When shopping for a small-business loan, research your options and find the best fit. Getting funding, especially with the backing of the U.S. Small Business Administration, can be a time-consuming process, often taking months. Understand your business loan options, and don’t rush into the process. This will put you in the best position to apply and be approved — without wasting time or money.
Here are the four steps to getting a small business loan.
Decide Which Type of Loan You Need to Fund Your Business
– Traditional bank loans:
Banks and credit unions can typically offer a large amount of funding with lower interest rates. They can be used for various purposes, such as purchasing equipment or expanding your business.
– SBA loans:
Guaranteed by the Small Business Administration (SBA), these are offered by approved lenders. Compared to traditional bank loans, they have lower interest rates and longer repayment terms.
– Business lines of credit:
These flexible loans allow you to borrow money up to a specific limit as needed. They are often used for short-term cash flow needs or to utilize business opportunities.
Determine if You Qualify for A Business Loan
Here are some factors that lenders consider when assessing your eligibility for a business loan:
– Credit score:
Lenders will look at your business as well as your personal credit score to assess your creditworthiness. Individuals with higher credit scores are more likely to be approved.
– Financial history:
Lenders will examine your income, debt-to-income ratio, and payment history. They want to make sure you have a consistent source of income and a track record of making payments on time.
– Business plan:
Lenders want to see that you have a clear plan for how to use the loan funds and repay the loan.
Compare Small Business Lenders
– Traditional banks:
Traditional banks typically offer larger loan amounts and lower interest rates than online or alternative lenders. However, the application process is lengthy and requires extensive documentation. Additionally, they have strict eligibility requirements.
– Online lenders:
Online lenders offer smaller loan amounts than traditional banks and have higher interest rates. However, online lenders may have more flexible eligibility requirements and faster approval times.
– Alternative lenders:
Alternative lenders include peer-to-peer lending platforms, micro-lenders, and community development financial institutions (CDFIs). They offer smaller loan amounts and have higher interest rates. However, they have more flexible eligibility requirements.
Gather Application Materials
Here are some standard documents and information you will need to provide for the business loan application:
– Personal and business information:
Provide information about yourself and your business, such as your name, address, phone number, and tax ID number.
– Financial statements:
Lenders require your business financial statements, like income statements, balance sheets, and cash flow statements. These documents provide lenders with a comprehensive understanding of your company’s financial health.
– Tax returns:
Lenders require personal and business tax returns for the past few years. This helps them verify your income and financial history.
– Collateral information:
If you are applying for a secured loan, you need to provide information about the collateral you are offering as security.
– Business licenses and permits:
Lenders may require you to provide business licenses and permits to operate in your industry and location.
