Business credit

How to get a small business loan

Updated: August 31st, 2023

How to get a small business loan

More than half of U.S. business owners aren’t seeing their credit needs met. Whether it’s not knowing how to get a business loan or believing it’s too hard, this can be a stumbling block to expansion when business is booming or keeping the shelves stocked during lean times. Business owners, however, have greater access to lenders than ever before – it may just come down to knowing how to get a small business loan

Lending has come a long way since commanding mounds of paperwork and weeks of time waiting to learn if you’ve been approved. Nonetheless, getting a business loan is not a cookie-cutter process and does require some short- and long-term planning. Here are some steps you can take when considering how to get a loan for your business. 

Decide what you’ll use the funds for and how much you need 

There are many ways you could use the financing. For instance, you might want to expand your staff or purchase additional inventory for a peak season. A business loan means you won’t have to dip into cash flow to do it. And while there may be no shortage of ways to use the funds once you know how to get a loan for your small business, its best to commit to the type right for you. This will go a long way in determining the type of financing you need or certain features of the loan, such as whether it’s a long-term or short-term loan.

The next important thing to decide when considering how to get a business loan is the size of the loan you are seeking. While it might be nice to gain access to $1 million to grow your business, is that really a realistic option with repayments your business can afford to make? To increase your chances of getting approved, select an amount that is reasonable based on the health of your balance sheet and the need.

How to get the right type of business loan   

Once you know how much you need and what you want to use it for, the next step in how to get a loan for your business is to decide which type of loan you need. There are many options available, but they may not all make sense for your business needs.

Term loans

Consider a term loan. Whether you need access to $5K or $500K, a business term loan could make sense for your small business. If you have a mortgage or have ever taken out an auto loan, you might feel right at home with a term loan. You receive a lump-sum amount of money upfront and make scheduled payments over the duration of the loan. These loan amounts can be high and therefore are relevant if you are looking to expand your business rather than just cover your cash flow needs. The funds are provided in a lump-sum amount and the amount plus interest are repaid over the duration of the loan.  

Line of credit

A line of credit gives you flexible access to capital and is attractive if you don’t need to use all of the financing at once. You are given access to a given amount, which could fall in a similar range of a term loan. But, with a line of credit, you only access the funds as the need arises, which means you only pay interest on the funds you use.

Small Business Administration (SBA) loan

You might also consider how to get a small business loan backed by the Small Business Administration, or an SBA loan such as those offered by select banks. The plus side is that you are likely to fetch an attractive interest rate and generous repayment requirements. On the other hand, if you need the cash in a hurry, you will find yourself waiting because these loans can take weeks to be completed. 

The lending standards are also generally more stringent than average. If you’re wondering how to get a business loan in the range of $30K to several million, an SBA loan could be for you.

Picking a lender 

Small businesses like yours are increasingly capitalizing on the opportunity to access a loan via online lenders. If you’ve ever asked “how hard is it to get a small business loan?,” the answer today is very different than it was in the past. 

In 2018, nearly 33% of small businesses seeking a loan applied through an online lender, which reflects an increase of nearly 25% over the previous year. That’s in part because financing is often delivered more quickly than it would through a traditional bank. According to the Wall Street Journal, online lenders make decisions more quickly, require less collateral, and are more inclined to say yes when banks say no. 

You have no shortage of options when it comes to choosing a small business loan. At Funding Circle alone, investors have lent more than $2 billion through its platform to small businesses in the United States. It’s a reflection of individual and institutional investors’ desire to help small businesses grow and continue to drive the American economy. 

Even payments platform PayPal is in on the action, having lent some $10 billion to more than 225,000 small businesses globally in the first half-decade of its financing program. 

The type of lender you select, however, will be tied to certain features of your business. For instance, if you’re looking for a loan with Funding Circle, your company should have at least two years of operations under its belt. 

Check your credit and get your paperwork in order 

When it comes to following best practices for how to get a small business loan, you should make sure that you’re prepared with the relevant documentation before applying for funding. While the precise paperwork that you need will vary depending on the lender, it’s better to be prepared than losing time collecting additional documentation. Here are some of the documents you can expect to use: 

  • Tax returns for the last three years. 
  • Financial statements including current Profit & Loss statement.  
  • Business plan with forward projections for profits and expenses.  
  • Three months’ worth of checking account statements. 
  • Certain loans such as equipment loans often lend themselves to collateral so that the lender inherits less risk. If you’re building a credit history, consider being prepared to offer some collateral – whether business or personal – to get a loan for your business. 
  • Personal financial details, including personal credit score. This may be more common for uncollateralized loans or for a business with less of a track record. 
  • Your business credit score can be important, too. You can find your business credit score through companies like Nav or credit bureaus Dun & Bradstreet, Experian, and Equifax. 

Arming yourself with these documents – even if all of them aren’t required — shows the lender that you are prepared and provides them with a glimpse into the financial health of your business. Also, information is power, and sometimes you need to see the numbers in front of you to gain an accurate assessment of performance.

While it’s not too hard to know how to get a business loan and apply, it will largely depend on the unique circumstances surrounding your company. Keep in mind that the process should become easier each time as you gain a history of repaying the debt, building your business credit score and growing your business.


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