase your approval chances.

How fast can I receive funds from an unsecured loan?

Funding from an unsecured business loan can be fast, often within a few days. Online lenders may approve and deposit funds in one to three business days, while traditional banks can take longer. Speed depends on the lender, your application completeness, creditworthiness, and how quickly you provide documentation.

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q325-031

Startups are young businesses, typically between two and five years old. Revenues can often be unpredictable for the first few years, so these companies tend to have limited funds. To continue growing, they’re likely to need one or more cash infusions.

The right type of startup business loan can help you launch your enterprise even if you don’t have much money on hand. This guide helps startup owners understand how to get a business loan with no money, what options are available, and what lenders are looking for.

Is It Possible for a Startup To Get a Business Loan With No Money?

It is certainly possible to get a startup business loan with no revenue and bad credit — but it may be difficult. That’s because lenders prefer borrowers with regular cash flow that can support monthly loan payments, and your business may not be at that stage yet.

As a result, you may be asked to provide collateral — an asset that has monetary value, such as equipment or real estate — that your lender could seize and sell if your business were to default on the loan.

Recommended: Unsecured Business Line of Credit for Startups

How Lenders Evaluate Risk and Viability

When lenders are considering your startup loan application, they are looking closely at how much risk they might be taking on. To confirm your startup’s eligibility and prospects, lenders will usually ask for a variety of financial statements, forecasts, tax returns, and other paperwork.

Overall, a lender generally compares your business’s financial health to an established set of standards. Those standards are often referred to as “the five Cs of credit”:

•  Capacity (or cash flow) means having sufficient business income to pay back your company’s loan.

•  Character refers to your general creditworthiness and history of loan repayment.

•  Conditions are developments that may affect your ability to pay back your loans. They may be challenges to your specific enterprise or your business sector as a whole.

•  Capital may be cash or assets; lenders like to see that you’re betting on your company with your own money.

•  Collateral is (as noted above) a valuable asset that you put up as security for the loan. The asset can be sold to recapture some of the loan money if your business defaults.

Why Lenders Want You to Have Capital or Collateral

A startup applying for loans may not have much credit history to indicate how responsible its owners have been with past debt. That’s why many lenders pay particular attention to what your business can offer in the way of capital and collateral.

Capital is money you have on hand that could be used to pay back the loan. It could be in the form of liquid assets (such as cash or bonds) or illiquid assets (such as real estate, which you could sell to raise funds).

Collateral pledged as security for the loan helps the bank reduce its risk. If you were to default on your loan, the bank could seize and sell the collateral assets, reducing its loss. Capital can also serve as collateral.

The more collateral you have, the less risk you present to your lender and the easier you may find it to qualify for loans. You may also be offered lower interest rates that reduce your borrowing costs.

If you have collateral and a strong personal credit history, a no-doc small business loan from an alternative lender may be an option.

Potential Ways to Obtain Funding With No Revenue

In addition to small business loans, there are several other ways you may be able to get funding.

Startup Grants

Your startup may qualify for small business grants. These are offered by governments, nonprofits, and sometimes even corporations to help new enterprises get off the ground. Unlike loans, grants do not need to be repaid. However, they sometimes have strict eligibility requirements. For example, they may be targeted at supporting certain demographics or industries, or they could be meant for specific projects that are named in funding opportunity announcements.

Crowdfunding

Crowdfunding is the online collection of small sums from the public to bankroll a new venture. Some crowdfunding platforms retain a small percentage of the donated money as their fee. Some may charge a payment processing fee on each contribution. As with grants, donation-based crowdfunding does not require that you pay the money back, though some projects do offer product samples to encourage potential backers.

Microloans

Microloans, as defined by the Small Business Administration (SBA), are loans of less than $50,000. Many microloan programs focus on startups, underserved communities, and entrepreneurs with limited credit history. Lenders tend to be nonprofit organizations backed by government entities such as the Community Development Financial Institutions Fund and the SBA.

SBA Loans

SBA loans, offered by traditional lenders, are partially guaranteed by the U.S. government. Businesses must abide by strict SBA guidelines in order to qualify for these loans. Each lender will have its own requirements as well. So the application process can be time-consuming.

At the same time, these loans offer many advantages. Because the agency’s backing reduces the lender’s risk, many SBA loans don’t require collateral. Other benefits for borrowers may include comparatively favorable interest rates, smaller down payments, and longer repayment schedules.

