How to Apply for a Business Loan

Applying for a Business Loan

If you’re looking for financing for your business, you may feel overwhelmed by the thought of the process—planning, researching, and of course, actually applying for different business loans.

Although some of the overall application process will depend on the loan product and lender you’re applying with, there are a series of simple steps you can follow to learn how to apply for a small business loan—and we’re here to help.

In this guide, we’ll break down each of the seven steps you need to follow to successfully apply for a business loan.

Let’s get started.

How to Apply for a Small Business Loan in 7 Steps

  1. Determine why you need a business loan.
  2. Decide how much financing you need.
  3. Review your business qualifications.
  4. Compare your business loan options and find the right product for you.
  5. Shop the lenders that offer the type of loan you want.
  6. Gather the required documentation.
  7. Submit your application.
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How to Apply for a Small Business Loan in 7 Steps

Step 1. Determine Why You Need a Business Loan

If you’re wondering how to apply for a business loan, you’ve probably already decided that you need one.

This being said, the first step in the business loan application process involves planning: Why do you need a business loan?

Although this may seem like a question with an obvious answer, if you’re just starting your business, you may know you need financing, but you might not have determined exactly what purpose you plan to use your financing for. This is an important decision to make—as we’ll soon discuss, certain financial products are better suited for different purposes and some can only be used for specific purposes.

Therefore, you may determine you need a business loan for a variety of reasons, including:

  • To start your business
  • To buy another business
  • To get access to working capital
  • To cover day-to-day expenses
  • To manage cash flow issues
  • To grow your business
  • To cover an emergency or unexpected business opportunity

Ultimately, the possibilities are endless—and the reason that you decide to apply for a business loan should be unique to your business. Nevertheless, it’s important that you understand why you need a business loan first, and decide what you’re going to use the funds for before continuing through the application process.

Step 2: Decide How Much Financing You Need

Next, after you’ve decided why you need a loan, you’ll need to determine how much business financing you need.

Once again, determining the amount of financing you need will help you figure out which business loan product will be able to best meet your needs. As we’ll explain below, certain products, like SBA loans and traditional term loans, for example, are better suited for larger needs and higher amounts, whereas others, like business lines of credit and short-term loans, will likely be better for smaller projects and lower amounts.

Therefore, you’ll want to think about how much financing you need to serve your purpose—for instance, you might decide you need a $100,000 loan to purchase inventory. On top of this, however, you’ll also want to consider how much financing you can afford.

To make this determination, you’ll want to consider your current revenue and cash flow, in relation to your expenses, as well as any current debts you owe. You may use a business loan calculator or calculate your debt service coverage ratio to help you figure out, realistically, what kind of business loan you can afford.

Step 3: Review Your Business Qualifications

Now that you’ve established why you need a business loan and how much financing you need, you’ll want to review your business’s qualifications.

After all, you don’t want to spend significant time and effort applying for a small business loan you would never be approved for. Ultimately, the specific business loan requirements you’ll need to meet will vary based on the product and lender, but there are three main factors you’ll want to think about ahead of time: your credit score, time in business, and annual revenue.

Credit Score

When you apply for a business loan, your personal credit score will usually be one of the first things that a lender looks at. If you have a high personal credit score, you’ll be more likely to qualify for a variety of loans—and loans with the best rates, terms, and amounts. On the other hand, if you have less-than-ideal personal credit, your options will be more limited, and you’ll want to be sure you pay close attention to minimum credit score requirements when looking at your different business loan options.

Time in Business

Next, you’ll also want to consider how long you’ve been in business. On the whole, businesses who have been in business for two years or longer will be able to qualify for the best business loans. This isn’t to say, of course, that there aren’t financing options for startups—however, just like you’ll have a more difficult time applying for a business loan with bad credit, your options will also be limited if you have only a few months in business.

Revenue

Finally, you’ll want to check to see what your annual revenue was last year, and in general, what your cash flow and business finances look like. Most lenders will have a minimum annual revenue requirement, as they’ll want to see that you generate enough money within your business to afford and pay back a loan. As you might imagine, the more revenue you can show, the more likely you are to qualify for a loan—and one with the best rates and terms.

Step 4: Compare Your Business Loan Options

What’s the next step in learning how to apply for a business loan?

Now that you’ve done the research necessary to determine why you need financing, how much you need, and what your qualifications look like, you’re ready to start looking for the right type of business loan for you.

As we mentioned, there are a variety of types of business loans and certain products will be better suited for distinct purposes, amounts, and qualifications.

