Getting a Small Business Loan: The Simple 6-Step Guide

Last Updated on April 29, 2020

Owning a small business isn’t easy. If you’re like most small business owners, you’re bouncing between ordering inventory, paying employees, finding new growth opportunities, and keeping customers happy. Do you even have time to think about getting a small business loan?

Fortunately, with new technology and funding options available, you can qualify for and receive cash with ease. What once took several days can now be accomplished in only a few hours. However, your options and process can change depending on the type of lender you go to, what you’re looking for, and your business.

Interested in getting a small business loan? Here’s everything you need to know.

getting a small business loan

Breaking it Down: How Business Loans Work

If you’re new to owning a business, you may not understand exactly how small business loans actually work. They’re not exactly like personal loans, and depending on the option you select, can vary quite a bit. Small business loans also give you more working capital than business credit cards.

In short, lenders offer capital to small businesses in exchange for interest. There are a variety of different types of loans and financing options. You pay back standard small business loans on a predetermined schedule, but other financing options, like lines of credit, are instead paid back based on the amount drawn.

Depending on your goals and financials, you may think about applying for a few different types of small business loans or financing options.

There are both short- and long-term options available. Short-term loans are generally best used for goals that you’re looking to accomplish sooner, rather than later. Long-term loans, on the other hand, are paid back over the course of a longer period of time (at least 3 years).

Secured business loans, which require collateral, give lenders a way to be paid if you can’t repay the loan. Unsecured options, on the other hand, put only your business up as collateral.

For some business owners, capital can seem like an unnecessary expense. However, it’s crucial to keep in mind that capital can unlock the potential to double or triple sales. In these situations, it’s well worth the extra cost.

Before approving you for a small business loan, lenders will evaluate your business to see if you measure up to their qualifications. 

What You Need to Know

How you can get a small business loan will depend on your business’s goals, financial standing and other factors.

Many lenders will expect you to understand the process. Marketplaces, on the other hand, are equipped to help you through it.

To get a small business loan, follow this guide.

1. Determine How Much Cash You Need

You’re hoping to achieve something with your funding, whether it’s overcoming a challenge or seizing an opportunity. How much cash do you need to do it?

Sit down and do the math to calculate the amount you need. Whether it’s additional inventory, labor, payroll or money for a new location, consider the full expense. 

Do your best to be thorough and arrive at a precise number. However, keep in mind that even the best laid plans can take random turns. Be sure to build in some wiggle room for unforeseen expenses, setbacks, and other costs that may pop up.

In addition to thorough planning, applying for a set number might also improve your loan application process. Not only will the lender need a specific number to evaluate your request, but this approach also shows you’re serious about using the money wisely—to improve your business. If you apply for a random number without due diligence, you’re not painting the best picture about your responsibility.

As you run the numbers, think about other expenses you’ll have to keep up with as you navigate interest payments. These might include rent, payroll, marketing, and other business essentials.

2. Decide Which Type of Small Business Loan You Need

Based on your goals, you’ve calculated roughly how much money you need from a small business loan. Now, it’s time to think about what type of small business loan to apply for.

Like we mentioned earlier, there are a few different types of small business loan and financing options.

  • Term loans: straightforward small business loans in which you repay based on a set schedule
  • Business lines of credit: a pool of funding you can draw from as you need it, and only repay what you take
  • Equipment financing: financing option you can use to finance new equipment for your business
  • SBA loans: low-interest government small business loans with long terms (and in most cases, a lengthy approval process)
  • Accounts receivable financing: selling pending receivables in exchange for cash
  • Merchant cash advance: borrow against future debit/credit sales
  • Purchase order financing: get cash to meet demand for new purchase orders

Consider which option makes the most sense based on your industry, financials, and goals. However, don’t overthink it too much. 

Some traditional lenders (like banks and credit unions) might reject your request for a specific type of business loan. Others, however, will be more willing to work around your request to find the best small business loans, even if they’re not your first request.

3. The Qualifications: What You Need(And What You Don’t)

This is generally the most important part of the process. Small business loan qualifications vary from lender to lender. The type of information lenders will review is generally the same across the board. 

However, the benchmarks for qualifying will be quite different. Banks have strict, rigid requirements that are unlikely to change, while fintech lenders have more flexible and situation-based criteria.

Here’s a list of the factors that lenders might consider when reviewing your application:

  • Credit score: lenders will take both your business and personal credit scores into account. Banks will approve only pristine personal credit scores (640 being the bare minimum, 700 the preference). Fintech lenders generally have programs for all credit profiles, including businesses with bad credit.
  • Time in business: how long your business has been around indicates your business’s potential and stability. Banks tend to use the two year mark as the standard, while fintech lenders are satisfied with about 6 months.
  • Annual sales: how much revenue you generate illustrates if you’re capable of repaying the loan. Banks tend to closely examine your cash flow and profits, without a hard-and-fast rule. Fintech lenders normally only require about $120K in annual sales (or $10K monthly).
  • Paperwork: lenders need a few documents before giving the go-ahead to take funding. FIntech lenders operate through advanced technology, eliminating the need for documents in some cases. Banks, on the other hand, request various documents, which we’ll delve into later.
  • Collateral: for some deals, lenders may request property or other assets. In the event you can’t repay the loan, lenders can seize the collateral for payment. Banks will almost always require collateral, while fintech lenders offer many unsecured products.