Personal Loans Used for Business

Personal loans are a type of installment loan that you repay over a fixed period. They are often unsecured, meaning they don’t require collateral, and you (not your small business) are personally liable for the debt.

These loans typically put few restrictions on what you can use the money for. Some personal loans allow you to use the funds for equipment financing and other business purposes, but others may forbid that. So it’s crucial to check the terms and conditions of your personal loan before making any work-related purchases with the money.

How To Strengthen Your Application

Strengthening your loan application can help you qualify for a loan and, possibly, secure favorable terms and lower interest rates. Here’s a look at some steps you can take.

Demonstrate Creditworthiness

To satisfy lenders, it’s important to maintain solid personal and business credit scores. The best way to do this is to always pay your bills on time. You may also want to keep your credit utilization low. If lenders see that you’re already using most of your existing credit, they may worry that you’re overcommitted.

Focus on Your Business Plan and Financial Projections

A strong business plan containing financial projections will help demonstrate your business’s viability, cash flow, and profitability. A business plan should include a description of your company and how it is managed, market analysis, descriptions of the products or services you sell, a marketing plan, and how much you expect the business to bring in over the next five years. These details all signal to lenders that your company will have enough money to pay back a proposed loan.

Recommended: Business Checking

Find a Co-Signer or Provide a Personal Guarantee

A personal guarantee or a co-signer may increase your chances of securing a loan. A co-signer is typically a person you know well, such as a close friend or family member, who has a good credit history. If you are unable to pay back the loan, the co-signer has the legal responsibility to repay it.

Important Considerations

Before you take out a startup loan, there are a few more fundamentals you may want to think about.

Personal Guarantee

Banks may consider it risky to lend money to your startup. They may ask that you make a personal guarantee on a loan before they approve it. This guarantee is a legal agreement that you are responsible for paying back the loan yourself if your business is unable to do so. That means your own assets could be at stake.

Interest Rates and Fees

Interest rates represent the price you pay a lender for access to borrowed money. We’ve mentioned interest rates several times already, because they’re important: They determine your total cost of borrowing. The lower your interest rate, the cheaper your loan will be. For instance, for a $100,000 loan, a 2% difference in interest rate could cost you an extra $5,000 over five years.

Fees can significantly increase the cost of borrowing. Read the fine print to know what fees you’ll have to pay. It’s also worth asking your lender which fees they may be able to waive.

Taking on Personal Debt or Risk

Think carefully before taking on personal debt for your business. Getting a loan may mean putting your personal assets, such as a home or your savings, at risk. Using more of your available credit to take on personal debt could lower your credit score, especially if you’re unable to pay the loan off promptly. And with a lower score, you’ll have more difficulty securing affordable credit in the future.

The Takeaway

Getting a startup business loan with little or no money can be a challenge. By exploring your lending options, strengthening your business plan, and demonstrating your vision to lenders, you can secure the support you need to grow your business.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

Can I get a startup loan with bad credit and no money?

It is possible to get startup business loans with no revenue and bad credit, but it’s likely to be challenging. You may not qualify for the best terms or lowest interest rates. In that case, you may wish to explore loan alternatives, such as SBA microloans.

What kind of loan can I get to start a business from scratch?

If you’re starting a business from the ground up, you might consider traditional business loans, SBA loans, microloans, or a personal loan.

What’s the easiest type of loan to get for a new business?

Microloans, which generally top out at $50,000, may be the easiest to get, as they are often geared toward startups. Microloans are administered by community nonprofits with experience in lending; requirements are likely to vary.

Can I get a business loan without a business plan?

It might be possible to get a business loan without a business plan, but most traditional lenders — especially those offering SBA-backed loans — will require one. A business plan helps them assess your business’s viability and creditworthiness.

Are there government programs that help fund startups with no capital?

Yes, there are some government programs that help fund startups. In addition to the SBA’s loan programs, the agency runs the tech-friendly Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Also, the Treasury Department provides almost $10 billion for the State Small Business Credit Initiative (SSBCI), which oversees capital access programs and technical assistance grants.

Photo credit: iStock/Miljan Živković

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOSMB-Q325-025

Taxes are a fact of life for most businesses — but tax burdens do differ. How much do small businesses pay in taxes? Estimates indicate the average small business can expect to hand over about 20% of their gross income to Uncle Sam.

Your small business’s tax rate will depend on what type of business you run, and, more importantly, its legal structure. Fortunately, there are plenty of rules and strategies that can help you reduce your tax obligations and manage your money better.

