How to Apply for a Business Loan in 4 Steps

Your ultimate guide to applying for a business loan, step by step.
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How to Apply for a Business Loan in 4 Steps

Wondering how to apply for a small business loan? Here are the exact steps you need to follow to successfully apply for a small business loan:

  1. Determine your use of proceeds for the loan.
  2. Determine how much financing you need.
  3. Review your business qualifications.
  4. Determine which business loan type meets your needs and qualifications.
  5. Shop the lenders that offer the loan type you’re interested in.
  6. Prepare business loan application requirements based on the lender.
  7. Apply.

Learning how to apply for a business loan can be stressful. When you’re buried beneath piles of paperwork, keeping track of the details of applying for a small business loan can be overwhelming.

Here’s the good news: Different lenders may ask for information in slightly different ways, but your small business loan application boils down to two things — lenders want to get to know your business and understand your ability to repay debt.

Read on for in-depth descriptions of these four steps of applying for a business loan:

Check Your Loan Options

How to Apply for a Business Loan: 4 Steps to Success

Step 2: Check Your Business Qualifications

Before you get too deep in the search for business loans and the process of applying to them, it’s important to understand what you might qualify for.

After all, you don’t want to waste your time applying for a business loan you’d never be approved for. Depending on what you’re looking for, business loan applications can be very extensive and time consuming.

The three things you should be thinking about from a very preliminary level are: your credit score, time in business, and annual revenue.

Your credit score is a big factor you should consider before you apply to a business loan. Are you at the higher end of the spectrum (680+)? Or do you have some room to improve? Your credit score will dictate what kinds of business loans will be options for you.

Another important factor is your time in business. Put simply, lending to startups is risky. There isn’t much reassurance that your business will be around in a year or two to pay back the financing. For that reason, you’ll have many more options to consider if you have at least two years in business.

And finally, check to see what your annual revenue was last year. Lenders are only going to offer a percentage of that (remember, they want to make sure you’ll have the capacity to pay back the business loan). Before you get deep in the weeds applying to a business loan that’s too large relative to your annual revenue, check to make sure what you brought in last year.

Step 3: Shop Your Business Loan Options

If you ask us how to apply for a business loan, our answer is, without a doubt, “Shop.” You want to increase your chances of getting approved and make sure you walk away with the best deal for your business.

The best way of doing this to apply with a few different lenders.

Approach the shopping process wisely, ensuring you’re working with the most trustworthy lenders. Do your research. Read reviews.

When you know you’ve found some good ones, apply to them all, and then for those you receive offers from, convert them to APR. This will allow you to compare the offers side-by-side, no matter how the lender quotes their fees, and help you identify which one is actually best for your business.

Applying for a business loan requires that you know which type of business loan you’re looking for.

So, where should you apply for a business loan?

In the past, business loans were really only offered by banks. That made your decision of which business loan to apply to easy. But banks have been—and still are—notoriously hard to qualify with, so the best banks for business loans are only working with the most qualified business owners out there.

Luckily, there are more financing options beyond the bank for small business owners than ever. Here’s a summary of what’s out there.

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SBA Loans

SBA loans aren’t offered by the SBA, really. Technically, they’re bank loans that are partially guaranteed by the SBA.

The government’s guarantee on these loans makes the desirable bank financing easier for more small business owners to qualify for. However, they’re still some of the harder loans to apply to and qualify for.

The most common SBA loans come through the 7(a) program, which offers lump sum loans at low rates and long terms—perfect for fulfilling just about any business need.

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Medium-Term Loans

Medium-term loans are structured like bank loans, but they’re offered by online, non-bank lenders.

With their large amounts, medium-term loans are a good option for business owners looking for funding for one-off expenses but don’t want to wait out the traditional business loan application process.

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Short-Term Loans

Short-term loans are structured just like their medium-term counterparts, but are, well, shorter.

These loans offer smaller amounts of capital (up to $250,000), that are paid back over a shorter term, typically ranging between 3 and 18 months. Short-term loans are much faster to apply to, and much more accessible for borrowers with bad credit or newer business owners. However, you’ll pay more for speed and ease of business loan application, as short-term loans have interest rates starting at 10%, but going up to around 90%.

