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How to Get a Business Loan

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To get a small business loan, you should match your business needs to what you can qualify for, rate shop online, get multiple offers and sign for the best one. A small business’s needs and opportunities can vary dramatically, and so can small business loans — for example, the Small Business Association’s (SBA) loans can range from $500 to $5.5 million, and can be used for different purposes.

So before you start filling out loan paperwork, take a minute and review these steps on how to get a business loan:

1. Determine what you need in a business loan

Answering these questions will help you nail down what type of business loan and what type of lender you should apply to, and increase your chances of approval.

How much do you need to borrow?
You could find a microloan for as little as $300, while SBA loans offer up to $5.5 million.

How soon do you need the money?

Funding can take 36 hours with an SBA Express Loan or three months in a traditional loan program.

Do you need a lender that offers bad-credit options?

For the best rates, your personal credit score should be 670 and above, and you should work on building business credit. But if your credit score is lower, bad-credit business loans may be an option to consider.

What’s a comfortable payment?

Use a calculator, such as this SBA loan calculator to estimate your loan payments and determine how long you may need to borrow the funds.

Do you want to borrow a single lump sum of cash?

A single infusion of cash may be what your business needs, but a line of credit that offers a flexible you borrow extra money when you need it may be a better answer for your situation.

Do you need a secured or unsecured small business loan?

If you plan to use your small business loan to purchase hard assets — like real estate, a vehicle or business equipment — you should consider a secured loan, which offers lower interest rates.

2. Identify what you qualify for

Small business loan requirements vary — match what you need to what’s available.

Loan typeGeneral requirements and benefitsLoan amountsStarting interest rates
SBA loansAffordable rates and a high chance of approval for businesses with good credit (600+)$500 to $5.5 millionRoughly 10%
Term loans and equipment loans from a traditional bankTypically has the lowest rates, but requires the highest qualificationsUp to $100,000 without collateralAround 5%
MicroloansRelatively small loan amounts for borrowers with low income or limited credit historyUp to $50,000About 8%
Lines of creditFlexible form of revolving funding that can be available for a wide range of rates, though dependent on credit factorsVariesVaries based on lender
Working capital loansAccessible funding that can be used for cash flow or day-to-day business operations; businesses less than two years old may face higher ratesVariesVaries based on lender
Commercial real estate loansBusinesses with good credit that need a long repayment term to finance a propertyVariesAbout 5%
Merchant cash advanceTypically a high-cost financing option that is provided based on future earning estimates, not credit scoresUp to $500,000Can start at 20%
Accounts receivable financingBetter for businesses with a steady flow of invoices that can be used to unlock cash tied up in unpaid billsUp to $400,00013% to 60%
Small business grantsBetter than a loan, a grant doesn’t require repayment but each has unique qualificationsVariesNot applicable

3. Gather the required documents

During the underwriting process, your lender will likely request certain documents. A business plan, income tax returns and your personal and business balance sheet are examples of common requirements.

Different lenders or loan types may require additional qualifications. For instance, the SBA enforces small-business size standards and may request a vendor quote for equipment loans.

4. Shop around

There’s a lot of options for business loans, so comparison shopping is one of the best methods to reduce your costs. Look online at what lenders are offering. If you’re looking for a smaller loan amount, consider your local credit union. Pick a couple lenders to apply to, like the SBA and an online lender.

5. Apply to small business lenders

Applying for online business loans is often quick and automated — you may receive immediate approval if you meet the requirements. And if approved, you could see the funds deposited into your account as quickly as the same day. Meanwhile, applying with the SBA or a traditional bank is generally more time-consuming, however; time to funding may take a few days to two months.

Here’s how the small business loan underwriting process works. To hurry it along, respond quickly to your loan officer with any requested documentation.

6. Review offers

When you receive an offer, take a second to breathe, then step back to review it. If you get multiple offers, you’ve got the higher ground and can choose the best one. Here’s what to look at:

  • Total cost. Don’t just look at the interest rate; take fees into account.
  • Amount and term. Does the loan offer as much as you want for as long as you need?
  • Repayment. How quickly do you need to start repaying the loan and are the payments manageable?