Understanding Small Business Taxes

Your small business tax rate has a direct impact on your bottom line. Knowing the IRS’s rules can help you make smart business decisions that reduce your tax bill.

Why Small Businesses Pay Taxes

A profitable business may have to pay tax to the state and locality as well as to the IRS. Tax dollars support infrastructure and services that small businesses and their communities rely on, such as roads, fire and police departments, and regulatory agencies.

How Business Structure Affects Taxes

There are several types of business entities, and the one you choose for your business structure has a big tax impact.

For example, there are two types of corporation: C and S. Income from C corporations is taxed twice: once at the corporate level (at a flat rate of 21%) and then, after the money has been distributed to shareholders, on their individual returns. But S corporations’ income is passed through without taxation to shareholders; recipients then claim it on their personal returns and pay at their individual rates.

If you run a sole proprietorship — the default structure for small businesses unless you choose another — it’s considered a pass-through business. Your profits will be taxed at your individual income tax rate. (However, if your gross income from the business totals less than the standard deduction, you may not owe any federal income tax on that money.)

Types of Small Business Taxes

For a clearer view of how much small businesses pay in taxes, here’s a closer look at various levies your company may face.

Income Taxes

If you run a sole proprietorship or partnership, you’ll pay taxes at your own personal income tax rate. Profits are taxed only once, on your individual return. Limited liability companies (LLCs) can choose their tax treatment. They can be taxed like sole proprietorships, partnerships, or corporations. As mentioned above, C corporations pay a 21% tax rate on earnings before distributing them to shareholders.

Self-Employment Taxes

If you own your own business, you’ll be on the hook for self-employment taxes of 15.3%. The government collects this money to cover the cost of Social Security and Medicare.

Employment Taxes

If you have employees on your payroll, you’ll be responsible for employment taxes. As with self-employment tax, the total rate is 15.3% and the taxes pay for Social Security and Medicare. However, as an employer, only half of that (7.65%) will come out of your share. The other 7.65% is withheld from the employee’s wages.

Also, there is a federal unemployment tax, known as FUTA. This tax, in conjunction with state unemployment systems, is for unemployment compensation to workers who have lost their jobs. The FUTA rate is 6% on the first $7,000 of each employee’s wages, or $420, but widely used credits can reduce the effective rate to 0.6%.

Most employers pay both a federal and a state unemployment tax; it is not deducted from employee wages.

Excise Taxes

Depending on what type of business you own, you may have to pay excise taxes. These are taxes on certain goods, services, and activities.

For instance, imported goods may be subject to excise taxes. Businesses that participate in the sale of alcohol, tobacco, or even tires may owe excise taxes. In general, businesses pass on the cost of these taxes to consumers in the form of higher prices.

Sales Taxes

State and local governments may impose a sales tax on the sale of goods and services. As a small business owner, you have the responsibility to collect the tax at the point of sale and remit that money to the government. You may also have to file sales tax reports to serve as a record.

Not all states and municipalities levy a sales tax.

How to Calculate Small Business Taxes

Being able to estimate how much you’ll owe in business taxes helps you assess how much money you’ll have for operating costs and payroll. Here’s a look at how to calculate how much you’ll owe.

Estimating Federal and State Obligations

To estimate your federal and state taxes, start with an understanding of your net business income. This is your revenue minus operating costs, taxes, interest, and other expenses.

If your business isn’t taxed as a corporation, your net income will be taxed according to your individual income tax rate. You’ll also owe the 15.3% self-employment tax on the money you receive, plus half of that, 7.65%, on employee payroll.

State and local taxes vary widely, but you may owe income taxes, employment taxes, sales tax, and local business taxes as well. Your state department of revenue’s website can help you determine what taxes are required in your area.

Using Accounting Software or a Tax Professional

Professional accountants or accounting software can assist with tax calculations. Either one should help you track expenses, identify eligible deductions, and determine taxes owed.

Strategies to Minimize Small Business Taxes

Several strategies can help you reduce the amount of business tax you owe. Adopting them can keep more cash within the business for daily operations, payroll, and inventory. Additional money can be reinvested in the business; you could use it to increase marketing, hire new employees, or upgrade your facility with equipment financing.

Deductible Business Expenses

Small business tax deductions reduce the amount of income on which your taxes are calculated, in effect lowering the amount you pay. That’s why it’s smart to deduct as many expenses as possible.

