Are you interested in borrowing some money to get your business off the ground, or does your business need an emergency loan to take care of a production problem you just encountered?
Regardless of the reason, you might be wondering how to get a business loan. Obtaining a business loan is one of the best ways to get your hands on the money you need quickly.
Before you apply for a business loan, you should take the time to learn about the steps you’ll need to go through in order to successfully land a loan. It will help you get a better understanding of the entire loan process.
Here is a step-by-step guide that will show you how to get a business loan.
Step 1: Figure Out How Much Money You Need to Borrow
The first thing you want to figure out when applying for a business loan is how much money you need to borrow. You also want to give some thought to what you’re going to use the money for once you have it.
Are you going to use the money to:
- Get your business up and running?
- Create more inventory?
- Take care of unexpected legal fees?
- Hire more employees?
- Pay for day-to-day expenses?
Lenders are going to want to see that you have a clear plan in place as far as how you’re going to use their money. They want to know that you’re going to use it to grow your business in some way so that they get their money back.
You should figure out your reason for borrowing money and then come up with an amount that you want to borrow. Make sure the number you produce is realistic and, more importantly, make sure you’re going to be able to pay it back over time.
Step 2: Consider Which Type of Loan Would Be Best
There are so many different types of loans that businesses can apply for.
For example, there are startup business loans that are specifically designed for companies that are just getting started. These loans aren’t usually available through banks, but there are many microlenders out there that are willing to take chances on new businesses.
There are also small cash loans that you can take out if you experience a sudden financial problem that you need to take care of right away. These loans can help you pay a bill before it’s too late or allow you to make a repair that just can’t wait.
Read more about small cash loans to see how they might benefit you and your business.
Step 3: Find Lenders That Are Willing to Loan You Money
When you’re trying to figure out how to get a business loan, you will find that there are lenders from all walks of life willing to lend you money.
Some examples of business loan lenders include:
- Nonprofit microlenders
- Online lenders
Each type of lender comes with its own pros and cons.
Banks are great for those businesses that have already established themselves. You usually need to have some kind of collateral that you can offer up in case you can’t pay back a loan, and you also need to have good credit.
Additionally, banks take time to make a decision on a loan, so they’re not great options for those who need cash fast.
Microlenders, on the other hand, are more willing to work with small businesses and those businesses that haven’t yet established themselves. However, they often offer customers higher APRs and won’t always give businesses large loans.
Online lenders are perfect for those who need to get their hands on money as quickly as possible. They can also provide loans without collateral. But you will usually pay more for loans obtained through online lenders due to higher interest rates.
You should consider applying for business loans through each type of lender. It’ll give you and your business plenty of options.
Step 4: See If Your Business Will Qualify for a Loan
At this point, you should know how much money you want to borrow, what kind of loan would benefit you most, and what type of lender would be best for your business.
It’ll now be time to see if you actually qualify for a loan.
You should take a look at your credit score and make sure it’s strong enough (680 or higher is always best!). You should also make sure your business has been around long enough for lenders to consider giving you a loan.
You should even take a look at your annual revenue to see if it’s going to be high enough for lenders. They’ll want to know that you can afford to pay them back.
During this step, you should essentially take stock of where your business is at and how likely it’ll be for you to get approved for a loan.
Step 5: Apply for a Business Loan
If you get to this point and feel as though you stand a good chance to get approved for a business loan, you should go ahead and apply for one.
You will likely need to include these things in your business loan application:
- Personal and business tax returns
- Personal and business bank statements
- Financial statements pertaining to your business
- Legal documents pertaining to your business
You should make sure that you fill out your application completely and that you don’t forget to include any of the necessary paperwork.
You don’t want to give a loan officer the impression that you’re not prepared or that you didn’t do your homework before applying for a loan. It might hurt your chances of being approved for it.
Now That You Know How to Get a Business Loan, Go Apply for One
Knowing how to get a business loan and actually getting one are two different things.
You need to make sure you’re as thorough as possible when applying for a business loan and include all applicable information. It will ensure that you get a fair shake from lenders, and ideally, it will lead to you getting the loan you need.
Read our blog for more practical business advice that you can use to steer your company in the right direction.