A Simple Guide to How to Apply for a Small Business Loan

apply for small business loan

In today’s marketplace, entrepreneurs of all financial backgrounds are seizing the opportunity to start their own business. In order to cater to the high demands of consumers, business owners rely on loans to help cover routine operational costs. With small business loans, entrepreneurs can get the funding they need at all stages of business growth, enabling them to grow their company and increase profits.

How to Apply for a Small Business Loan

With the innumerable funding possibilities available to you, finding the appropriate loan option can seem confusing and overwhelming. With a strategic approach, you can narrow down your options considerably and find the right loan for your business. Then, you can prepare an application that puts your best foot forward. (The more your application appeals to the specific lender, the better the loan rates, terms, and amounts you will qualify for.)

Research Your Financing Options

To find the right loan for your business, you need to research all of the options available to you and review the qualification requirements of each. (Each lender and financing product will have different qualifying criteria.) Loan application processes can be lengthy, so you don’t want to waste time filling out applications for loans you will be denied for. Make sure to review all requirements in advance to ensure you meet the eligibility requirements.

While traditional bank loans are often the most appealing to business owners, they entail rigorous application processes with high rates of rejection. New business owners and ones without sufficient collateral or a strong credit history are unlikely to qualify. These loans also take 90 – 120 days to secure, which is not a suitable timeline for many business owners.

The US Small Business Administration (SBA) also provides business loans, and they offer more lenient qualifications to new business owners. For those with poor credit, securing an SBA loan is a viable funding solution.

Depending on your business model, crowdfunding serves as another alternative to commercial loans. Crowdfunding relies on pre-selling products, so businesses engaged in retail or consumer products tend to be the best fit. However, because no interest or collateral is required, this form of equity financing is a highly accessible, cost-effective businesses financing option.

Create a Business Plan

To qualify for a traditional loan or SBA loan, you’ll need a virtually infallible business plan in order to persuade investors that you’re worth the risk. The business plan needs to emphasize all projected earnings of the company, as well as provide a detailed plan of how the money will be utilized and how you intend to repay the loan.

Gather the Appropriate Documentation

While applications vary, most agencies are going to require your personal credit history, financial credit history, annual income, bank statements, tax documents, and proof of collateral. You need to provide a comprehensive history of your finances, so you can assure the loan agency that you are fiscally responsible and likely to repay.

Determine the Loan Amount

Before applying, you need to decide how much money you need to meet your business goals. Bank loans are one of the most popular funding options because they offer large sums of money, enabling entrepreneurs to cover the bulk of startup costs with a single loan. The SBA is geared toward providing smaller loans, usually no more than $50,000, and they are the ideal option for covering routine operational expenses. Working capital loans are another great option, as they can cover costs immediately and be paid off within a few months.

Can You Provide Collateral?

Most banks require collateral in order to secure a loan. Unless you have an immaculate financial history, banks aren’t willing to take such a huge financial risk. The collateral often has to cover most, and sometimes all, of the loaned amount. For individuals who don’t have enough collateral to secure the loan, their applications are readily denied. The SBA also requires collateral, but they are willing to accommodate borrowers who lack sufficient collateral to secure the entire loan. For those who are unwilling or unable to provide collateral, working capital loans and crowdfunding can provide a practical funding alternative.

Determine Your Ideal Repayment Plan

How long do you think it will take you to come up with the money? Repayment plans can be anywhere from a couple of months to 5 years, and you need to consider your ideal repayment terms prior to applying for a loan. Bank loans and SBA loans are equipped with long-term payment plans, which is the ideal option for those who need ample time to establish their returns on investment.

Working capital loans offer short-term repayment plans, which is perfect for those seeking small injections of cash that they can pay off right away. Crowdfunding relies on product availability, and you need to ensure you can scale your production in conjunction with the timeline you initially propose to investors.

The loan option you choose will depend on the needs and goals of your business, as well as the eligibility requirements of the loan agency. You’ll need to consider the quantity of the loan you desire, your preferred repayment terms, your financial history, and the collateral you are able to provide. Determining these core factors will enable you to narrow down the loan options available to you and pick the best funding method for your company. For modern business funding solutions, contact Credibly.