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Small Business Loan Agreement

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Small Business Loan Agreement

Updated August 29, 2023

A small business loan agreement is a contract between a small business borrower and a money lender. Small business loans generally accrue interest. The lender commonly requests security to be included in the note in the event of the borrower’s default (such as equipment or other assets).

Commonly Used For

  • Buying inventory;
  • Hiring employees;
  • Purchasing equipment;
  • Real estate; and
  • Renovations.

Minimum Requirements

  • 680 credit score;
  • Two (2) years in business;
  • Minimum $50,000 annual revenue;
  • Collateral (equal to the loan amount); and
  • Owner’s personal guarantee.

How to Get a Small Business Loan (5 steps)

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

1. Gather Your Documents

borrower gathering necessary documents to apply for loan

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

2. Determine How Much to Borrow ($)

3 stacks of hundred dollar bills

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.

3. Apply to Lenders

laptop screen showing homepage of online lender

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:

4. Obtain Offers

email from lender stating that the borrower's requested loan is approved

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.

5. Receive Funds

mobile banking app on borrower's phone showing $25,000 deposit

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.