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Updated: November 19th, 2020
Do you need help financing your small business? If so, getting a small business loan might be the right option for you.First, what is a small business loan and how can you get approved for one?
A business loan is a way of getting financing for a small business when you need working capital or cash flow. Small business loans can take multiple forms. Among the most common options are SBA loans, term loans, and business lines of credit.
If your business needs financing, follow these five simple steps for getting a small business loan.
You might find that it can be difficult getting approved for a business loan if you’re unprepared, so you will need to make sure you put the proper effort into planning the use of your funds.
Write out exactly what your funds will be used for so you can start looking at different types of financing options that are designed for small business owners. Don’t ignore this critical first step! Planning your funds up front will prove helpful when this information is requested down the road as you apply for a loan.
There are multiple small business loan options available. One of the most important considerations to keep in mind when getting financing for a small business is APR. No matter which business loan type you pursue, look out for this key figure that’ll tell you the true cost of the loan.
If your business has only been in operation for a year or two, you may qualify for options such as angel investment and lines of credit. However, these short-term options often come with high interest rates, which may impose a financial burden on your small business.
On the other hand, businesses that are past the startup stage and are able to prove greater stability and good credit can get approved for longer-term business loans with much lower interest rates. Some other ways of getting financing for a small business at this stage include SBA loans, a business credit card, or alternative financing methods, like online lenders.
Depending on the type of small business loan you’re looking to get, the application process and requirements may vary.
For example, an SBA loan typically has a few minimum requirements that you’ll need to meet:
Before applying and making a decision, look into any minimum requirements and compare your options. Keep in mind, too, that lenders often impose their own loan requirements. When choosing a lender for your small business loan, make sure your can meet both the specific type of loan requirements and the lender’s.
In order to take the pain out of applying for and getting a small business loan, it’s wise to start gathering all of your relevant documentation before you submit your application.
Many lenders will ask for:
These are some of the most common items that are requested when getting approved for a business loan. However, be prepared to provide additional information as it is requested.
Following the previous steps will put you in good shape when applying for your small business loan.
Before finalizing your application, double check that you have gathered all of the items required. Once you have reviewed everything thoroughly, submit your application.
Paige Smith is a Content Marketing Writer and Senior Contributing Writer at Funding Circle. She has a bachelor's degree in English Literature from Cal Poly San Luis Obispo, and specializes in writing about the intersection of business, finance, and tech. Paige has written for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.