How To Get a Business Loan
Getting a business loan can help you start or grow your business, but managing the loan procedure, as well as stricter lending rules, can be difficult.
Breaking it down into simple parts, such as understanding eligibility, looking for lenders, and understanding how to apply for a small business loan, will help you get a loan for your business.
Business loans include the following:
- Bank loans
- Business lines of credit
- U.S. Small Business Administration (SBA) loans
- Equipment loans
- Business credit cards
- Merchant cash advances
- Invoice financing
Installment loans and revolving credit are two types of business loans. Revolving credit allows you to either pay the loan off each month or roll it over (revolve it). As you repay the loan you can continue to borrow against it up to the limit.
When getting a business loan, installment loans will allow you borrow a sum of money and repay it over time by making fixed monthly payments.
SBA loans are offered in amounts ranging from $50,000 to $5 million, with lower interest rates and flexible repayment terms. Depending on the type of SBA loan you want, the process can take weeks or months.
Online lenders rarely have APRs as low as traditional banks, but approval rates are greater and funding is faster — as fast as 12 hours — than with banks.
How To Secure a Business Loan: 5 Easy Steps
Here’s how to get a loan for your business in five simple steps.
Determine if you qualify
Ask yourself these questions to determine if you qualify for a business loan:
- What is your credit score?
- How long have you been in business?
- Can you afford the repayments?
- Do you have collateral?
These are the most common requirements when applying for a business loan.
You can check your credit score for free at the major credit bureaus: Equifax, Experian, and TransUnion. Most banks prefer to offer loans to borrowers with credit scores of at least 680.
Many lenders also have a minimum annual revenue requirement, which can range from $50,000 to $250,000. Before you apply, calculate your income and find out what the minimum is for each lender.
Choose the type of loan you need
The reason you need a business loan will likely fall into one of these three categories: you want to start a business, you want to manage your day-to-day expenses, or you want to grow your business.
Lenders will ask what type of business you need and why you need it, so you need to determine which type of business loan is right for you.
Compare small-business lenders
There are three main types of lenders: online lenders, banks, credit unions, and the SBA. Online lenders offer small business loans and credit lines ranging from $1,000 to $5 million.
The average annual percentage rate (APR) on these loans ranges from 6% to 99%, depending on the lender, loan type and amount, payback term duration, borrower credit history, and whether collateral is required.
Prepare the documentation
Make sure you have all of the necessary paperwork before applying. Depending on the lender, you may be required to submit the following documents:
- Personal and business tax returns.
- Bank statements for both business and personal use.
- Financial statements for businesses.
- Legal documents e.g. articles of incorporation, commercial leases, and franchise agreements.
Apply for a business loan
You did it! Now it’s time to apply. Begin by comparing two or three similar loan terms and annual percentage rates, or APRs. APR is the easiest way to comprehend the overall cost of a company loan for the year because it includes all loan expenses in addition to the interest rate.
Choose the loan with the lowest APR (as long as you can afford the loan’s regular payments) and apply with the documentation you’ve prepared.