Business Loans Guide

A Guide To First-Time Business Loans

Aug 23, 2022 • 8 min read
Loan Types
Table of Contents

      When you’re running a small business, hard work will only get you so far—you also need access to capital. Unfortunately, insufficient cash flow is one of the biggest struggles most business owners have. 

      That’s why business loans are a great option for small business owners. But if you’ve never applied for a business loan before, you may find the process intimidating. 

      And that makes sense because many people make the process seem much harder than it actually is. Let’s look at how you can apply for and receive a first-time small business loan with as little stress as possible.

      7 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. Get Clear On Why You Need A Loan

      This important step is one you don’t want to skip.

      Think about your purpose or goal for getting a business loan. You may be starting a new business or growing an existing one. Or you could be purchasing a key piece of equipment, refinancing existing business debt, or covering your day-to-day operating expenses.

      Considering your reasons for seeking a business loan matters because it can give you clarity on how much you need to borrow, which type of loan may be best suited to your purposes, and whether a loan is the best financing option.

      2. 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. 

      3. Explore Types Of First-Time Small Business Loans 

      Before you can apply for a small business loan, you need to figure out what kind of loan you need. Here are some of the most popular types of small business loans:

      • Business line of credit: If you’re looking for a flexible form of financing, you might want to consider a business line of credit. This is a revolving line of credit, so instead of receiving one lump sum, you can borrow the funds as you need them. And best of all, you’ll only pay interest on the funds you actually spend. 
      • Business term loan: Business term loans are the most common type of business loan. These loans come with fixed low interest rates and flexible repayment terms. A business term is a good way to cover working capital needs or fund a business expansion.
      • SBA loan: If you’re looking for low rates and generous repayment terms, SBA loans are the way to go. For instance, if you apply for an SBA 7(a) loan, you can borrow up to $5 million and use the funds for a variety of purposes. However, applying for an SBA loan isn’t for the faint of heart—the paperwork is notoriously intensive, and approval and funding can take months. 
      • Business credit card: A business credit card is one of the easiest and fastest ways for small businesses to get financing. These cards can be used for nearly any purchase, as long as it’s business-related. If you go this route, try to find a card with a 0% introductory APR. Otherwise, the interest charges will quickly add up. 

      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. When you apply through Lendio’s 15-minute application, you’ll only need the following:

      • 3 months of business bank statements (you’ll be given the choice to connect your account or manually upload images)
      • A copy of your driver’s license or state ID
      • Voided check from your business account
      • Proof of business ownership
      • Month-to-date transactions

      You’ll also be asked to provide:

      • The amount of money you want to borrow
      • When your business started and some general information about your business
      • Your birthday and your social security number

      One of the most important criteria lenders consider for business loan approvals is your credit profile.

      Generally, the stronger your credit scores, the more likely you are to be approved for a loan. A good credit score can also result in a lower interest rate on what you borrow.

      Lendio will do an initial soft pull of your credit score that won’t impact your credit. Some lenders may also do a hard pull of your credit score later in the process.

      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.  

      Examples of key documents lenders may want to see include:

      • 2 years’ worth of personal and business tax returns
      • Documentation for your collateral, if needed
      • A recent balance sheet
      • Profit and loss statement
      • Cash flow statement

      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. 

      The Bottom Line

      A small business loan can provide the cash flow you need to fund daily business activities, and it’s always better to apply for a loan before you desperately need the funds. 
      Fortunately, applying for a loan isn’t as difficult as many people would have you believe. If you’re ready to get started, you can use Lendio to compare options for a small business loan.

      Quickly compare loan offers from multiple lenders.

      Applying is free and won’t impact your credit.

      About the author
      Jamie Johnson

      For the past five years, she's dedicated more than 10,000 hours of research and writing to more than 2,000 articles about personal finance topics, including building credit, mortgages, and personal and student loans.

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