How to Get a Business Loan: 6 Steps
If you own or operate a business, you probably understand how important getting the right finance can be. Almost every business on the planet has obtained some form of financing at some stage – it’s a necessary part of starting or expanding operations. But sometimes the application process can be daunting. If you’ve never applied for finance, it may seem like an impossible journey.
This guide is intended to help you better understand the entire process. Applying for a business loan is actually much more straightforward than you think – you just need to make sure that you’re prepared. If you’ve never applied for a business loan before, make sure to read all the information in this guide. It breaks down every step of the process so that you know exactly how to approach your loan application. Being aware of the process is the best way to ensure you get approved for financing!
Step 1: Research Loan Types
You need to give yourself enough time to perform the needed research on the type of finance you’ll be applying for. Making financial decisions for your business is one of the most important steps to being successful. The wrong financing can end up making it impossible to run your business effectively.
You should begin by assessing whether a business loan is right for you. There is a chance that you may find a business line of credit or business credit card more effective. For this reason, you should look at all types of lending before you make a decision. Have a look at some of the other financing options that are available. We have plenty of additional information on business loans on this site, so make sure to check out some of our content!
Step 2: Research Lenders
Once you’ve decided on the exact type of loan you want, as well as the type of lender you want (traditional, online, peer-to-peer, etc.), it’s time to research the lenders you’re thinking of working with. Have a look online and find lenders that are recommended by some of the major review sites – we mention some of our favorite lenders on our homepage, which is a good starting point.
Once you find a few different lenders that you believe are worth working with, it’s time to truly investigate the type of company that they are. You don’t want to work with a dodgy lender, it can end up having serious consequences down the line. It’s important to make sure that you’re working with a lender that you can trust as much as possible.
The best way to research a lender is to head to Consumer Affairs or the Better Business Bureau and do a little bit of research. Any reputable lender will have a presence on these sites – you can read verified testimonials and analysis from past customers. Make sure that the overwhelming majority of information is positive!
Step 3: Compare Rates
Once you’ve found a few lenders that you know are trustworthy, it’s time to make a few comparisons based off cost. At the end of the day, you need to make sure that your lender has cost effective financing, otherwise it will end up negatively impacting your business. The problem is that you won’t know exactly how much your loan costs until you apply for one. But when you do apply for a loan, an inquiry will be recorded on your personal or business credit score.
You can use one of the small business loan calculators online to help you determine which loan is right for you – this will give you a ballpark estimate of the cost of the loan. Once you find a few that are in your budget, you can ask the lender to give you an estimate of the type of rate that you’ll be able to obtain given your credit history. They’ll typically give you a pretty good idea of what you might be eligible for.
Step 4: Prepare for Application
When you’ve decided on a loan to apply for, you need to make sure to start getting your affairs in order. You should compile your business income and earnings data, and check your personal and business credit scores. You want to make sure there are no mistakes on your credit reports – you also should always know what your score is before you apply. Make sure that it fits into the requirements of the lender.
Step 5: Apply
Now it’s time to apply for the loan. While many business lenders will allow you to apply in branch, we suggest that our readers head online for their business loan applications. Online business loan applications are much faster – they’re streamlined to provide you with an immediate decision. You can save serious time and money by applying online. All your information and documentation can be directly uploaded through your lender’s online application portal.
Step 6: Use Funds Effectively
Once you are approved for your loan, you should typically receive the money into your account within 24 hours – this is a feature that is common with many online lenders that electronically transfer funds. It’s now time to use your money for business related expenses. Make sure that you use it effectively and pay off your debts on time – it will greatly improve your chance of being approved for further financing in the future!
After reading this step-by-step guide, you should have a better understanding of the process behind applying for business loans. Make sure to tread carefully when searching for the right lenders, you want to be certain that you work with a decent firm. Also, try and work with lenders that don’t want to check your personal credit score. Every time you check your personal credit report, your score will decrease. You should be looking to keep your personal and business financing as separate as possible.
We have a wealth of business loan and business line of credit information on our site – check out some of the other content on this site!
Michelle worked at a teller at her local bank while she was earning her degree in economics. Then, after completing an MBA, she came back to the bank as a loan officer. As a result, Michelle is uniquely suited to providing advice to small businesses when it comes to selecting the best loan and credit products.