How to Get a Small Business Loan
People seek out small business loans for a variety of reasons. They may start a new company, require working capital to make internal investments, wish to expand existing operations, or make renovations — to name a few.
If you are seeking a small business loan, you may wonder how to get the right one to cover all expected expenditures. Find out how to get a loan for your small business.
Figure Out How Much You Need
You’ll need to create a breakdown of what you plan to use the money on for your business. Will it go toward renting or purchasing equipment, paying employees, making renovations, ordering products, hiring employees, or funding emergencies?
Understanding how much you need ensures that you take out enough of a loan to cover all of your expected expenses.
Decide on the Type of Loan You Want
Many lenders have specific loan options available. Since you’ve already taken the first step by figuring out how much money you need, you can go over the list of what you plan to spend the money on to see if there are any similarities.
You may only need a loan to repair equipment or purchase real estate. Other loans may be geared toward helping you start your business. Lenders can offer competitive rates and specific loan amounts for equipment financing and working capital loans.
You will come across many terms that are applied to specific loan options. Here are some loan types.
- Term Loans: These loans are typically used for companies with existing operations that have large financial requirements and a history of profitability. Lenders may offer loans of $500,000 or more. They have repayment options from 2 years up to 10 years and may require a minimum credit score determined by the lender.
- Short & Long-Term Loans: Short-term and long-term loans provide financing to businesses that may have a bad or low credit score. Some loans may require collateral ranging from $250,000 (short-term) to $500,000 (long-term). Some lenders may have higher APRs for these loan options due to creditworthiness.
- SBA Loans: The U.S. Small Business Administration (SBA) is a government agency that offers guaranteed loans. The loans are provided by approved lenders participating in the program and are not directly funded by the SBA (except for disaster assistance loans). These loans usually have better terms than other loan options and more flexible repayment options. Loan amounts average from $10,000 up to $350,000.
Research Lenders
Now that you know how much you need and the type of loan you want, you can find lenders who offer such financing. You want to evaluate the lenders’ loan amounts, repayment terms, and other conditions.
Each loan may have varying repayment periods, from micro-loans that have a period of up to 6 years to term loans with repayment schedules of up to 10 years. The lenders may also have certain requirements, such as needing a business plan, financial statements, or other documents.
Apply for the Small Business Loan
Lastly, you want to gather all the documents and follow the lender’s instructions on how to apply for the loan. Depending on the lender, some applications can be done in person, over the phone, or online.
You want to ask how long the loan process takes and perform follow-up in case they require additional information about your business and loan needs.
Obtaining small business financing can help your company. Yet you want to ensure you are taking out enough financing for your business needs. For more information about possible loan options, contact us today.