The Ultimate Guide to Securing a Business Loan For Small Businesses

Loans can help a small business expand and thrive, yet their process can be daunting for entrepreneurs without sufficient knowledge and preparation. Apply for business funding today to make your dreams a reality.

Follow these tips to improve your chances of securing financing and make the most out of the funding process.

1. Know Your Options

There is an array of business loans available, and it is crucial that you understand all your available options. Common loan types include term loans, lines of credit and US Small Business Administration loans (SBA).

Ascertain your funding requirements precisely; overextending yourself could result in unnecessary interest or prepayment penalties being accrued.

Most lenders consider both your personal and business credit when reviewing an application. They may require your Employer Identification Number, copy of commercial lease agreement and resume that demonstrates relevant management experience or industry expertise. They may also ask to see proof of revenue projections for your business as well as debt service coverage ratio calculations to increase chances of approval.

2. Understand the Requirements

When applying for a business loan for small business, several factors need to be taken into consideration. Make sure that you know exactly which requirements your lender requires of you and are fully prepared to fulfill them.

Lenders often impose different criteria depending on the loan type and industry you are seeking; their preferences, as well as your collateral options for security. You should take all these aspects into consideration when seeking financing from any source.

Financial statements that demonstrate your ability to meet loan payments are typically required of lenders. Some also require personal guarantees or UCC liens in case of default; in these instances, any personal assets could become at risk in case of nonpayment of loan obligations. Other types of small business loans can also be secured without collateral but typically come with higher interest rates and stringent terms and conditions.

3. Prepare Your Documents

Document requirements may depend on both your lender and type of loan, with financial statements such as balance sheets, income/cash flow statements, credit reports and tax returns typically being requested by lenders. They will likely also want to understand your company’s revenue so as to ensure there will be enough money available for expenses as well as timely loan repayment.

Some lenders require collateral as security against loan default. Collateral is typically pledged as an asset of value such as real estate, inventory or equipment to secure secured loans. Some lenders also require personal guarantees from business owners in case their business cannot repay the loan on its own.

4. Make the Most of Your Time

Establishing and growing your small business are often dependent on taking out a loan, so it’s crucial that you understand all your available options and the application process before applying.

Traditional bank loans are the go-to solution, as their lending requirements tend to be more lenient, often accepting businesses with less-than-ideal credit scores and offering loans at higher interest rates than other options.

Online lenders are another good way for small businesses to obtain funding. These lenders tend to be more accommodating when it comes to credit requirements, often willing to fund businesses with just six to twelve months of operating history. Furthermore, many of these lenders also boast lower fees and interest rates compared with banks.

5. Get Started Today

There are various sources of business loans available, from traditional lenders and online/non-bank lenders alike. While some new options may offer lower introductory “factor rates,” when converted to annual percentage rates they quickly become costly and sometimes reach triple digit figures!

Most business loan types require a credit check, personal guarantee and collateral from applicants. Collateral is typically real estate or equipment which the lender can seize if there is default on payments.

Some lenders impose limits on which industries they will finance and will only consider businesses that meet certain guidelines. Be sure to explore every option carefully to fully comprehend your options and which are unavailable to you.