7. Sign for the best small business loan offer

Sign on the dotted line and get ready to put the money to work. Read the small print on the contract and don’t be afraid to ask for clarification if you have any questions. Set up automatic payments with your lender or your bank. Adding payment reminders to your calendar can help too.

Here are some more helpful tips and tricks on managing your business finances.

Tips to help you get approved for a business loan

Here are a few tips that can boost your chances of getting your loan application approved:

Clean up your credit before you apply

If you discover an error on your credit report — a lien that doesn’t belong to you, for example — dispute it. While the disputing process can vary by the credit agency, most investigations will need to finish within 30 days. If you need additional assistance in repairing your credit, consider working with an accredited credit repair company.

Establish a proper relationship with a lender

Building a relationship with a financial institution can improve your chances of getting a business loan. Opening a personal or business bank account offers a starting point in your search for future business financing needs.

Shop around for the best loan for you

Each lender carries its own terms. As a result, some lenders might be better for you than others. Shop around for the best fees, interest rates and repayment terms available to you before you apply for a business loan. Plus, as you apply, be sure to note whether the lender makes a “soft” or “hard” credit inquiry — soft inquiries generally won’t harm your credit score, but a stream of hard inquiries can.

Alternatives to a small business loan

Crowdfunding: Raise funds from a large number of people using crowdfunding platforms like GoFundMe. Crowdfunding platforms generally have no time-in-business requirement, but they may collect a fee to use their service.

Friends and family: Obtaining capital from a generous friend or family member can save you from hard credit inquiries and high interest rates. However, you may compromise your relationship if you don’t repay the loan. Be sure to outline all expectations in a written agreement if you take this route. Here’s how to approach lending money to family.

Personal loans for business: Personal loans are issued to you, the individual, instead of your business. While personal loans typically don’t require collateral, they tend to offer loan amounts of only up to $50,000 and carry higher APRs. When deciding between a business loan vs. a personal loan, it’s also important to note that personal loans don’t help build business credit, while business loans do.

Frequently asked questions

How can a beginner get a business loan?

To obtain business financing in general, you should identify what you need and determine what you can qualify for. If your business is newer, you may want to consider start-up business loans with no collateral, which allow you to borrow money without putting up any assets to secure the loan.

How much money do you need to get a loan for a business?

For an SBA loan, you’ll typically need a 10% to 30% down payment.

How much of a business loan can I get?

SBA loans offer amounts ranging from $500 to $5.5 million.

Is it OK to get a loan to start a business?

Loans can be powerful business tools. It is OK to get a loan to start a business when you have a clear and purposeful business plan, and you’re sure that you’ll be able to repay the loan completely.

How hard is it to get a business loan?

If you have a low credit score or your business is relatively new, it can be difficult to obtain a traditional bank loan. You can increase your chances of getting a loan by applying with online lenders, which generally have more lenient requirements.

What are typical small business loan requirements?

Some typical requirements for a small business loan include a business owner’s credit score, time in business and revenue. Lenders may also require financial documents, such as your cash flow history and balance sheet. Depending on whether the loan is unsecured or secured, you may need to pledge assets as collateral, too.

What credit score is needed for a business loan?

Business owners with credit scores of 670 or higher are more likely to qualify for traditional bank loans. There are instances where lenders have accepted applications with low credit scores — however, higher interest rates typically apply.

When should I pass on a business loan offer?

If you feel uncomfortable with anything in your loan agreement, consider shopping for a different lender that can offer rates and terms you can handle. You should also be sure to read the fine print and understand how the lender defines defaulting on the loan.

How long does it take to get a business loan?

It can take as little as a day to get funding in some cases, and the SBA Express Loan can take 36 hours. In most cases, however, it can take 60 to 90 days from the time you submit your application to the time the money is in your hands.

How long does lender processing take?

The underwriting process for small business loans can typically take as little as a day or as long as over three months.

 

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