Learn the ins and outs of applying for a small business loan with our comprehensive guide. From researching and understanding loan options to gather necessary documents and submitting your application, we cover it all. Utilize our step-by-step guide to increase your chances of approval and avoid wasting time and money.

Summary

• Conduct thorough research to find the best fit for a small-business loan, as the process can take several months, particularly with loans backed by the U.S. Small Business Administration.
• Factors to consider when deciding where to apply for a small-business loan include the lowest interest rate, financial standing, length of time the business has been operating, annual revenue, and credit score (most small-business lenders require a FICO score of 650 or higher).
• Consider the type of funding required for your business and look for lenders that specialize in the type of funding you need.
• If you need funding quickly, online lenders may be a good option as they have automated processes that allow them to review applications and provide business loans quickly.
• Common documents that may be requested when applying for a small-business loan include business information, financial statements, details about the business owners, information about collateral, and personal guarantees.
• Review your small-business loan application before submitting it, and use resources such as the Small Business Development Center (SBDC) for assistance in reviewing it.
• Double-check that your application includes all the information requested by the lender and is in the proper format.

Applying for a Small Business Loan: A Comprehensive Guide

To apply for a small-business loan, conduct thorough research to find the best fit. The process can take several months, particularly with loans backed by the U.S. Small Business Administration. Take your time to understand all loan options to increase your chances of approval and avoid wasting time and money.

MORE: How to Refinance a Business Loan: A Guide to Improving Financial Situation

1. Decide Where to Apply and What Type of Funding to Seek

Determine the best place to apply for a small-business loan. Banks, alternative online lenders, and other sources offer business loans. Generally, the best option is where you qualify for the lowest interest rate. However, other factors to consider include your financial standing, the length of time your business has been operating, your annual revenue, and your credit score (most small-business lenders require a FICO score of 650 or higher). If you have poor credit or do not meet the qualifications for a bank or SBA loan, an online lender may be a better option.

What type of funding do you need?

Consider the type of funding required for your business. Different types of business loans are available, but not all lenders offer all types. If you need funding for specific equipment, look for lenders that specialize in equipment financing. For ongoing operational expenses, consider a business line of credit that can be used as needed. If you are seeking an SBA loan, consider starting your search with a lender that you have an existing relationship with. SBA lenders include major banks such as Chase and Wells Fargo, as well as regional and community banks.

When do you need the loan?

If you require financing quickly, online lenders may be a good option as they have automated processes that allow them to review applications and provide business loans quickly. If you have more time, SBA Express loans may have faster turnaround times compared to other federal options but still offer competitive rates and flexible terms. If multiple lenders suit your needs, check if any allow you to pre-qualify for an estimated interest rate, which is common with online lenders. For traditional lenders such as banks, speak with a loan officer before applying to ensure that you meet the qualifications.

2. Gather Necessary Documents and Review Your Application

Different lenders may have varying requirements for documentation when applying for a small-business loan. However, common documents that may be requested include:

• Business information such as name, address, and tax ID, as well as more in-depth information like a business plan or proposal.
• Financial statements for the business and business owners, including revenue statements, tax returns, and bank account statements.
• Details about the business owners, including names, Social Security numbers, and addresses for those who own a certain percentage of the company.
• Information about collateral, such as real estate or equipment, if required by the lender.
• A personal guarantee is an agreement that states the borrower is responsible for repaying the loan with their personal assets if the business defaults. Other business owners may also be required to sign a personal guarantee.

MORE: Business Loan Eligibility Requirements

3. Utilize Resources and Double-Check Your Application

Prior to submitting a small-business loan application, it is a good idea to have someone review it to ensure that all information is accurate and presented in the appropriate format. This is especially important for parts of the application that may be open to interpretation, such as a business plan. One resource for assistance in reviewing your application is the Small Business Development Center (SBDC). These organizations, which are partially funded by the federal government, provide local business professionals who can assist with various aspects of running a business and obtaining financing. You can find an SBDC in your area using the SBA’s finder tool.

Be sure to double-check that your application includes all the information requested by the lender and is in the proper format. This will help ensure that the lender does not have any additional questions and can make a decision on your loan application as quickly as possible.

4. Submit Your Application and Wait for Approval

The process for applying for a small-business loan will vary depending on the lender. Some online lenders, such as Fundbox, may allow you to link your business accounts through their website to apply for financing. Other traditional financial institutions, such as banks and credit unions, may require you to apply in person or over the phone. For example, Bank of America offers online applications for some of its products but may require an in-person or phone appointment for others. It is important to follow the lender’s instructions for applying and to inquire about their typical turnaround time for decision-making. This will allow you to have a better idea of when to expect a decision on your loan application.

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Conclusion

In conclusion, applying for a small-business loan requires thorough research and a clear understanding of all loan options. It is important to consider factors such as interest rates, financial standing, revenue, and credit score when deciding where to apply for a loan. Additionally, it is essential to understand the type of funding needed for your business and look for lenders that specialize in that type of funding. Before submitting your application, be sure to review it and double-check that it includes all the required information and is in the proper format. Resources such as the Small Business Development Center can assist in the review process. By following these steps, you will increase your chances of approval and avoid wasting time and money.

Questions Answered in this Article

1. What are some factors to consider when deciding where to apply for a small-business loan? -The best option is where you qualify for the lowest interest rate. However, other factors to consider include your financial standing, the length of time your business has been operating, your annual revenue, and your credit score (most small-business lenders require a FICO score of 650 or higher).
2. What type of funding do I need for my business? -Consider the type of funding required for your business. Different types of business loans are available, but not all lenders offer all types. If you need funding for specific equipment, look for lenders that specialize in equipment financing. For ongoing operational expenses, consider a business line of credit that can be used as needed.
3. When do I need the loan? -If you require financing quickly, online lenders may be a good option as they have automated processes that allow them to review applications and provide business loans quickly. If you have more time, SBA Express loans may have faster turnaround times compared to other federal options but still offer competitive rates and flexible terms.
4. What documents will I need to submit when applying for a small business loan? -Common documents that may be requested include Business information such as name, address, and tax ID, as well as more in-depth information like a business plan or proposal. Financial statements for the business and business owners, including revenue statements, tax returns, and bank account statements.
5. What resources are available to help me review my small-business loan application? -One resource for assistance in reviewing your application is the Small Business Development Center (SBDC). These organizations, which are partially funded by the federal government, provide local business professionals who can assist with various aspects of running a business and obtaining financing. You can find an SBDC in your area using the SBA’s finder tool.