Table of Contents

  • 8 Steps to Getting a Business Loan
  • How to Apply for a Business Loan Online
  • The Pros and Cons

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How do you get a small business loan?

Securing funding at the best rates isn’t as difficult as one might think. It all starts with learning about the right financing option for your small business.

8 Steps to Getting a Business Loan

Here’s how to apply for a small business loan: Do some homework before signing on the dotted line.

Conducting research and employing due diligence before filing a small business loan application are crucial and will help you determine which financing options work for you now and in the future.

Far too often, business owners become impatient when trying to secure a small business loan and jump at the first opportunity. That’s a good way to get the wrong financing. 

Follow these 8 steps to getting a business loan:

  1. Determine whether a loan is truly necessary
  2. Check your creditworthiness
  3. Weigh your options
  4. Prep your financial records
  5. Choose a loan type
  6. Assemble the application
  7. Make your pitch
  8. Wait for approval

Step 1: Should You Get a Business Loan? 

Determine exactly why you need outside funding. Do you require a loan to start your small business or manage its daily expenses? Or do you need capital to expand your company? If the answer is “yes,” proceed.

The reasons why you’re seeking a business loan should steer you toward which financing options best suit your needs and how you should go about securing them. For example, if you’re seeking a loan for startup capital, equity financing might be the better choice.

There’s a world of financing options out there. Take a look in the mirror, ask yourself about your funding needs and provide honest answers.

How Much Funding Do You Need?

Many business owners interested in applying for funding often ask, “How much financing can I get?” The better question is asking yourself, “How much do I really need to borrow?” 

 

If you have a vague idea of how much your company requires to get through its short-term expenses or projects, you may end up borrowing (and paying interest on) more funding than you need.

 

Conversely, some business owners are too conservative when it comes to asking for a larger or longer-term loan. Don’t underestimate the amount of capital you need: That can jeopardize the financial sustainability of your company. 

 

Know what you’re asking for and what you need to make this investment successful.

 

Step 2: Start Searching for Small Business Financing

Once you’ve decided your company needs funding, it’s time to track down the best options for a small business loan. Applying for financing has never been easier. (We’ll explain how to apply for small business loan online.) Before rushing to submit your small business loan application, prepare yourself.

Make sure your company’s financial records are organized and on hand before you apply for a business loan.

Also, put your best foot forward: Take steps to ensure your credit score and financial metrics are the best they can be. You’re more likely to get approved and land more competitive rates.

How to Apply for a Business Loan with Bad Credit

Wondering about how to get a business loan with bad credit? It’s possible. Just keep in mind the terms won’t be as favorable. The worse your business’s financial condition, the more expensive your loan will be. 

 

Make sure your company is in the black and not operating at a loss at the time of application.

 

If your personal credit score is fair to very poor (580 or below), you should start building positive credit as quickly as possible to bolster your chances of getting the loan approved. Many lenders look to your own creditworthiness when assessing your business’s fundability.

Step 3: Know Your Credit Score

Not all small businesses are equal in the eyes of lenders. Indeed, there are metrics and scores that separate trustworthy businesses from those who are riskier for financing providers. If you want to get approved for an affordable business loan, you need lenders to put your business in the first category.

Because it can take some time for a small business to establish a strong credit rating, many lenders consider other qualifications and guarantees. Some review personal credit scores.

If you apply to get a small business loan with bad credit, it can impact your rates and overall financing costs. It’s important to build your credit score by maintaining lines of credit, making payments on time (or early) and paying off debts.

Regarding the Debt-to-Income Ratio

Another important metric creditors use to determine creditworthiness is your debt-to-income (DTI) ratio, which helps lenders measure your business’s overall financial health and ability to repay additional debts.

 

If your debt-to-income ratio is too high (under 35% is preferred, but ratios as high as 50% can still be OK), most creditors may deem you unfit to take out a new loan.

Step 4: Pick the Right Lender

Some new entrepreneurs assume they have to get a small business loan from a large, national bank. You’re more likely to get approved if you solicit a smaller, regional bank with a history of taking on smaller clients.

Keep in mind there are other lender options to consider, namely credit unions, not-for-profit financiers and alternative lenders, including online marketplace operators such as Fast Capital 360.

