How to Apply for a Small Business Loan in 5 Steps
- Steps needed to apply for a business loan
- The bottom line
Steps needed to apply for a business loan
1. Understand your creditworthiness
- Credit score: Naturally, the credit score plays a significant role in determining loan approval. Your personal credit score and business credit score are both necessary and will be reviewed. You can review your credit score with the three major credit bureaus - Experian, Equifax, and TransUnion. If you have a business profile established for business credit, you can also check the scores with Equifax and Experian. You can also review business profiles with Dun & Bradstreet.
- Credit history: Like a personal loan or mortgage, credit history is also factored into the equation for creditworthiness. The length of history and the details behind the credit usage will be reviewed. This applies to both business and personal credit.
- Cash flow: Cash flow is vital to a lender. The lender will want to see bank statements, past sales, expenses, outstanding invoices, and possibly more to understand how much revenue is coming in or going out. This helps assure a lender your business can meet repayment requirements.
- Collateral: Collateral is typically required when securing a loan from a traditional bank or credit union, and in some cases with an SBA loan. Collateral usually comes in the form of allowing your business assets to be liquidated or your personal property to cover non-payments.
- Current customer: Do you have an existing relationship with the lender? If so, this may be factored into the loan application. This is key not only for the lender but also for your business. You may find the loan application process more manageable with an institution you already do business with.
See How Much Experian Boost™ Can Raise Your Credit Scores Instantly
- Experian® is one of the three credit bureaus providing your credit scores
- Experian Boost is a free feature that can help you increase your credit scores for making on-time payments for your phone, utility, or streaming service bills for 100% free and in minutes
- Average users who received a boost improved their FICO® Score 8 based on Experian Data by 13 points. Some may not see improved scores or approval odds. Not all lenders use credit information impacted by Experian Boost™.
- Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether.
2. Determine the type of loan and financing you need
- Business line of credit: If you’re interested in a revolving line of credit where you can borrow money as needed, then a business line of credit may be the best option. You do not need collateral to secure funding, but you do need strong credit - both with your personal credit score and business.
- Term loans: These loans offer a lump sum payment upfront so you can turn around and use the money towards business expenses. The repayment plan will be defined by a certain number of months or years and an interest rate. You do need collateral, and sometimes a down payment is also required.
- Working capital loans: As the name suggests, these loans are specifically funded for working capital expenses and covering a company’s everyday operational costs.
- Invoice factoring: This is a process where you can borrow against the outstanding invoice payments you are owed from other companies.
- Small Business Administration (SBA) loans: These loans are available through traditional banks and online lenders and are partially backed by the federal government. There are several loan options under the SBA umbrella, ranging from short-term loans to disaster relief. The SBA also handles the applications submitted by lenders for the Paycheck Protection Program, or PPP loans. Although this program ended on May 31, 2021, there are still funding options available for certain small business owners.
Use Bankrate to Get a Personal Loan
- Get as much as $100,000 with rates starting at 5.95% APR*
- Use a personal loan to pay off debt, renovate your home, family needs, and more
- Takes minutes to see how much you can get
- Doesn't hurt your credit score to check
3. Research and decide which lender to choose
- What is the minimum FICO score required?
- Which lender do I already have a relationship with?
- How much is the loan amount I need?
- What are the repayment terms and interest rates?
- What do I need for collateral?
- When would funds be available if approved?
4. Gather your application materials
- Basic information about the business: This includes all the mundane information regarding the location and tax ID. But could also have more in-depth requests such as the business plan.
- Financial statements: This includes financial statements for both personal and business. For the business owners, there may be requests to see bank account information and bank statements. Any financial documentation related to the company, such as profit and loss statements, balance statements, annual revenue, and tax returns, will be needed to evaluate the business.
- Business owner information: This includes knowing the percentage of each business owner’s stake, social security numbers, and addresses of each owner.
5. Review your loan application and follow instructions before submitting
The bottom line
Reclaim Up to $610/Year in Car Insurance
Here’s the thing: your current car insurance company is probably overcharging you. But, who has the time to look around for around a new company?
A website called CarInsurance.net makes it super easy to see if you’re getting the lowest price. All you have to do is enter your ZIP code and your age, and it’ll show you your options.
Using CarInsurance.net, people have saved up to $610 a year.
It takes just a few minutes to see how much CarInsurance.net could put back in your pocket. And the best part? Because we’re driving less, some insurers are slashing prices this month.