Small Business Loan Agreement

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Updated May 17, 2022

A small business loan agreement is a contract between an entity that borrows money from a lender with the intention of paying back with interest. The lender will commonly request security to be included in the note in the event of the borrower’s default (such as equipment or other assets).

Commonly Used For

  • Equipment purchase
  • Hiring employees
  • Inventory
  • Real estate
  • Renovation

How to Get a Small Business Loan

  1. Gather Your Documents
  2. Determine How Much to Borrow ($)
  3. Apply to Lenders
  4. Obtain Offers
  5. Receive Funds

Minimum Requirements

  • 680 credit score;
  • 2 years of business;
  • $50,000 annual revenue;
  • Collateral (security); and
  • Owner’s personal guarantee.

Step 1 – Gather Your Documents

Lenders will want to ensure they are not lending money to a failing business. Therefore, the borrower should gather the following items:

  • Bank Statements (past 12 months)
  • Tax Filings (past 2 years)
  • Balance Sheet (profit and loss statement)
  • List of Company Assets

Step 2 – Determine How Much to Borrow ($)

Some lenders will allow a borrower to obtain more cash than needed even if it becomes a debt trap. Therefore, it is advised that a borrower seeks no more than 1.25x its revenue to expenses ratio.


If a business is generating $12,500/mo and its expenses are $6,000/mo. The business should not borrow more than the equivalent of $4,000/mo in loan repayments ($10,000/mo total).

$12,500/mo in revenue with $10,000/mo in expenses would be a 1.25 revenue to expenses ratio.

Step 3 – Apply to Lenders (5)

To obtain money as fast as possible, the best option is to go through a trusted online lender.

The top 5 online recommended services are:

Step 4 – Obtain Offers

After applying, loan offers should be received within 24 hours. There may be following up questions or additional information needed to complete the financial profile for the lender.

After deciding which lender has the best terms and lowest interest rate, it’s time to sign a small business loan agreement and take the necessary steps to get the funds.

Step 5 – Receive Funds

After all the paperwork is signed, the funds should be disbursed to the borrower’s bank account. Once received, the loan will start with the borrower required to repay the debt in accordance with the payment schedule.