Make sure you review your funding options and research where to get a small business loan, including:

  • Big banks (e.g., Wells Fargo, JPMorgan Chase, etc.)
  • Regional banks (small local chains)
  • Nonprofit lenders
  • Online lenders (e.g., Fast Capital 360)
  • Microlenders
  • Credit unions

Step 5: Choose a Form of Business Financing

Far too often, new business owners apply for a long-term bank loan without considering financing alternatives. Locking down a long-term loan right off the bat can be difficult for a startup business. Sometimes new owners don’t have what’s required to secure a small business loan until you’ve been in business for a while. 

An owner might get approved for a loan and receive funding, but the terms may dictate finances for years to come.

Unless your business has long-term capital expenses that can’t be covered by other means, other funding options may be a better choice. Here are four of the most popular financing options for small businesses:

SBA Loans

This is a secured loan backed by the Small Business Administration (SBA). These low-interest loans are technically provided by commercial banks, financing companies and nonprofit lenders rather than the U.S. agency itself. 

When applying for a regular term loan at a bank, you need to put up assets to secure the funding. If you need to get a small business loan without collateral – such as property, cash or inventory – the bank will likely consider the application too risky. 

Enter the SBA and its loan program: The federal agency provides the capital guarantee needed to secure the loan on your behalf. Since SBA loans are generally less expensive than other alternatives to regular term loans, they’re one of the most cost-effective ways to fund a small business.

Getting approved for an SBA loan can be competitive, so be ready to meet the requirements.

Do you qualify?

  • In business 2 or more years
  • Annual revenue of $75,000 or higher
  • Credit score of 650 or more

Business Line of Credit

Business lines of credit are a convenient, take-what-you-need option for financing a new company. Unlike conventional loans, a business line of credit offers accessible funding for companies that need an indefinite sum of capital to get them through a cash crunch or major expense.

A business credit line allows better control over your business’s debt and can be easier to secure than a small business loan. Acting as a reserve source of cash to be used whenever needed, the line of credit can also supplement a conventional loan.

Compared with loans and equity financing options, business lines of credit offer the following advantages:

  • Flexible cash-flow management
  • Control the funds
  • Lower interest rates and higher limits than most credit cards

Do you qualify?

  • In business 6 months or more
  • Annual revenue of $160,000 or more
  • Credit score of 575 or higher

Invoice Financing

A form of accounts receivable financing, invoice factoring involves the pledging of unpaid invoices as collateral in exchange for cash. 

Companies that need fast cash for short-term expenses often turn to invoice financing if they have high-value outstanding invoices yet to be paid.

Most banks and creditors offer between 75%-90% of the invoice face value. The cash is then advanced to the borrower and the remaining balance is remitted after the invoice is paid in full, minus fees.

Those looking to get a small business loan with bad credit can take advantage of invoice financing because the creditworthiness of your customers is weighted more heavily than your company’s financial health.

Do you qualify?

  • In business 1 year or more
  • Annual revenue of $150,000 or more
  • Credit score of 600 or higher

Equipment Financing

If your business operates in an industry that’s reliant on equipment, such as the medical or construction industries, you may be eligible for equipment financing. To help purchase the expensive equipment needed to run your business, banks and other creditors can advance you up to 100 percent of the value of the equipment, which you then repay with interest.

One of the main benefits of equipment financing is lower interest rates. Since the equipment generally secures the loan itself, interest rates don’t skyrocket because you don’t have collateral on hand.

Do you qualify?

  • In business 2 years or more
  • Annual revenue of $160,000 or more
  • Credit score of 620 or higher

Meeting with a loan officer, likely face-to-face, will be a critical step in securing your loan.

Step 6: Complete the Loan Application

Now that you’ve narrowed down the type of loan or financing option that’s right for you, you’re ready to move on to the process of applying. You’ll need to go to the lender and begin the application. Generally, a loan officer will be your first point of contact and go-to for all things related to your loan.

Small business tip: Some online lenders provide web access to applications and business advisers to help with this stage. In that case, you may simply be able to speak to an adviser over the telephone to complete the process. For more on how to do this, skip steps 7 and 8 and go right to “How to Apply for a Business Loan Online.

Meeting with a loan officer, likely face-to-face, will be a critical step in securing your loan.