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Business Lines of Credit

Traditional banks are the typical issuers of business lines of credit.

However, there are a couple of online lenders offering business lines of credit that are smaller, easier to apply to, and much, much more accessible.

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Invoice Financing

If your business needs to free up cash flow that’s held back in your customer’s unpaid accounts receivables, then invoice financing is probably the right type of business loan for you.

Invoice financing companies advance you a percentage of the value of your outstanding invoices, freeing up cash to use for your business.

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Equipment Financing

Another specific type of business financing is equipment financing.

An equipment loan can help you pay for the sky-high price tag that comes with your business’s new or used equipment. 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. When you pay the loan back, you’ll own your business’s equipment outright.

Step 4: Get Your Business Loan Application Together

When you know which loan is best for your business, and which business financing company to work with, then it’s time to get to the heart of how to apply for a small business loan:

The business loan application.

Now, it’s important to note that all the information below won’t necessarily be required for each and every business loan application.

But here’s a list of all the possible pieces of information you might need to put together when applying for a business loan.

  • Business plan
  • Time in business
  • Industry type
  • Outstanding AR
  • Use of loan

And to confirm all of the self-reported information you provide when you apply for a business loan, lenders will also likely ask for the following documents:

  • Valid ID
  • Personal and business credit score
  • Bank statements
  • Average bank balance
  • Balance sheet
  • Profit & loss statements
  • Business and personal tax returns
  • Cash flow forecast
  • Business debt schedule

Figuring out how to apply for a business loan will, ultimately, come down to getting all of these logistics together.


How to Apply for a Business Loan: 5 Easiest Business Loan Applications

How to apply for a business loan will look different from product to product, and lender to lender—as you’ve likely gathered so far.

Applying for a business loan will be much easier with certain lenders than with others. And even with a given lender, applying for different products and even different amounts of funding will make the application process harder or easier.

We’ve gathered information on the business loan application processes for the business lenders with the easiest application processes on the market. Based on required documents, time to fund, and relative ease to other similar products, the five easiest business loan applications offer the simplest answers to how to apply for a business loan:

1. Fundbox

Applying for a business loan from Fundbox will take you a matter of seconds. Fundbox offers invoice financing, and because the Fundbox application is so tech-based, all you’ll have to do is sync your business’s accounting software to your Fundbox account. From there, Fundbox technology will detect your business’s outstanding invoices and offer you a credit decision within minutes.

Applying for a business loan from Fundbox is a matter of a few mouse clicks, as a result.

2. Kabbage

How to apply for a business loan from the business lender Kabbage will be a similar deal: The Kabbage application will be based on your business financial accounts and will be completely online.

Kabbage offers short-term business lines of credit of up to $250,000 and funding speeds as quick as the same day you apply.

Applying for a business loan from Kabbage will require you to attach as many financial accounts as possible to your Kabbage account: Think business bank account, business accounting software, business PayPal account, and many others. The more information you provide, the better.

3. OnDeck

Another option for short-term funding is the business lender OnDeck. OnDeck offers short-term loans and lines of credit that can also fund as the same day you apply.

Applying for a business loan from OnDeck will entail filling out a simple application, providing three months of business bank statements, a voided business check, and a copy of your driver’s license. And though this might seem like a lot compared to Fundbox and Kabbage, applying for a business loan from OnDeck is relatively simple—even when compared to the application process of other online lenders.

4. Fundation

If you’re searching for longer-term funding—but you don’t want to sacrifice ease of application—then consider the business lender Fundation, who can fund applications within a day.

Applying for a business loan from Fundation will be remarkably simple— if you’re applying for $100,000 or less. The Fundation application for a business loan or credit limit of $100,000 or less will simply require three months of business bank statements along with basic business and personal identification.

If you apply for more than $100,000 of Fundation funding, the application process won’t be so easy: You’ll need:

  • 6 months of business bank statements
  • 2 most recent business tax returns
  • Profit and loss statement
  • Updated balance sheet
  • Updated debt schedule

So, if you’re looking to apply to a business loan with minimal application difficulties, we suggest you only consider Fundation if you want $100,000 or less.