Deductible costs related to your business could include equipment, insurance premiums, interest on small business loans, professional services, office supplies, work-related travel, and advertising costs. Many expenses related to employees are also deductible. For example, you can deduct salaries, wages, and bonuses, as well as payroll taxes and employee insurance premiums.

Recommended: Startup Business Loans

Retirement Contributions and Tax Credits

The IRS also offers business owners a variety of tax credits, which reduce your tax bill dollar for dollar. If you set up and contribute to a qualifying retirement plan for your employees, you could claim a tax credit for those expenses. Other actions that could translate to tax credits: providing child care for your employees, purchasing an electric vehicle for work, or rehabilitating a historic building.

Choosing the Right Legal Structure

Choosing the right legal structure for your small business depends on several key factors. First, bear in mind the various small business tax rates and the implications mentioned above.

It’s also important to consider legal liability. Sole proprietorships and general partnerships don’t provide you with personal liability protection. In other words, if your business is involved in a lawsuit, your personal assets may be at risk.

LLCs and corporations do provide certain legal protections and shield your personal and business assets. That said, LLCs and corporations are usually more difficult to operate and manage than sole proprietorships.

When and How to Pay Small Business Taxes

Another aspect of choosing a legal business structure is figuring out what rules apply when paying taxes. Some business structures require estimated tax payments each quarter, while others require filings only once a year.

Quarterly Estimated Taxes

If you’re in business for yourself, you generally need to pay estimated taxes each quarter. Estimated tax filing is a requirement for individuals (including sole proprietors, partners, and S corporation shareholders) who expect to owe the IRS at least $1,000 on their annual return. C corporations are also expected to pay quarterly taxes if they expect to owe $500 or more when their annual return is filed.

Annual Tax Filing Requirements

•  Sole proprietors: You’ll declare your income and deductions on Schedule C of your personal Form 1040 tax return. You’ll also have to attach Schedule SE for self-employment taxes. The return is due by April 15 (or, if that’s not a workday, by the stated tax deadline).

•  Partnerships: Most operate on the calendar year. In that case, the partnership should file Form 1065 as an information return by March 15. The business income is passed through to the partners and taxed via their personal Form 1040 returns.

•  S corporations: These entities need to file Form 1120S by March 15, but S corps with a pass-through structure pay no tax at this level. Instead, each shareholder receives a Schedule K-1 documenting their share of the income and expenses. The shareholder records that information on Schedule E of their individual tax return.

•  C corporations: These businesses use Form 1120 to report their income, gains, losses, deductions and credits, and to figure their federal income tax liability. Corporations operating on the calendar year need to file by April 15 (or the IRS’s stated tax deadline).

Common Tax Mistakes Small Businesses Should Avoid

Business taxes can be complicated, and it’s not always easy to make sure all your i’s are dotted and your t’s are crossed. Here are some common pitfalls to watch out for.

•  Overlooking valuable tax deductions: Try to take every deduction you can to lower the amount of tax you pay including less common options such as charitable business donations. At the same time, make every effort not to exaggerate deductions, which could bring you under scrutiny for an IRS audit.

•  Mixing personal and business expenses: You are not allowed to deduct personal expenses on your business taxes, so it’s important to keep clear, careful records. For maximum clarity, you may want to have completely separate professional and personal accounts, including a dedicated business checking account.

•  Misclassifying workers: If you have employees, you could face stiff penalties if the IRS determines they were misclassified and you didn’t pay proper payroll taxes.

•  Missed deadlines: Missing tax filing deadlines can result in penalties and interest payments. Keep a tax calendar to help avoid this problem.

The Takeaway

Understanding the basics of small business taxes can help you stay compliant with state and federal laws while also revealing ways to reduce the amount you owe. It’s critical to keep organized records and seek professional guidance to help make paying taxes a manageable part of running your business.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

How do I know which taxes my small business has to pay?

The types of taxes your small business will have to pay will depend on its legal structure and location. The IRS website can help you determine what taxes are necessary for your type of business. Similarly, your state and local governments’ revenue websites can help you sort out any other taxes you’ll need to pay. You may want to seek professional guidance to help ensure you aren’t missing anything.

Does the type of business entity impact how much tax I pay?

The type of business entity directly affects how much tax you pay. For example, with sole proprietorships – which the IRS does not separate from the owner – business income is passed through and taxed at the owner’s individual income tax rate. C corporations, in contrast, pay a flat corporate income tax rate of 21%.

