How To Get a Small Business Loan

4 min read · 4 weeks ago

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Cash flow is often challenging to small business owners. You’re trying to build the business while covering all the expenses involved in launching and staying afloat. So, you could be wondering how to get a small business loan. Whether the influx you need is $500, $5,000, or $50,000, this article will share the steps to take.

Starting a new business, or keeping an existing entrepreneurial effort open, is already tough. That’s why “43% of small businesses applied for a loan last year.” According to Fundera, “57% of small businesses loan applicants sought $100,000 or less.” At the same time, “14% of small businesses only received a portion of their requested funds after applying for a loan.”

Knowing how to get a loan for a small business can take some of the stress out of this process. This article on how to go about getting a small business loan covers the basic steps:

  • Specify your needs
  • Find the right lender 
  • Determine your eligibility
  • Gather necessary paperwork
  • Fill out application

 

Specify Your Needs

Before asking a lender for a small business loan, you’ll need to determine what kind of loan your business needs. Lenders may restrict how you can use the funds you borrow from them. So, you must understand in advance what kind of financing you want to ensure you land the right loan.

Small business loans can be used to improve working capital. This might mean getting seasonal financing, covering payroll, rent, or debt payments. Or you may be looking into how to go about getting a small business loan because you need to pay for a long-term fixed asset. This would be applying for a loan to purchase furniture, real estate, machinery, or equipment. Or you might be looking to remodel or start construction to expand your reach.

The Small Business Administration can help you find lenders that offer the type of loan you’re looking for. Try their online lender match program.

 

Find the Right Lender

Find the Right Lender

Walking into a brick-and-mortar bank is no longer your only option for how to get a small business loan. You might also look to online banks or microlenders. NerdWallet compared the three to help entrepreneurs find the right fit:

  • Go to the bank when you have good credit, have been in business at least two years, and don’t need the cash fast
  • Go to an online lender when you lack collateral and time in business and/or need funding quickly
  • Go to a microlender if you are a new business, have bad credit or no credit history, and can’t get a traditional loan

You’ll want to compare lenders based on their loan terms and annual percentage rate (APR). The APR is the number to look at to understand what the fees and interest rate will add up to in order to understand the total cost of your business loan for a year.

 

Determine Your Eligibility

Every lender and loan program will have its own eligibility criteria. Typically, though, they’ll base your eligibility on:

  • How your business receives income
  • The business formation
  • Where your business operates
  • The size of your business
  • The perceived ability to repay the loan
  • The purpose of the loan
  • How long you’ve been in business
  • Your credit score

They will probably also want to know how you have financed the business thus far. Most lenders will want to see that you’ve already invested in the business too. 

 

Gather Necessary Paperwork

Gather Necessary Paperwork

To get the small business loan, you’ll need to have important paperwork ready for their review. Along with exactly how much you need and how you plan to use it, expect to be asked for:

  • Your business plan
  • Financial projections
  • Credit history
  • Personal and business bank statements
  • Personal and business income tax returns
  • Any leases and licenses
  • A resume showing relevant industry experience
  • Collateral to guarantee the loan

 

Fill Out Application

Before reading this article on how to get a small business loan, you probably thought you’d start at this step: Apply. Now that you’ve done the other steps outlined, this will be the easiest stage of the process. You’ll fill out an application either in writing or online. You may need to make a phone call, meet in person to give a presentation, or be asked to fax or email more information. Then, it’s a waiting game.

Although you’re trying to persuade this lender to give you money, you still want to ask questions! Also, read the fine print to ensure you fully understand your obligations. If something doesn’t make sense, ask now. You don’t want to find out later on when it is a problem!

One more piece of advice: do the math first so that you can be confident you’ll be able to repay the loan. 

 

Funding Your Small Business 

Fundera tells us, “29% of small businesses fail because they run out of capital.” Knowing how to get a small business loan can save this from happening to you. 

If applying to any of the lenders mentioned here doesn’t work, you may still have options. Check out our article “6 Ways for Entrepreneurs To Find Investors.” Keep an eye out also for an upcoming article on common reasons small business loans are denied. That could help you revisit your application and try again.