Not every loan is created equally. Based on your unique scenario, lenders may ask for a lot more (or less). The Small Business Administration may also ask for even more.  It can seem overwhelming, but fintech lenders have utilized technology to streamline the approval process to just a few hours.

Even if you don’t qualify off the bat, you can always take steps to improve your business before making the decision to apply. It’s not always necessary, but could help you obtain a stronger deal (lower rates, better terms, higher amounts).

4. Get Your Required Documents Together

Small business lenders will request information about your business, and require a few documents to get a better understanding of your business. Exactly how much they request can vary based on where you go, and what you’re requesting.

Fintech lenders can gather most of the information they need to make a decision based on one type of document: the bank statements. They may also ask for tax returns and a few other documents, but this is on an as-needed basis.

Like other parts of the process, banks will request a huge pile of documents. This thorough, time-consuming process tends to prevent many business owners from even applying.

These are some of the documents that banks will request:

  • Employee identification number (EID)
  • Business licenses/permits
  • Income and financial statements
  • Bank statements
  • Business plan
  • Balance sheet
  • Personal/business tax returns
  • Copy of commercial lease
  • Business debt schedule
  • Accounts receivable aging and accounts payable aging
  • Payroll from the last 6 months
  • Business entity structure paperwork
  • Certificate of good standing
  • Sales agreement & financials (for acquisition transactions)
  • Contracts with suppliers
  • Corporate bylaws/operating procedures
  • Purchase agreements

Getting this paperwork can take quite a bit of your time, which you may not be able to spare as you manage your business. However, if it can help you qualify for the deal you want, then it might be worth it.

If your lender is securing your loan, then you will generally also need to have your collateral appraised. This helps the lender understand the potential value of your collateral.

5. Apply For a Small Business Loan

You understand what it takes. Now, it’s time to take action and apply!

It’s best to apply weeks (or if possible, months) before you need the funding. Even with a streamlined process, you never know what obstacles could come your way. Having funding before you need it also helps you to plan strategically.

To apply for a small business loan, you have a few options.

If you want to get a bank loan, then it makes sense to apply directly through the bank. Keep in mind, though, that while the rates might be a little lower, you’ll spend a lot of your time completing and following up on the application. During this time, you could lose the chance to land sales and generate revenue.

Online lenders have a smooth, refined process designed to make getting a small business loan easy. You can complete the application online by submitting information about your financials, credit history, and a few other essential details. Through some lenders, you can provide bank statements by connecting your online bank information in a secure portal.

While you can apply through direct lenders, they tend to only offer one option. Applying through a marketplace—with several lender partnerships—opens the door for a greater variety of options. Instead of choosing to accept or decline one offer, you could review multiple options and select the one that best fits your business.

Marketplaces also eliminate the need to shop around, which could otherwise hinder your chances of qualifying by reducing your credit score.

Remember that your time is worth money, and every minute you spend getting a small business loan is one lost on your business.

6. Sign the Dotted Line & Grow Your Business

If you receive loan offers, then it’s time to entertain your options. 

Will the capital help you put the wheels in motion to grow your business, drive revenue, or overcome a challenge? If the answer is yes, then accept the small business loan—but be sure to ask the right questions first.

Some business lenders may attempt to rip you off by not clearly explaining your rates and loan terms. Be sure to calculate your actual interest rate after all is said and done, not just the number provided. Also, ask if there’s a prepayment penalty in place to prevent you from saving money by paying it down early. You can learn more about red flags to avoid in our small business loan ripoff report.

Above all, find a lender or marketplace that is interested in educating you, not selling you. 

With funds in your account, it’s time to put your money to use growing your business!

When’s the Best Time to Take out a Small Business Loan?

Ideally, you should have business funding before you need it. That means applying in advance of your busy season, or anticipating challenges ahead.

Some of the most common reasons small business owners apply for business loans include:

  • Hiring new employees
  • Expanding your building
  • Opening a new or second location
  • Purchasing additional inventory
  • Ramping up marketing efforts

From a strategic perspective, though, it’s best to start the process of getting a small business loan when your sales are high.

With strong financials on your side, you’re more likely to get a favorable approval from your lender.

There are plenty of more growth opportunities your business may encounter. Be sure to think strategically about what will help you in the long term.

How to Get a Small Business Loan Online: Your Funding Is Hours Away!

At National, we waste no time in processing your business loan application. 

With a 75+ lender marketplace, we carefully compare all your options before presenting you with the ones that make the most sense. Our Business Financing Advisors are dedicated to guiding you through the process, and helping you make the right choice.

Once you apply, we’ll get in touch with your options right away. Your business could be funded in just a few hours!

To get started exploring your options, fill out our 60-second application!

National Business Capital is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!

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About the Author, Megan Capobianco

Megan is passionate about helping business owners along their journey - providing them with relevant content they can use in their day-to-day operations.


Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.