How to Get a Business Loan in 6 Steps

1. Understand Your Small Business’s Needs

The first step in getting a small business loan is planning the funds you will receive. You should determine how much money you need, what that loan amount will purchase, and how you’ll pay it back. 

There are many different reasons that a small business might take out a loan. Let’s say you’re an independent coffee roaster whose business has been growing steadily, and you need to purchase larger equipment to roast and package your coffee to keep up with demand. With the purchase, you may also require additional capital for supplies—and your small business may also be hiring more employees to help with the additional production. For some small projects, you may be able to use a credit card, but when you need additional funds, a small business loan could be the best option. 

There are many more reasons to consider a business loan: a small business loan could help your company with operating costs during a slower season, or provide business financing for a new project. 

You may want to get a business loan that covers all 3 of these areas in the beginning, until additional production brings in an increase in revenue. Your lender may not require a full breakdown of how you’ll spend the money, but as a business owner, having a strategy to allocate the money is always best. 

2. Determine How Much You Can Borrow

Once you’ve figured out how much money you’ll need to bring your business to the next level, you also want to ensure that you’re comfortable repaying that amount throughout the term. Depending on the use of funds from the loan, you may have a period before additional revenue generates because of your loan-repayment expense. You need to make sure your business’ current financials can support this new liability. 

To better grasp your loan options and what your business can afford, you can use a business loan calculator to see how much your payments will be, depending on variables like interest rate, loan terms, and more. 

It’s important to borrow an amount that will help you achieve your goals while also not stretching your business too thin with repayment. 

Give Your Financial Health a Check-Up

Another critical factor in getting a business loan is your credit and the overall financial well-being of your business and yourself. As part of the process, the lender will pull your credit report to see your overall financial health. 

If you’ve been in business for some time, a lender may also look at your business’s credit report. If you haven’t checked your business credit score before, check out this guide to learn more. It is always better to know where your credit score stands before you apply for a loan, so if you haven’t looked at your report recently, you can see your personal or business credit report at one of 3 reporting bureaus: Equifax, Experian, or Transunion. 

If you’re concerned that you have bad credit—or that you won’t be able to get approved—there are other lending options available to help your small business. 

Know Your Current Financials

Lenders will look at your credit report to see your payment history. Next, they’ll consider your company’s profit and loss statements and other financial indicators to determine if you can afford to pay back the loan. 

Other important documents that lenders will want to see include: 

• Personal and business tax returns for the last 2 years 
• Balance sheet for your business 
• Business license and Articles of Incorporation
• Projects for upcoming years 
• Business plan

Lenders may also consider other factors in your loan approval, including the length of time your business has been open, your average annual revenue, and any other current liabilities. The amount of money you’re able to borrow will be determined by the lender and is based on many factors, including your current financial situation, the type of loan you’re seeking, and whether you have any collateral to support the loan.

3. What Type of Loans Are Available to Small Businesses?

There are many types of business loans to help small businesses in need. Many serve different purposes, so it’s critical to understand what type of loan would be best for your company. There are both secured and unsecured loans available for businesses (a secured loan is backed by business collateral). 

Some of the loan options that you can explore include:

• • Short term loans: A short term loan may have terms from 6–18 months 
  • Long term loans: Loans with payoff terms greater than 18 months 
  • Equipment loans: A loan specifically for purchasing or leasing new equipment
  • Purchase order financing: Funds specifically used to pay for purchase orders
  • Startup loans: Loans provided to help a new company get started 
  • Small Business Administration loans: Loans that are partially guaranteed by the US Small Business Administration (SBA)
  • Cash advances: Loan funds that are paid back based on projected income
  • Inventory financing: Loans that are used for a company to build up its inventory
  • Invoice financing: Loans that borrow against the money due from customers with outstanding invoices
  • Line of credit: An option that allows for funds to be borrowed over and over as needed

4. Explore Available Lenders

Now that you’ve figured out how you will use the funds and the amount you need to complete your new strategy, you can look for a lender that will work best for your situation. You’ll want to find a lender that offers the type of loan you are seeking. There are different lenders with varying requirements for approval—if you’re looking for a loan that’s approved by the Small Business Administration, you’ll want to make sure that your lender complies.

Banks and Credit Unions

One convenient lending option is through a bank or credit union that you’re already using. Banks and credit unions have stricter guidelines for approval, and the process can take a bit longer to get approved and to gain access to your funds. More traditional lenders like banks and credit unions will want you to have at least 2 years of financial data from your business. If a bank loan doesn’t seem like the right option, never fear: there are other more flexible options out there.

Online Lenders

If you need more flexibility than a traditional bank loan, online lenders are a great solution. These lenders will have different approval standards, which may increase your chances of approval. Online lenders can also approve your business loan application faster and get you your money faster than a traditional lender. 

Microlenders

If you’re worried about your odds of approval because of your credit or if your business is new, a microlender may be a good option for you. These loans often have shorter terms and can provide funds up to $50,000. 

5. Timing Is Everything

Depending on the type of loan that works best for you, it could take days or weeks for the loan to be approved and for you to get the funds. This uncertain time window for processing a small business loan means that it’s especially important to be prepared: understand the process and know the timeline for when you need the money. 

Getting a loan for your small business doesn’t need to be complicated—and having sufficient time to complete the application process is vital. 

6. Apply

So you’ve prepared all your information, and you know how to get a business loan—now it’s time to apply. Whether you’re applying with a bank or an online lender, the process will be similar. Head to the website of your preferred lender and follow the instructions on how to apply for small business loans. Complete the application process and wait to find out if you’re approved. Once approved, you can work with the lender to get your funds deposited and use the money to help grow your business. 

Small business loans are a fantastic resource for business owners as they work to grow revenue and improve their business. With this guide, you know how to get a business loan and you can help streamline the process to improve your chances of approval and to make the process more efficient. 

Remember: with small business financing, it’s important to be timely with your payments and to ensure that you meet the loan terms. When you need a new loan to grow your business again and boost cash flow, your on-time payment history will help improve your personal and business credit.

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