How can I reduce my small business tax burden?

You can reduce your small business tax burden by taking advantage of applicable tax credits and deductions. Look back through your receipts, invoices, and payments to see which credits and deductions may apply.

What are estimated taxes and who has to pay them?

Estimated taxes are tax payments made each quarter on income that’s not subject to withholding. Sole proprietors and C corporations are expected to pay estimated taxes.

What happens if my small business doesn’t pay taxes on time?

If you don’t pay your taxes on time, you may be subject to penalties and/or charged interest on the amount you haven’t paid.

Photo credit: iStock/ilkercelik

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOSMB-Q325-024

A strong business plan can help you succeed at any stage in your company’s growth. As a concise overview of your business, it lays out your plans, products, services, detailed marketing analysis, and realistic financial projections.

When you launch, this overview helps you prioritize and manage your funds. As your business continues to evolve, the plan gives you a roadmap to execute new opportunities. And at any point in time, a business plan could be used to apply for loans and grants or set up a crowdfunding campaign.

Find out how to write a business plan for a small business that is designed to help you achieve your company’s unique goals.

The Importance of a Business Plan

Creating a business plan allows you to map out every detail in launching and managing your company. Walking through each step helps you define your business goals, financial strategies, and both legal and organizational structures.

The document helps ensure that you focus on your core areas without getting distracted by opportunities that don’t support the plan. Externally, the business planning process helps identify funding needs and serves as support for financing applications, investor pitches, and even crowdfunding for small businesses.

When deciding how to make a business plan, first identify which type is better suited for your company. There are two primary categories: a traditional business plan and a lean startup plan.

💡 Recommended: 5 Year Business Plan

Traditional Business Plan

A traditional business plan is the more in-depth option, discussing the company’s past, present, and future. The goal of writing a business plan is to provide a roadmap for the company. As such, it often includes:

•  A discussion of the broader market to identify both upcoming challenges and opportunities the business may face.

•  Any relevant expansion plans. The business plan generally outlines where the funding will come from (such as a small business loan) and what hiring needs to be done.

•  An explanation of duties for current employees.

•  A strategy in case certain setbacks occur.

•  A five-year forecast of company financials.

Recommended: How Much Does It Cost to Start a Business?

Lean Startup Plan

For a more basic business plan, you could opt for a lean startup model. Writing a lean startup model business plan requires less detail than a traditional plan and takes a more general approach to outlining the company’s information.

A lean startup business plan typically doesn’t have enough information to satisfy a lender or investor, but it can be a useful internal tool when you’re just starting out. It also provides the flexibility to experiment with business models and other details. In other words, it gives you more room to pivot as you gain experience with managing the company.

According to the Small Business Administration (SBA), some elements of the lean startup plan are:

Partnerships: Highlight the strategic partnerships that will help your business operation. This may include suppliers or manufacturers.

Activities: In what ways will the company have a competitive advantage in the existing market? Things to consider here may be technology that could set you apart.

Resources: What resources will allow you to create value for customers? This may be staff or intellectual property.

Value proposition: What unique value does your company bring to the existing market?

Customer relations: How will consumers interact with your company? Will their experience be in-person or online?

Customer segments: Identify your target market. Defining and understanding who your target market is can help inform overall business and marketing strategies.

Cost structure: This section should explore the costs your business will face, such as labor or supplies. It can also be helpful to define whether your company will work on a cost-driven model or a value-driven model. Cost-driven models focus on lowering costs while value-driven models focus on creating premium value for customers.

Revenue streams: How is the company going to make money?

There are a variety of templates, examples, and online resources that can help business owners navigate how to write a lean startup business plan.

Recommended: Why Do Business Owners Reinvest Their Profits?

Benefits of Having a Business Plan

A business plan is indispensable for managing the details of structuring, running, and growing your new company. It helps you clarify your business goals and set up your financial, legal, and organizational frameworks. As your business grows, you can see where and when your plan succeeded or how you might tweak it for better results.

Clarity for Strategic Decision-Making

Building your plan forces you to make decisions about business needs and priorities. You can figure out how you’ll maximize revenue and scale up your production as you smooth out needless complications. It also leads you to identify timelines and financial milestones.

Attracting Investors and Securing Funding

A business plan should be very specific about where funding will come from. A plan showing that you’ve carefully considered all the budget details is likely to help your business attract investors and appeal to lenders. Funders may feel more confident they’ll see a return on their loan or investment.

