How to Apply For a Small Business Loan

Obtaining funding is a necessary step for many small businesses to expand their operations. However, getting that funding can seem challenging. Comparing your options between loan types and lenders takes time — a resource that, as an entrepreneur, might be at a premium for you.

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How to Apply For a Small Business Loan

 

Obtaining funding is a necessary step for many small businesses to expand their operations. However, getting that funding can seem challenging. Comparing your options between loan types and lenders takes time — a resource that, as an entrepreneur, might be at a premium for you.

Additionally, some lenders have stringent requirements that screen out many entrepreneurs from the funding they need.

It’s not as hard as it sounds, though. The key is preparation. Follow these steps to find the right small business loan for you.

 

Decide if You Need a Small Business Loan

First, determine why you’re seeking a loan. Are you just starting? Are you looking to expand? Or perhaps you have high demand and need more capital to buy inventory. These are all valid reasons to get a loan, among others.

 

Pick a Type of Financing

Loans aren’t your only choice of debt available. Consider your other options, like

 

  • Business credit cards: Business credit cards provide a flexible financing option for smaller purchases. Plus, you may be able to earn rewards on purchases. Approval for these is easy, as it’s based on your personal credit history.
  • Invoice financing: With invoice financing, you use unpaid invoices as collateral for loans. Lenders usually require you to pay the full amount back when you’re paid for the invoice.
  • Lines of credit: Revolving credit lines similar to business credit cards. Excellent for ensuring you have enough working capital in case low short-term cash flows.

 

Decide On a Type of Lender

 

  • Banks and credit unions: A good choice if you have strong credit, collateral, healthy sales volume, and cash reserves. Franchises, in particular, will find it easier to get loans from banks. The application process at banks and credit unions can take a long time, so be ready to wait.
  • SBA: SBA 7(a) loans are 80% backed by the government, making them less risky to lenders — meaning lower interest rates for you. Excellent credit is necessary, but collateral requirements may be negotiable. If you need the money fast, you can get an Express Loan — but these have higher interest rates than standard 7(a) loans.
  • Online/alternative lenders: These have looser restrictions, but loans often come with higher interest rates, shorter terms, and lower loan amounts.

 

Collect The Necessary Documentation and Apply

After narrowing down your list, you’ll need to gather some documents for your loan applications.

Documentation requirements vary by lender, but here are some pieces of information most will likely require:

 

  • Bank statements (business and personal)
  • Business financial statements
  • