Getting a Small Business Loan: 7 Essential Steps

Apr 28, 2021

Running a small business often requires new infusions of cash.

Lenders can provide these funds, but how do companies go about getting a small business loan? The whole process can seem very confusing.

Let these seven tips break down the small business loan process for you.

1. Decide Why You're Getting a Small Business Loan

There are many reasons for a business owner to consider taking out a business loan. Usually, they come down to three things: growth, large purchases, and operating capital.

Before you begin the process of finding a loan, make sure you really need it.

Taking on debt can be a great way to rapidly expand or maintain your operations. It can also, unfortunately, burden your business with liabilities.

Sit down and go through all the reasons you need a small business loan. Detail out how you will spend the money and what benefit it will provide you. Calculate how long it will take you to repay the debt.

Once you know exactly why you need the money and how it will help your business, you'll be better able to decide on lenders and loan types.

2. Determine How Much You Need

Almost as important as why you need a loan is how much you need. Lenders like exact figures.

By figuring out the amount, you will appear more professional and prepared in their eyes.

This is easier than you would think. Most companies you are purchasing equipment or stock from will be happy to give you a firm quote. This lets you quickly calculate how much you will need to borrow.

Getting a small business loan to cover everyday expenses requires a bit more effort. The best thing to do is to project out your needs and add a small buffer for unexpected expenses.

Before you ever approach a financial institution, make sure you can thoroughly explain how the money will be spent. Present potential lenders with firm estimates of expenses, equipment pricing, and prevailing trends.

3. Get Your Financials in Order

Getting a small business loan requires you to prove many things to prospective lenders. You will need to present them with crucial documents, future plans, and the financial stability of your business.

Earnings statements, profit and loss, tax returns and other key documents maybe essential to the loan process, it depends on the lender. You should also prepare a copy of your business bank statements and let the lender know how the funds will be used.

4. Identify Assets and Potential Collateral

One of the most important factors in getting a loan are business assets. If you own real property, it can be used as collateral for a loan. Again, depending on the lender there are unsecured business loans where no collateral is required by you.

Heavy machinery or equipment, real estate, inventory, and investments are commonly used as collateral in business loans. You should also make sure to identify any liabilities your business has.

Existing debt, obligations, and signed leases are all things that lenders will want to know about.

5. Find the Best Kind of Loan for Your Needs

There are many different types of small business loans available to you. Some of the most common are:

  • Working capital loans
  • Equipment financing
  • Merchant advances
  • Invoice financing
  • Expansion loans

Expansion loans and equipment financing both come from a growing business. They can be used to purchase real estate, machinery, heavy equipment, and other supplies.

Working capital, invoice financing, and merchant advances all relate to the day to day operations of your business. These help you pay employees, purchase stock and generally run your business.

6. Research Prospective Lenders

Always be sure to thoroughly research the lenders available to you. Depending on your needs, credit history, and business size, you may find yourself ineligible for some lenders.

There are three main sources of loans for small businesses.

Traditional Banks

Banks offer many different options to a small business owner. They can provide commercial mortgages, term loans, or revolving lines of credit to a business.

Many banks participate in the U.S. Small Business Associations 7(a) loan program. This allows companies with a sound business plan to get a subsidized loan of between $5,000 and $5,000,000 dollars.

To obtain a bank loan, you will need to be a well-established business with good credit history and reasonable assets.


Microlenders are nonprofit organizations that provide business loans to companies too small for bank loans. They generally will offer loans up to about $50,000 short-term term needs.

These institutions often have higher interest rates than banks due to the higher risk loans. Most of them use government development programs or funds provided by private foundations.

To qualify for a loan from a microlender, you must provide full financial information and a business plan. Microlenders usually have very strict borrower requirements.

Online Lenders

Online lenders are newer than traditional banks and microlenders. They usually provide businesses with up to half a million dollars in loans.

What's more, funds can be available in as little as 24 hours, far faster than banks or microlenders.

Online lenders are more willing to lend to businesses with over a year old. This makes them a great choice for new businesses or those that don't have many assets.

Direct Lenders

Direct lenders are different than traditional banks and microlenders. Businesses who use a direct lender, depending on the loan can give you funding up to $150,000.

The loan process and funding all can be done within the same business day.

Your business must be established or over a year in operations. Choosing a direct lender is to your advantage as they do not have any underlying fees and are a credible source.

7. Review the Terms of the Loan

Once you've been approved for your loan, you should always carefully review the terms. Make sure you understand all relevant requirements on your part.

Some common things to watch for are:

  • Origination fees
  • Interest payment frequency
  • Principal payment or amortization
  • Limits on loan usage
  • What constitutes default
  • Early payment penalties

Most lenders will be able to negotiate some or all of these terms based on your needs.

Get a Handle on Your Business's Growth

Getting a small business loan can be one of the best ways to grow or save your business. As long as you know why you're borrowing money and have a well thought out plan for using it, you have a good chance at success.

If your business needs funding to grow or continue operating, use our easy online application to get a fast decision.



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