Tracking Business Growth Over Time

Making and maintaining a business plan generally involves projections of revenue and market penetration. Over time, you can compare actual outcomes to your projections and see what actions or assumptions had the greatest impact. You may decide to update your plan accordingly.

9 Steps to Writing a Business Plan

Here’s how to write a business plan step-by-step that can help you create a solid strategy for both the near term and the long term. The following steps are for a traditional business plan.

Business owners may decide to pick and choose the sections that are most relevant for their goals.

1. Executive Summary

The executive summary provides a brief overview of your company as well as your goals. This section is particularly important if you’re applying for a small business loan or pitching new investors. Be direct with your funding goals, whether it’s receiving a certain loan amount or raising a specific amount of money.

Within no more than a few pages, the executive summary should outline what you’ll discuss in greater detail throughout the rest of the business plan. You may even opt to write this section last so you know exactly what you’re summarizing.

2. Business Overview and Structure

This section goes into more detail on the business, including the products or services you offer. Present information on why your company is (or will be) successful, such as a specific competitive advantage, unique expertise on your team, and intellectual property.

Also talk about your mission and vision statements to clearly communicate your goals and values. These can be updated over time as your company evolves. Finally, describe your target customer, location, and other structural details that are central to your business.

3. Market Analysis and Structure

Here’s where you show an assessment of your market. Discuss metrics and trends of the entire industry in which your company operates. This should largely discuss the competition and the demand for your product or service. Is your industry focusing major growth in one area, or price increases because of a general trend?

Also describe your various customer segments, including their general location and demographics. By the time a lender or investor finishes reading this section, they should understand how your industry works and where your company fits in among the competition.

4. Management and Team

The strength of a company’s management team can be an important part of any business plan. Even if there are only a couple of co-founders at the moment, present their full bios and how each individual contributes to the company’s success. Larger businesses could show an organizational chart to illustrate the reporting structure of the team.

Another important aspect to consider when you create a business plan, regardless of a company’s size, is the legal structure and ownership of the company. You can also introduce any advisory board members who lend their expertise to the business.

5. Marketing Plan

Tee up your funding request by explaining how you plan to get sales or how your current sales come in. Whether you’re selling a product or a service, go in depth about where and how you connect with customers, such as in-store or online. Also outline your pricing strategy and how that stacks up to the competition.

Next, describe your advertising strategy and any results that you’ve experienced so far. Are you advertising online or through traditional media channels? For more established companies, discuss any new or upcoming campaigns. You can also mention budget plans for your sales and marketing plans.

6. Operations Plans

This section may make sense if you want to give more detail on how your company operates, especially if you have multiple divisions rather than just a few team members. It can build off of information you included in the management section. Rather than focusing on each member’s expertise, here you would discuss the different responsibilities throughout the company.

Also provide details on operating expenses and overall budgets. You don’t need to go into revenue numbers yet, but instead talk about the capital and cash flow needed to run the business on a day-to-day basis. You may need to update your business plan if your company pivots to a new product or service.

7. Financial Projections

Your financial section contains both a historical account of your business finances (if you’re already established), as well as a forward-looking estimate, usually projecting the next three to five years. Data should include profit and loss statements, balance sheets, and cash flow statements.

Put in projections for each of these documents and get as specific as possible if you’re a new enterprise. Graphs and other visuals can also help your numbers pack more of a punch, especially when showing trends over time.

8. Funding Request

When you create a business plan to attract investors or apply for a small business loan, you’ll want to outline your exact financing needs and what you plan to accomplish with the funds. If you’re a startup, describe how much you’ll need to launch. (For startup loans with no collateral or subpar credit, factor in a little more for higher financing costs.) Existing businesses can describe expansion plans, such as salaries for new positions, research and development for a new product, or a brand new location.

For a loan application, you may give details about your preferred repayment plan. For an investor pitch, address your valuation and how much equity you’re willing to give up for a specific investment. Some small business grant applications will like to see a business plan, too.

Tie all of this information back to your projections and how much revenue growth you expect from this potential funding.

9. Appendix and Supporting Documentation

The final component of creating a business plan is putting your supporting documentation in the appendix. This could include requested materials, like resumes or a business credit report (although lenders will frequently do their own credit check).

You may also append letters of recommendation, customer testimonials, and product pictures. Consider adding your incorporation documents and any legal contracts or licensing information that could affect your business as it grows.

