4 Ways To Apply for a Small-Business Loan Step By Step Approach

When applying for a small business loan, it’s important to carefully consider which lenders best suit your needs and appear willing to approve you.

It’s important to shop around for the best terms and rates when looking for a small business loan. When seeking funding backed by the U.S. Small Business Administration, the process can take months. You will be in the best position to get approved for a business loan and to avoid wasting time or money by not rushing through the process and learning about all of your available options.

To help you get a loan for your small business, we have laid out the process in four easy steps.

Step 1: Pick a lending institution to apply for a small-business loan

Loans for businesses are available from a variety of institutions, including banks and online lenders. To get the best interest rate on a loan for your small business, you should look for the best possible lender. Nonetheless, consider the following before making a final choice:

  • The state of your finances. The best interest rates can be found with bank and SBA loans. However, there are conditions attached to those low interest rates: Many small business lenders require a FICO score of at least 650 in addition to a minimum of two years in business, strong annual revenue, and good credit. Applying for a small business loan from an online lender may be your best bet if you do not meet the requirements listed.
  • In what ways do you need money? There are a variety of business loans available, but not all lenders offer the same options. Finding a lender who specializes in equipment financing could be beneficial if you need to purchase heavy machinery. Consider establishing a business line of credit from which you can withdraw working capital as needed. You could begin your search for a Small Business Administration loan with a financial institution with which you already have a working relationship. National banks like Chase and Wells Fargo, as well as local community banks, are among the many SBA lenders.
  • When will you be needing this loan? You should give preference to online lenders if you need money quickly. A lot of the time, these loan companies can process your application and give you a decision on a business loan quickly because they use automated systems. If you’re willing to wait a few days, the SBA’s Express Loan program may be able to get you competitive rates and flexible terms more quickly than other federal options.

Compare the interest rates and terms offered by various lenders who meet your criteria. Online loan providers are more likely to offer this choice. Before applying for a loan from a traditional lender, like a bank, it’s a good idea to talk to a loan officer to make sure you qualify.

2. Get your application materials together.

When applying for a small business loan, you may need to provide various forms of documentation to various lenders. The following are things that the vast majority of people will want:

  • The inside scoop on your company. These can include information as simple as your company’s name, address, and tax ID number, or as complex as your business’s financial statements. As an example, a lender may require a business plan or proposal outlining how the money will be put to use.
  • Personal and corporate financial statements. Profit-and-loss statements, tax returns, and bank statements for both the business and its owners may all fall under this category.
  • Specific information about the company’s owners. The names, SSNs, and addresses of all individuals who own more than 20% or 25% of your business may be required by your lender or loan servicer.
  • Details regarding your physical assets. Collateral, such as property or machinery, may be required by some lenders in order to get a loan. Describe the collateral you’re offering as well as its value. Prior to applying for a business loan, it can be helpful to have an independent auditor determine the value of your collateral. Collateral is typically required when borrowing from a bank or the Small Business Administration.
  • An individual’s word is the guarantee. When applying for a small business loan, a personal guarantee is typically required. Your business may default on its loan payments, but if you sign a personal guarantee, you agree to repay the loan with your own money. Additional company principals may be asked to provide personal guarantees as well.

Take a look at the criteria for an SBA loan if you’re unsure of what you need. If you have complied with the SBA’s requirements, you should be ready to meet the requirements of any lender for a government small business loan.

3. Consider your small business loan application from the perspective of the lender.

If your small business loan application contains information that is open to interpretation, such as a business plan, it may be wise to have a second set of eyes review it before submitting it. A Small Business Development Center (SBDC) is one option for entrepreneurs.

SBDCs are community-based groups that receive funding from the federal government. There are trained experts in business administration available at each location who can advise clients on matters like setting up shop and securing capital. To locate Small Business Development Centers (SBDCs) in your area, use the SBA’s online locator.

Verify that your loan application for a business has all the requested information and is presented in the requested format. Lenders may have inquiries as they review your application, but if you can limit unnecessary back-and-forth, they should be able to make a decision as quickly as possible.

Related: ยป MORE: Common Errors When Applying for a Business Loan

4) Apply as directed by the lender.

When you’re ready, the small business loan application process will vary by financial institution. For instance, Fundbox is an online lender that facilitates the linking of business bank accounts for financing purposes.

Some banks and credit unions still require applicants to visit a branch or call in to submit an application. When it comes to business auto loans, for instance, Bank of America accepts online applications but requires an in-person or over-the-phone appointment for other products.

Find out the typical processing time of the lender regardless of the method you use to submit the application. That way, you can plan accordingly regardless of the timing of the approval or rejection of your application.

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