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How to File a Loan Application for Your Small Business

A business loan can help you start or grow your small business, but the process can be difficult if you don't know how it works. Here’s our guide for getting the funding you need.

How to File a Loan Application for Your Small Business

Here are the steps for filing a loan application for your small business.

  • Loan - Depending on why you need a small business loan, you will probably need one of these types of business loans.
    • SBA Loans or Traditional Loans - These usually have high borrowing maximums (SBA loans can reach $5.5 million). Some loans are for specific needs, such as equipment or vehicle purchases.
    • Startup Financing (business credit cards and personal loans) - First-year businesses will have to rely on alternative financing since they typically can't get business loans because lenders require cash flow to support repayment.
    • Business Line Of Credit - This flexible funding is a useful safety net that lets you use financing as needed to cover day-to-day expenses such as payroll or unexpected repairs.
  • Qualification - To determine if you meet the requirements to qualify for a small-business loan, you’ll need to know:
    • Your credit score - Get your credit report for free from Equifax, Experian, and TransUnion. You can also get your credit score free from several credit card issuers and personal finance websites. Banks prefer to offer their low-rate business loans to borrowers with better credit scores. If you have a lower credit score, consider small-business loans for borrowers with bad credit or loans from a nonprofit microlender.
    • How Long you’ve been in business - To qualify for most online small-business loans, you’ll need to have been in business for at least one year and to qualify for most bank loans, at least two years.
    • If you make enough money - Lenders may require a minimum annual revenue. If you don’t have enough revenue, you can look into short-term business loans, SBA microloans, or equipment financing.
  • Payments - Look at your financials, especially cash flow, to determine how much you can afford for loan repayments each month. To comfortably repay your loan each month, your total income should be more than your total expenses, including the repayment amount. 
  • Collateral - A secured loan requires business collateral, such as property or equipment, that the lender can seize if you don’t repay the loan. Putting up collateral can raise the amount you can borrow and get you a lower interest rate. Lenders may also require a personal guarantee, which means you'll personally repay the loan if your business can't.
  • Lenders - The main sources of small business loans are online lenders, banks, and nonprofit microlenders. 
    • Online Lenders - Good when you lack collateral, lack time in business, or need funding quickly. Online lenders provide small-business loans and lines of credit. These lenders rarely have APRs as low as what traditional banks offer, but approval rates are higher, and funding is faster than with banks.
    • Banks - Good when you've been in business for at least two years, have good credit and don't need cash fast. Options include term loans, lines of credit, and commercial mortgages to buy properties or refinance. Getting funded takes longer than other options, but banks are usually the lowest-APR option.
    • Microlenders - Good when you have bad credit or no credit history, are a new business, or can't get a traditional loan. Microlenders typically offer short-term loans of less than $50,000 with APRs higher than that of bank loans.
  • Documents - Before you apply, make sure you have all the documentation you’ll need. Find these files now and have them easily accessible to help streamline the process of getting a small business loan. Different lenders will require you to submit a combination of the following documents:
    • Business and personal tax returns
    • Business and personal bank statements
    • Business financial statements
    • Business legal documents (articles of incorporation, commercial lease, franchise agreement, etc.)
    • Business plan
  • Application - Once you’ve determined the right type of loan and right lender, it's time to apply. Compare two or three similar options based on loan terms and APR. From the loans you qualify for, choose the one with the lowest APR (and regular payments you can handle), and apply. Credit bureaus don’t differentiate between business and personal inquiries, so if you use your personal credit history, your credit score could be affected when applying for a small business loan.

If you want ideas for alternative financing options, read our article “California Small Business Grants To Kick Start A Strong 2022”, or if you want to discuss marketing, contact us.

Tags: loan application, small business

Geoff Strauss

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