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
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:
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.
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.
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.
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.
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.
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:
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.
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:
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.
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 is the founding editor of the Fundera Ledger and a GM at NerdWallet.
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.