A business loan can help you start or grow your company, but navigating the process and lending standards can be intimidating if you don’t know how to get a business loan. Breaking it down into manageable steps can help you secure the funding your business needs.
Decide what type of loan you need to fund your business
Lenders will ask why you need a small-business loan. Your answer will likely fall into one of three categories and determine which type of business loan is right for you:
SBA loans or traditional term loans
Startup financing, such as business credit cards and personal loans
A business line of credit
Determine if you qualify for a business loan
Answer these questions to help determine whether you might meet the eligibility requirements to qualify for a small-business loan:
What’s your credit score?
How long have you been in business?
Do you make enough money?
Determine what payments you can afford
Look carefully at your business’s financials — especially cash flow — and evaluate how much you can afford to apply toward loan repayments each month.
To repay your loan each month comfortably, your total income should be at least 1.25 times your total expenses, including your new repayment amount.
Decide whether and how you want to collateralise the loan
A secured loan requires business collateral, such as property or equipment, that the lender can seize if you fail to repay the loan.
Putting up collateral is risky, but it can also raise the amount lenders let you borrow and get you a lower interest rate.
Compare small business lenders
There are three main sources of small-business loans: online lenders, banks and nonprofit micro-lenders. Each typically has multiple products, but one maybe better in certain instances than others.
Gather your documents
Depending on the lender, you’ll need to submit a combination of documentation. Locating these files now and having them easily accessible will help streamline the process of getting a small-business loan.
Apply for a business loan
You made it! Now that you’ve determined which type of loan and lender are right for you, it’s time to apply.