5. Balboa Capital

Finally, if you need equipment financing that’s easy to apply to, consider the alternative business lender Balboa Capital.

Applying for equipment financing of $250,000 or less from Balboa Capital will be one of the easiest long-term financing applications in the game. You’ll simply have to fill out an easy application and submit:

  • Certificate of Good Standing
  • Voided business check
  • Copy of your driver’s license

As a result, Balboa Capital will be able to fund smaller equipment financing loans within the same day that you apply.


After You Apply for a Business Loan: The “Getting to Know You” Phase

The first step in any loan application is going to be introductory.

The lender will want to know who you are, what your business is about, and who you’re selling to.

They’re looking, of course, to ensure you and your business are for real, but also to get a better idea of who they’re working with.

This is one of the easier parts of the application, as it’s more facts than figures. If you’re looking to know how to apply for a small business loan, start by prepping the following.

Who Are You?

Are you really who you say you are? To verify this, the lenders will usually need to see a form of ID.

This one’s easy. Just make sure you bring along your license or government-issued ID proving you are who you say you are and you’re on your way! If you don’t have this type of ID, ask the lender if there is anything else they’re willing to accept. It’s important to note that this is usually asked for during the closing process of a loan.

Who Are Your Customers?

Who are you doing business with? What are your customers like? Do they pay you on time?

To answer these questions, you might need to prepare these documents when you apply for a business loan:

 

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Customer List

Pull a list of your customers to show who they are, including contact information and website addresses, if applicable. If you have a more complex database that includes their industry, number of employees, and revenue, include that information as well. If not, stick with the information you do have, that’s fine!

The key is to provide proof that you have a customer base for your business. This is a more rare request and is usually related to types of financing that are collateralized with invoices.

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Latest AR Aging Statement

Your latest Accounts Receivables (AR) Aging Statement will clue the lender in on how long your invoices go unpaid. This points to your customers’ financial health and thus, to your cash flow.

Nothing too terribly detailed is necessary.

If you don’t already have an AR Aging Statement ready to go, you can create your own, or use any number of templates available online.

You’ll need to show how much each customer owes in total, then break down of current invoices due, and those still outstanding from the past months. Some lenders will even sync to your accounting software to look for this.

Microsoft Office has its own template for Excel. Another option is a free downloadable template from The Spreadsheet Shoppe. It includes an example, the template, and a video tutorial on how to set it up.

Just like above, this is usually related to invoice financing lenders but might be necessary for other types of loan application.

Is Your Business Legitimate?

If you’re wanting to know how to apply for a business loan, you’re probably not surprised to hear part of the process is proving your business is legit.

They want to be careful of fraud (and we’re sure you want them to, as well). You might need:

 

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Business License

Be sure to bring along any and all licenses and permits you are required to have for your business. State, local, professional, anything that you need to do what you do.

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Proof of Ownership

Depending on the type of business you have, there are several different ways to prove ownership.

  • Sole Proprietorship: As the sole proprietor, your business is tied to your social security number. Your tax returns with the business’s Schedule C should suffice, and/or the “Doing Business As” (DBA) filing from your city/county that states you established the business name. By the way, here’s why you might have a harder time getting a loan if you are a sole proprietor.
  • S Corporation: If you are the sole owner of an S Corporation, your tax return is tied to your social security number, so your return with the business’s Schedule C shows ownership. Your articles of incorporation also work.
  • C Corporation: Your articles of incorporation that show your name as an original owner. If you have a share certificate, that will also prove ownership.
  • Limited Liability Company (LLC): Whether you’ve created an employer identification number or tied your taxes to your social security number, your articles of organization should show your name as a member who established the business (similar to the articles of incorporation for a corporation).

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Franchise Agreement

If you own a franchise, and you’re looking for franchising lending, you’ll also want to bring along your franchise agreement.


After You Apply for a Business Loan: Evaluating Ability to Repay Debt

This part is the part you’re probably thinking about when you want to know how to apply for a business loan.

Yes, lenders want to get to know you and they want to verify your identity, but when it comes down to it, they want to know if your business can afford to take on debt.

