How to get a business loan?

If you aren’t familiar with obtaining a loan for a small business, getting a loan can help you grow or start your business. However, it cannot be easy to navigate the lending process and understand the requirements. It is possible to secure funding for your business by breaking it down into manageable steps, such as understanding eligibility and shopping for lenders.

Determine the type of loan that you will need to finance your business

Lenders will want to know why you need a loan for a small business. You will most likely answer one of these three questions, determining the type of loan that is right for your business.

• Traditional term loans and SBA loans often have very high borrowing limits. For example, SBA loans can exceed $5.5 million. Many lenders offer customized products that can be tailored to meet the needs of growing companies, such as loans to purchase equipment and vehicles.
• Personal loans and business credit cards are two options for financing startup companies. This lender requires cash flow to repay the loan. Companies that are just starting won’t get business loans in the first year usually don’t qualify. You will need to find another financing.

A Business Line of Credit is a good option if you need to handle your day-to-day costs. This flexible funding allows you to access financing when required, such as payroll expenses or unexpected repairs. It also provides a safety net.

Find out if you are eligible for a loan for your business.

These questions will help you determine if you meet the eligibility requirements to receive a small-business loan.

How do you rate your credit?

Each major credit bureaus, Equifax, Experian, and TransUnion, can provide your credit reports for free. Your credit score can be obtained free of charge from many credit card issuers and personal finance websites, including NerdWallet.

What length of time have you been in the business?

To qualify for online small-business loans, you must have been in business for at least one year. Most bank loans require at least two years.

Are you making enough money?

Lenders often require that you have a minimum annual income of $50,000 to $250,000.

Consider short-term loans, microloans, or equipment financing if your income is insufficient.

Calculate how much you can afford to pay

• Take a look at the financial statements of your company, especially cash flow. Then evaluate how much money you can afford each month to pay for loan repayments.
• Online lenders may require you to make daily repayments.
• Darden states that to repay your loan each monthly comfortably, your income must be at least 1.25 times your expenses, plus your new repayment amount. If your monthly income is $10,000 and you have $7,000 in rent, payroll, and other expenses, then you should be able to afford to make a $1,000 monthly loan payment. Your income ($10,000) equals 1.25 times $8,000 in expenses.

Deciding whether or not you would like to collateralize the loan

• A secured loan is required collateral. This could be property or equipment that the lender can take if you default on the loan repayments.
• Although it is risky to put up collateral, it can increase the amount you can borrow from lenders and help you get a lower interest rate.
• Even for unsecured loans, lenders may require personal guarantees. If your company cannot repay the loan, you will personally repay it. In some cases, a lender may also ask for personal confirmation.

Compare small-business lenders

Online lenders, banks, and non-profit microlenders are the main sources for small-business loans. Although each may offer multiple products, one product might be more effective than the other in some cases.

How to apply for a loan from an online lender:

• You lack collateral.
• Time is a precious commodity in business.
• Funding is urgently needed.

Online lenders offer small-business loans and credit lines starting at $1,000 up to $5 million. These loans have an average annual percentage rate of 6% to 99% depending on the lender, type and size of loan, repayment term, borrower’s credit history, collateral required, and other factors.

When banks can lend a loan to a business:

• At least two years of experience in the business.
• Good credit is yours.
• Cash is not something you need to do quickly.

Collect your documents

Ensure that you have all the required documentation before submitting your application. These files can be found quickly and easily to speed up the process of getting small-business loans.

Depending on your lender, you may need to submit the following:

• Personal and business tax returns
• Statements from personal and business banks.
• Statements of financial position for companies.
• Documents relating to business legal issues (e.g., articles of incorporation and commercial lease agreements).
• Business plan.

Get a loan for your business.

You made it! You’re now ready to apply for a loan.

Begin by looking at similar options based on the loan terms and the annual percentage rate (or APR). APR is the best way to determine the total cost of a business loan over the year, as it includes all fees and interest rates.