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How to Get a Small Business Loan

5 min read

Whether you’re ready to start your own small business or you’ve been a small-business owner for decades, at some point you’re going to need an influx of cash.

You may want to cover start-up costs, hire more staff, upgrade your equipment, or do a million other things. The good news is that right now is a great time to get funding for your operation.

Let’s look at the options you have to obtain a small business loan.

SBA Loans

The U.S. Small Business Administration (SBA) is a government agency dedicated to help small businesses get the funding they need from banks on fair terms.

The SBA doesn’t actually loan money, but they can help match you with banks that provide loans that are guaranteed by the agency. The SBA guarantees 50% to as much as 85% of the loan amount. This removes a lot of the risk for the bank, which has several advantages for you:

  1. The banks you approach have already been vetted by the SBA to ensure they are small-business friendly.
  2. You’ll get lower interest rates, waived collateral requirements, and more flexible repayment terms than you might get by approaching a bank on your own.
  3. You can borrow up to $5.5 million depending on the type of loan you need.
  4. Some loans come with free counseling and education designed to help new business owners be successful. 

For most small-business owners, especially those who are starting a business, the SBA should be their first stop when looking for a business loan.

Bank Loans

If you’re an established business owner, and you have business accounts with a bank that you like working with, then it might be to your advantage to apply for a loan there. They know you and definitely appreciate your business, so they may be more willing to work with you.

With a bank loan, you’ll typically receive funds in a lump sum and agree to pay the amount borrowed back to the bank over time with interest. Unlike an SBA loan, you are responsible for 100% of the loan and the bank will usually require collateral to guarantee the loan such as an automobile, real estate, inventory, etc.

It’s important to shop around to see which bank offers the best interest rates and repayment terms. It may not always be the bank that you have accounts with. 

Online Lenders

Thanks to the internet, online lenders have been popping up all over the place in the past decade. There’s a lot of competition between these lenders, which means they may offer lower interest rates than even a big bank. They can also be a bit more forgiving if you have a less-than-stellar credit history. You can use a loan calculator to determine which loan is going to give you the best interest rate and ultimately, the lowest impact on your finances.

Online lenders are a good option if you need a quick influx of cash as well. Complete a 20-minute application on your phone or laptop, and within 48 hours you can have $10,000 to $25,000 in some cases, so it’s perfect for emergencies. One drawback though is that most online lenders tend not to lend as much money as a bank or the SBA so if you need larger loan amounts, online lenders are probably not an option for you.

Loans for Military Veterans

If you are a military veteran, then you may be able to get funding for your small business through loans that originate from the Office of Veterans Business Development, which is part of the Small Business Administration (SBA).

There are more options for veterans that we have space to talk about here, but if you’re interested in learning more about VA loans for small businesses or you’d like to apply for one, then visit the Office of Veterans Business Development either online or in person at one of their Veterans Business Outreach Centers across the country. Websites like https://thewendythompsonteam.com/best-va-loan-rates-by-credit-score/, for example, have some useful information to help veterans choose the right loan.

Preparing to Apply for a Loan

While you do have a choice of lenders to go to, there are certain things you should do in preparation for requesting a loan. Each potential lender is going to want to see at least some of the items on the below list.

  1. A business plan, especially if you’re looking to fund for a new business venture. A lender wants to know if your business looks profitable before they lend you money.
  2. An estimate of the amount of money you need and exactly what you plan on using it for.
  3. Your credit score and credit history are important factors to big banks. The better your credit history, the more likely you are to get a loan at favorable interest rates.
  4. A financial plan that shows that you understand your business’s finances, including cash flow, profit margins, and most importantly, how you plan on paying back the loan.
  5. 5.     Collateral to guarantee your loan. This is a requirement for most loans from big banks, but online lenders won’t always require collateral or will be open to less traditional forms of collateral.
  6. Proof that you have deep knowledge of or experience in your industry. This may not always be a requirement but showing that you have experience in your industry can help your lender feel more confident about giving you a loan.

The Bottom Line on Small Business Loans

There’s no one perfect small business loan out there, but you definitely have plenty of choices. It’s best to compare all your options and consult with your accountant for advice. Once you decide how you want to get a small business loan, be sure to borrow only what you need and try to get the lowest interest rate possible.

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