Overall, you might consider any of the following financial solutions:

  • SBA Loans. Guaranteed by the Small Business Administration, SBA loans are a great option for business owners who don’t qualify for bank financing but still have great credit and strong business financials.
  • Medium-Term Loans. Structured like bank loans, medium-term loans are offered by online, non-bank lenders, making them easier to qualify for most small business owners.
  • Short-Term Loans. Issued by online lenders, short-term loans are much faster to apply to than medium-term loans and are much more accessible for borrowers with bad credit or newer business owners.
  • Business Lines of Credit. A business lines of credit is one of the most flexible forms of financing for small businesses, as this form of credit allows you to pull on a credit line with a set amount, accessing funds whenever you need it.
  • Invoice Financing. An invoice financing company advances you a percentage of the value of your outstanding invoices, freeing up cash to use for your business.
  • Equipment Financing. With equipment financing, you’ll receive a lump sum loan of up to 100% of the equipment’s value, which you’ll pay back with interest over a set period of time.

    5. Shop the Lenders That Offer the Type of Loan You Want

    Once you’ve compared all of the different types of business loans and determine which one will best meet your needs, you’ll want to start shopping lenders.

    As you probably know, different small business lenders offer different products, and therefore, you’ll want to find a lender who not only offers the product that you’re looking for, but also one that has requirements you think you’ll be able to meet.

    This being said, as you’re learning how to apply for a small business loan, there are generally three types of lenders to consider: Bank lenders, SBA lenders, and online lenders.

    • Bank Lenders. Bank lenders can include big banks—Chase, Bank of America, Wells Fargo—as well as local community banks. Overall, banks can offer a variety of business loans, everything from traditional term loans to business lines of credit to equipment financing. Ultimately, bank lenders will provide business financing with the best rates, terms, and amounts. This being said, it can be very difficult for most small business owners to qualify for a business loan from a bank. On the whole, you’ll need excellent credit, a few years in business, and a significant annual revenue in order to qualify for a bank loan for your business.
    • SBA Lenders. If you’re looking for an SBA loan, you’ll need to find a lender that offers this type of business loan and actually offers the specific SBA program you’re interested in. Ultimately, not all banks offer SBA loans, so you’ll want to pay close attention to the ones that do and the programs they offer if you’re looking for this kind of business financing. As is the case with general bank financing products, you’ll want to remember that applying for an SBA loan will require a lengthy process and significant documentation. These loans will also be slow to fund, taking anywhere from a few weeks to 30 days or longer.
    • Online Lenders. Online lenders, or alternative lenders, such as Kabbage, Funding Circle, and BlueVine, will offer a range of products—including everything from lines of credit to short-term loans to invoice and equipment financing. On the whole, online lenders will have flexible qualification requirements and will be more accessible to business owners with bad credit, little time in business, or who simply can’t qualify for a bank or SBA loan. It’s important to note, that although it will be easier to qualify for and apply for a small business loan from an online lender, these products will also be more expensive, with shorter terms and lower amounts, in comparison to bank and SBA loans.

      Step 6: Gather the Required Documentation

      The next step in learning how to apply for a business loan is preparing the actual application.

      Once you know the type of business loan you’re going to be applying for and the lender you’ll be applying with, you can start filling out the application and gathering the documents you’ll need.

      On the whole, the application process will be specific to the lender you’re applying to—as we’ve mentioned, banks and SBA lenders will require significant documentation and many banks will require that you apply in person. With alternative lenders, on the other hand, you’ll very likely be able to complete your entire application quickly and easily online with limited documentation.

      This being said, however, there are some business loan requirements you can expect to provide regardless of the lender. These include:

      • Loan purpose statement
      • Business plan
      • Time in business
      • Industry type
      • Entity type and EIN
      • Valid ID
      • Personal and business credit score
      • Annual revenue and profits
      • Bank statements
      • Balance sheet
      • Profit & loss statements
      • Business and personal tax returns
      • Business debt schedule
      • Legal contracts and agreements

      Step 7: Submit Your Application

      Once your application is prepared and everything is filled out completely and correctly, you’re ready to apply.

      Depending on the lender, after you apply, you may receive an initial offer, or you may be asked for additional documentation. In any case, it’s important to respond quickly to any request or question your lender has, as this will help expedite the process.

      After the lender has all of the information and documentation they need, they’ll start the business loan underwriting process to determine whether or not you qualify, and if you do, what loan amount and terms you’re eligible to receive.

      At this point, you’ve learned how to apply for a small business loan, and therefore, you’ll be ready to review and compare any and all offers you receive from different lenders.

      Start Your Business Loan Application Now

      Frequently Asked Questions

      The Bottom Line

      Now that we’ve reached the end of our guide, you should understand how to get a small business loan.

      Although some of your process will be specific to the type of loan you’re applying for and the lender you’re working with, you can follow these seven comprehensive steps to make everything move as quickly and seamlessly as possible.

      Ultimately, applying for a business loan may seem complicated but it’s often a necessary part of business ownership—plus, after you’ve completed the process once, it will only be easier to get through the next time.

      Meredith Wood
      Founding Editor and VP at Fundera

      Meredith Wood

      Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. 

      Meredith launched the Fundera Ledger in 2014. She has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending and financial management.

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