Business Loans

How To Get A Business Loan In 7 Steps

Jul 19, 2022 • 10 min read
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      Running a business is difficult, and sometimes an extra capital boost can help alleviate stress and take your small business to the next level. One way to access that extra cash flow is through a business loan. While getting a business loan can be daunting, you can ease the process by being prepared and following these easy steps. 

      Ready to find out more? Let’s learn how to get a business loan.

      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. 

      The way you plan to use your loan and the loan amount you’re seeking will often dictate which type of loan you can qualify for. Different loan types will also have different payback periods ranging from months to years. Doing your research and identifying the best business loan for your situation will improve your chances of qualifying for a loan.

      Common use cases for a business loan include:

      • Purchasing equipment
      • Working capital
      • Purchasing property
      • Refinancing a current loan
      • Business expansion

      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.

      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. 

      3. Look Into Eligibility Requirements

      Business loan requirements will vary by lender and loan type. Some of the most common factors lenders look at include the following.

      Credit Score: 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.

      Time In Business: While some lenders work with brand new businesses, many will want to see a track record of a healthy business before providing a loan.

      Annual Revenue: Again, the minimum annual revenue a lender will look for will vary considerably. Visit this guide to compare requirements across loan types and lenders.

      Collateral/Personal Guarantee: Many lenders will ask for collateral and/or a personal guarantee to help secure the loan. This could be something of value the business owns such as equipment or a personal item, such as your home.

      4. Research The Types Of Business Loans Available

      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:

      • Term Loans: A term loan provides a lump sum repaid in monthly payments over a set term.
      • Equipment loans: A loan specifically for purchasing or leasing new equipment
      • 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
      • 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

      5. 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. 

      6. Gather Documentation

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

      Important documents that lenders will want to see include: 

      • 3 months of business bank statements 
      • A copy of your driver’s license or state ID
      • Voided check from your business account
      • Proof of business ownership
      • Month-to-date transactions
      • Tax returns
      • Business bank statements
      • Business plan
      • Profit & loss statement
      • Business license

      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

      7. 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. 

      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. 

      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.

      Disclaimer: The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. Any content provided by our authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything.

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      About the author
      Andrew Adams

      Andrew Strom Adams writes about business, marketing, technology, and finance for small businesses. He holds an MBA from Westminster College in Salt Lake City and a bachelor's degree in Journalism from Oklahoma Baptist University. He's helped law firms, startups, and other companies communicate more effectively. Andrew takes complex topics and distills them to help educate a company's target customers. He's based in Salt Lake City and enjoys hanging out with his two kids, enjoying the outdoors, and watching reality tv.

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