A Guide To First-Time Business Loans

5 Steps To Apply For A First-Time Small Business Loan

Once you know what kind of loan you need, it’s time to start the application process. Let’s look at five steps you’ll take to apply for a first-time small business loan.  

1. Figure out what you can afford to borrow

Before applying, you need to figure out what you can reasonably afford to borrow. Regardless of the type of loan you take out, you’ll have to repay the funds with interest over time. 

If you borrow too much, the payments could become a financial burden for your business. This could cause cash flow issues and other problems in your business. If you’re unsure what you can afford to borrow, you may find it helpful to use a small business loan calculator. 

This calculator helps you break down the monthly costs for taking out various types of loans. For instance, let’s say you took out a $50,000 business term loan with a two-year repayment term and an annual rate of 10%. In this situation, your monthly payments would be $2,307.25. 

2. Apply for the loan 

At this point, you’re ready to apply for the loan. And contrary to popular opinion, you don’t need to check your credit score first or gather all your business documents right from the get-go. 

Why? Because all of that information will come out during the lending process. And the credit score your lender sees will not be the same as the one you receive through an online service.

Plus, if you spend too much time preparing, you may talk yourself out of applying for the loan altogether. Once you start the application process, your lender can work with you to get everything you need to successfully complete the loan. 

3. Provide the necessary documentation

After you’ve started the application process, your lender will need additional documentation. The extent of this documentation depends on the type of loan you’re applying for. For instance, an SBA loan will require far more documentation than a business credit card.

Being prepared is great, but we’re guessing you don’t want to do more work than you absolutely have to. So it’s best to wait and see what your lender needs before gathering bank statements, business plans, and other documents.   

4. Decide on a secured vs. unsecured loan

If you’re taking out a small business loan, you’ll need to decide whether you want a secured or unsecured loan. If a loan is secured, that means you put down some type of collateral on the loan. 

For instance, you could use property, equipment, or other business assets to secure the loan. In comparison, unsecured loans don’t have any collateral requirements.

Putting down collateral can be risky because if you default on the loan, your lender will seize your business assets. But putting down collateral could make it easier to qualify for a higher loan amount or a lower interest rate. 

5. Compare your options

And finally, before you close on the loan and receive the funding, you need to compare your options among various lenders. This is the best way to ensure you get the best rates and terms on your small business loan. 

One of the easiest ways to compare your lending options is by using a service like Lendio. When you apply through Lendio, you’ll submit an online application that takes 15 minutes or less to complete. 

Once you’ve completed the application, you’ll see loan options for over 75 lenders in our network. And once you’ve selected a lender and been approved for the loan, you could receive the funds in as little as 24 hours.