Tools and Resources for Business Plan Writing

As noted above, many tools and resources exist to help you put together your business plan. Software packages for this purpose aim to guide and streamline the creation of your plan. Among the features: SBA-approved sample plans, customizable templates, forecasting functions, and fundraising tools that connect you with investors. The best software option for you depends on your budget, your need for automation, and the level of guidance you want.

For personal advice and assistance, the SBA (and its partner SCORE) and many other government and non-profit organizations offer free mentorship, consulting, and extensive educational materials. Many universities house small business development centers (SBDCs) that provide in-person business consulting and training services at no cost.

Business Plan Software and Templates

Business plan software provides embedded financial tools, structured templates and AI assistance for planning and financial forecasting. Attractive templates and design software are commonly paired with business plan software for use in generating visual presentations and branded materials.

Financial Modeling Tools

Financial modeling tools help business owners analyze their data to do basic forecasting and planning. Spreadsheet programs offer familiarity and flexibility but require manual work, while specialized cloud-based platforms automatically input data and connect to existing accounting, payroll, and CRM systems.

Tips for Writing an Effective Business Plan

Some tips for writing an effective business plan are:

•  Be clear and concise: Use simple language and avoid jargon to make the plan easy to understand.

•  Tailor to your audience: Adjust tone and detail depending on whether it’s for investors, lenders, or internal use.

•  Focus on the essentials: Include key sections like market analysis, financial projections, and business strategy without overloading with unnecessary details.

•  Use data and research: Back up claims with facts, market data, and financial evidence to build credibility.

•  Set realistic goals: Present achievable, measurable milestones for business growth and profitability.

•  Highlight your unique value: Clearly explain what differentiates your business from competitors.

•  Be flexible: Show an understanding of potential risks and outline contingency plans.

•  Revise and update: Regularly review the plan as your business evolves to ensure it remains relevant.

Common Mistakes to Avoid in Business Plan Writing

When writing a business plan, try to avoid these common missteps.

•   Being overly optimistic with financial projections: This can make the plan seem unrealistic.

•   Failing to research the market thoroughly: This can lead to inaccurate assumptions about customer demand and competition.

•   Lack of clarity or organization: This makes the plan hard to follow, diminishing its impact.

•   Ignoring potential risks or challenges: This makes the plan appear incomplete.

•   Using vague language instead of specific, actionable details: This may reduce the credibility and effectiveness of the plan.

The Takeaway

Understanding how to write a business plan can help business owners be better prepared for both requesting funding and actually running your business.

Writing a business plan requires research and clear communication about your company and your industry as a whole. You may not need to follow all of these business plan steps, especially if your company is new, but you can still provide a well-informed analysis of the market, your company’s competitive advantage, and your future plans.

As your business grows and evolves, it can be helpful to regularly update your business plan in the appropriate areas. This could give you the agility to jump on opportunities as they arise when you already have a well-prepared plan that only needs minor changes.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

How long should a business plan be?

A business plan should typically be between 15 and 25 pages, depending on the complexity and stage of the business. It needs to be detailed enough to cover all key aspects — such as market analysis, financial projections, and operational plans — while remaining concise and focused to engage investors or stakeholders.

Do I need a business plan if I’m not seeking funding?

Yes, even if you’re not seeking funding, a business plan is essential. It helps you define your goals, develop strategies, and identify potential challenges. A business plan serves as a roadmap for growth; it guides decision-making, helps with resource allocation, and shows your progress as your business evolves.

How often should I update my business plan?

You should update your business plan annually or whenever significant changes occur, such as market shifts, new competition, or business expansion. Regular updates help ensure your plan remains relevant and aligns with your current goals.

What’s the difference between a business plan and a pitch deck?

A business plan is a detailed document outlining a company’s goals, strategies, financials, and operations, typically 15 to 25 pages long. A pitch deck, on the other hand, is a concise, visual presentation (usually 10 to 15 slides) designed to quickly engage investors or stakeholders by highlighting key aspects of the business.

What are the key components of a solid business plan?

There are two types of business plan, with different levels of detail. A traditional business plan contains a business overview, market analysis, marketing plan, operations plans, and financial projections (along with supporting documentation). A lean startup business plan is less specific, focusing on partnerships, activities, resources, value propositions, revenue streams, and other concepts.

Photo credit: iStock/milanvirijevic

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