Need a Small Business Loan Follow These Steps
Applying for a business loan can be one of the most nerve-racking experiences for small-business owners. Whether you’re just getting started or you’re trying to expand your operations, all your plans can come to a screeching halt without a loan to pay for your business needs and expenses.
The loan application process isn’t as scary as it can seem, though. In fact, it can boil down to just a few simple steps. Whether you’re looking to start your new business or expand an existing one, take the following steps to apply for your small-business loan.
1. Decide Which Type of Loan You Need
Several different loan types could be useful for a small business. You’ll have to sit down and look at your situation and the types of loans available to really determine what’s best for your business, but this overview can help you:
- Small-business line of credit. A line of credit is basically a capped amount of funds you can pull from the lender to cover business expenses like operating costs.
- Working capital loan. These are usually short-term loans that a small business can use to help finance daily operations.
- Small-business term loan. A term loan is usually for a set dollar amount and can be used for business operations and expansion. They tend to be larger and have longer terms than a working capital loan.
- SBA small-business loan. SBA loans have low interest rates and are backed by the Small Business Administration (SBA). These loans tend to have better interest rates and terms than other options thanks to the SBA backing. The trade-off is that the process to get one can be time consuming and the requirements are very strict.
2. Figure Out Where You’ll Apply for the Loan
Choosing where to go for your small-business loan is almost as tough as figuring out what type of loan to apply for. Your main options include banks and online lenders:
- Banks. You have a few options for bank loans. You can go for the usual national names like Wells Fargo or Citibank, or you can go for a local bank. Local banks may be more willing to support community-based small businesses, and they therefore may have more relaxed requirements or faster processing times. National banks, on the other hand, tend to be stricter and slower to deal with. If you’re going for an SBA loan, make sure the bank you choose offers this financing option.
- Online lenders. There are tons of online lenders that offer small-business loans. The process with online lenders is often simpler and faster than banks, which can be a big advantage if you need the money now. Some of the big names in online lenders include Swift Capital and LendingTree.
3. Determine How Much You Want to Borrow
You don’t want to borrow too much more than you actually need—asking for more money than necessary can decrease your chances of getting the loan.
On the other hand, many businesses underestimate how much they need, which can cause problems down the road. Spend some time really digging into the books and come up with a specific amount of money you need to borrow and a repayment plan. This extra effort can both impress lenders and increase the likelihood of getting approved for the funds you need.
4. Gather Some Information
Lenders want you to gather several pieces of financial information that they can review when you apply for a small-business loan:
- Your personal credit score. Lenders often look at the personal credit score of the business owner when evaluating a loan application. This score helps them judge your reliability in paying the loan back. Don’t worry too much if your credit isn’t great, though. It’s still possible to get a business loan with bad credit—it just might take a little more time and effort.
- How long you’ve been in business. If your business has been around for a few years and has a good track record of steady income, it can greatly increase your chances of getting the loan you want. That said, new businesses and start-ups can still get loans—you just might have to settle for less favorable terms.
- Your cash flow report. Lenders will be looking for consistent, positive cash flow. The higher your margins, the better. These numbers also indicate your company’s ability to repay the loan.
5. Prepare Your Application Package
The final step in the process is to put together a group of documents that you may need to send to lenders when you apply. The application package generally includes the following paperwork:
- Your business and personal bank statements and tax returns.
- Your company’s financial statements, such as profit and loss statements.
- Your business plan and résumés of key personnel.
Once you’ve submitted your application, it’s largely a waiting game. It can take a few weeks to get approval, so try to be patient and stay busy in the meantime.