Gather Your Documents

Make sure you have all the crucial documents on hand, including:

  • A piece of government identification
  • Business license and permits
  • Proof of ownership

You also will need to provide proof that you are the lawful owner of your company, such as:

  • Articles of incorporation (if applicable)
  • Owner’s tax return, including the Schedule C form
  • The “doing business as” with owner’s name attached
  • Stock ownership documents (if applicable)
  • Internal Revenue Service (IRS) form K-1
  • Company stock certificates

Step 7: Make Your Case

Once your application is signed, sealed and delivered, you should prepare to meet face-to-face with your financial institution’s loan officer. 

You’ll pitch your case for why your business can be trusted with the money by explaining its intent. Be prepared: Come with a rehearsed pitch and an organized business plan.

Give yourself 10-15 minutes to go over your planned capital expenses and a roadmap to profitability. Your presentation should start with an executive summary that quickly states main talking points and your company’s competitive advantage.

Step 8: Wait for Approval

How long it takes to learn whether you’re approved for financing depends on the lender. 

It may take months to get approval for a small business loan from a bank, especially a large one. Smaller, regional banks tend to take significantly less time to process small business loan applications. 

The approval process is typically much faster if you apply for a business loan online, with some lenders approving loan applications within hours of receiving them.


Online lenders make the loan application process quick and easy.

How to Apply for a Business Loan Online

Secure a small business loan from the comfort of your home. Online lenders make the loan application process quick and easy.

Choose an Online Business Loan Type

There are several options available to you if you’re interested in applying for a business loan online, including:

  • SBA loans
  • Business lines of credit
  • Invoice financing
  • Equipment financing

Short-Term Loans

Short-term loans are a great choice if you need quick funding but don’t want to tie up your future expenses. 

They’re structured similarly to long-term loans, but are repaid over 3-18 months. You can still borrow medium-to-large amounts (up to $500,000) but be aware that the shorter repayment terms can often mean higher monthly payments.

Do you qualify?

  • In business for 1 year of more
  • Annual revenue of $75,000 or more
  • Credit score of 540 or higher

Merchant Cash Advances

Another option when it comes to online borrowing is taking out a merchant cash advance

This type of financing involves a lump sum cash infusion issued in return for a portion of the company’s sales.

Most online merchant cash advances require a minimum credit score of 500 or higher. Typically, online lenders issue merchant cash advances in the range of $3,000-$500,000, depending on your revenues and what you have the ability to repay.

Do you qualify?

  • In business for 6 months or more
  • Annual revenue of $75,000 or more
  • Credit score of 500 of higher

The Pros and Cons of Online Business Loans

There are both benefits and drawbacks to seeking a small business loan online:

Pros

✔ Applying for a business financing online is far more convenient and expedient than the conventional application process.

✔ At a brick-and-mortar bank, it might take upwards of a month for your application to be reviewed, but online lenders can process a loan application in as little as a day.

✔ For businesses going through a cash crunch, online financing provides accelerated access to cash. Some online lenders can provide business financing the same day you apply (typically at a high cost).

✔ Between SBA loans, merchant cash advances, short-term loans and more, there are various online business funding options to suit a company’s unique needs and challenges.

Cons

✗ Expedited funding isn’t cheap. If you need cash within a few days, financing from an online lender may translate to higher annual percentage rates (APRs).

✗ You may be facing shorter repayment terms.

✗ Some online lenders tack on hidden fees or terms.

The Online Application Process

Typically, online lenders require applicants to contribute the following information:

  • Income and annual revenue information (often in the form of a bank statement)
  • Social Security number
  • Business name and legal name
  • Business tax identification number
  • Personal contact information

Depending on the online lender, your qualifications and the type of loan you’ve applied for, financing can be approved within hours and funding could be transferred to your business bank account in as little as 24 hours.

Are Online Business Loans Safe?

Yes, for a number of reasons.

Online business loan applications are managed and reviewed electronically using secure web portals that protect your data through encryption, keeping it confidential and safe from security threats.

For instance, Secure Sockets Layer (SSL) encryption is a standard technology that makes the link between the web server and your browser highly threat-resistant. It ensures that all data and messaging between the lender and borrower is kept private.

Seek online lenders with a TRUSTe Certified Privacy certificate. These finance firms have taken steps to ensure that the highest data privacy standards are upheld and all collected data is kept confidential and secure.

Keep in mind it’s crucial to exercise due diligence and thoroughly research any lender or platform you use to apply for an online business loan.

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