Why would a lender want to give money to someone if they don’t think they’ll pay them back?

It’s obvious, of course, but how do they come to that decision? Every lender’s underwriting process is different and complex, and in today’s online lending industry, it’s more automated than ever.

Any lender you talk to will have different requests, but the questions they ask and the documents they request are all being used to determine your business’s financial health and capacity to service debt.

Below is a list of a few questions they’re trying to answer and documents they might ask for to help come to those conclusions.

Are You Financially Healthy?

We get asked all the time about how to apply for a small business loan.

Of everything, the most important part of any application is to prove you are financially healthy.

Every lender will come to this decision in their own unique way, but in order to help them get there, you might need to provide them with:

 

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Most Recent Personal Tax Return

Longer-term lenders especially will be looking for your tax returns to verify income and revenue. You might need a couple of years worth, but it really depends on the lender. In most cases, you won’t be asked for more than your most recent personal tax return.

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Last Two Years of Business Tax Returns

If you are a sole proprietor or have set up your Limited Liability Corporation (LLC) to be tied to your social security number, you won’t have a separate set of business tax returns.

Instead, with your personal taxes, be sure to include all of the forms and paperwork tied to your business (such as your Schedule C). If you have not yet filed your most recent taxes, you should be able to prove your extension with paperwork, and they will probably ask to see the previous year.

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Balance Sheets

When you apply for a business loan, some lenders will want to see your balance sheets, as well (also known as “statements of financial position”). They may want to see the following time periods: Year-To-Date (YTD), updated within 60 days, and the last two fiscal years.

A balance sheet is a snapshot of your company’s assets, liabilities, and capital at any given moment. Be sure to include any relevant notes that accompany the balance sheets (such as potential liabilities or losses and commitments made by the company).

You can either pull balance sheet reports from your accounting software, such as QuickBooks, or put them together yourself in a spreadsheet. If you’re starting from scratch, there are countless resources out there to guide you, such as those on the Accounting Coach website.

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Profit & Loss Statements

Some lenders will also want to see your profit & loss statements (or “income statements”) from a few different dates. They might ask for: Year-To-Date (YTD), updated within 60 days, and P&Ls from the last two fiscal years

A Profit & Loss Statement shows revenues, expenses, gains, and losses for the given period (it does not include cash in and out).

You can either pull Profit & Loss statement reports from your accounting software, such as QuickBooks, or put them together yourself in a spreadsheet. Or, if you need to create one yourself, it’s easy to find resources on the web. Accounting Coach outlines the components of a P & L Statement on their site.

Depending on what works best for you, you could create a single-step Profit & Loss Statement, or a multi-step. Single-step uses only one subtraction to get the company’s net income (or loss), whereas Multi-step has a few more subtractions in order to separate out operating revenues and expenses from the non-operating revenues, expenses, gains, and losses. This is a bit more complex but has the advantage of a more detailed statement.

Who Else Do You Owe?

If you’re asking “how to apply for a business a loan,” chances are you haven’t gotten a small business loan before. But just in case you have, the lender wants to know it. Is there another business lender you owe money to?

But it doesn’t just have to be debt. When you apply for a business loan, lenders want to know where else you’re going to have to send payments to, from rent to outstanding invoices. To figure this out, they might ask for:

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Rent/Real Estate Schedule

You may be asked to provide a schedule of income and expenses associated with any property your business owns or rents.

Many banks and mortgage brokers have their own specific forms to fill out, but they all essentially ask for the same information: Property address, type of property (office space, single-family home, townhouse, etc.), status (owned, rented, sold, pending sale, etc.).

If your property is owned, you’ll likely need to show: your percentage of ownership (or owned free and clear: 100%), market value, mortgage lien holder, mortgage balance, monthly mortgage payment, and your tax payments. If you’re renting the property out, you should show your income from the rental.

If you rent your property, you’ll probably need to show: Gross annual rental payment, monthly rental payment, insurance payments, and any other financial obligations (management fees, dues, etc.).

Be prepared to provide supporting documents that verify property taxes and insurance costs, rental income earned, monthly principal and interest mortgage payment, and proof that property is owned free and clear (if it is).

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Business Lease

Provide a copy of your business lease. If you do not yet have a lease (for example, if this loan is to help secure a lease), you could ask the landlord to provide the proposed terms.

Be prepared: Some lenders will call your landlord to verify you’re in good standing. And other lenders, say if you’re looking for an SBA loan, might ask for a Landlord Subordination Agreement.

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Latest Accounts Payable Statement

There should be an accounts payable (money that the company owes on bills and invoices from vendors) on your balance sheet, but an accounts payable statement breaks things down further.

To stick with our QuickBooks examples, you can pull accounts payable reports under Vendors & Payable Reports. To create your own statement, you would need to put together a report of all of your company’s outstanding invoices and bills, in a similar format to the AR Aging Statement you put together earlier.

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Business Debt Schedule

A business debt schedule shows all of your company’s outstanding loan and credit amounts and monthly payments. Only some lenders will ask for this when you apply for a business loan. A quick Excel spreadsheet of your obligations should do the trick.

What Collateral Do You Have?

Collateral isn’t as important as it used to be in the loan application, but there are still some lenders who will want to know what collateral you have when you apply for a business loan. To prove this, you might need:

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Real Estate/Inventory/Equipment Valuation

Which assets are you willing to pledge as collateral for your loan? In other words, what are you willing to lose if you can’t repay the lender? You could pledge real estate if you own property, equipment used for the business (which could be anything from a delivery truck to a computer), or even inventory used for your products.

Regardless of what you choose to pledge as collateral, you will need to prove the value (not just the cost or price, but the value.) It doesn’t hurt to have a basic understanding of valuation methods and processes, but you should hire a professional, certified appraiser to give your documentation the appropriate credibility. The cost of a professional varies greatly depending on the time it takes to complete the appraisal and their level of expertise. Be sure to get a quote before you start the appraisal process.

If you have additional real estate you’re willing to pledge, you may also need to provide a recent environmental report (or “ Phase 1 Environmental Site Assessment”).

What is Your Liquidity?

If you really want to know how to apply for a small business loan, this is one of the most important parts.

Lenders want to know you can pay them back, and they want to know you’ve got the cash to do just that.

What’s your cash flow situation like? Do you always have some cash on hand? Or is it so tight that, although you make good money, there are certainly moments when your bank account sits dangerously close to zero?

Lenders want to know how liquid you business is. Here’s what they might ask for to find the answer:

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Business Bank Statements

Be expected to provide at least three months business bank statements, but some lenders might even ask for more, like six or 12 if your business is seasonal. Longer-term lenders might even ask for the past two years.

When you submit these, be sure to include all pages of the bank statements for each month. This is one of the most popular documents, required for everything from short-term loans to SBA loans.

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Voided Business Check

If you’re asking for this, it should be from the same account as your bank statements. This is where the wire or Automated Clearing House (ACH) deposit will go if the loan is approved.

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Credit Card Processing Statements

Include all pages from your credit card processing statements (or “monthly credit card sales”) for the last six months. This shows how much money you are bringing in via credit card sales. This is a less popular request from lenders, but it a good way to determine sales and is very popular with the merchant cash advance product.


How to Apply for a Small Business Loan: Your Next Steps

So there you have it!

When businesses ask how to apply for a small business loan, it shouldn’t be just about where to go, but what to expect along the way.

All of this can seem overwhelming, but by breaking down the process into different sections, you’ll be able to conquer them one at a time. When you step back to put them all together, you’ll have everything you need to apply for that loan that will take your small business to the next level.

Once you’re ready to application, the hardest step is going to be figuring out which lender to start your application with. Be careful—you want to make sure you’re working with a lender that has your best interest in mind.

It’s important to know lenders’ minimum qualifications before applying so you don’t waste your time on lenders that aren’t a fit. It’s also important you know their cost range. Small business loans can get very expensive, especially online, so be sure to ask for their range. If they quote it as a buy rate, factor rate, loan fee or something more foreign, be sure to calculate it to APR so you understand the true cost (you can use these business loan calculators to do so).

The more prepared you come to the table, the better. Lenders will appreciate your organization and you’ll be able to get an answer more quickly. Good luck!

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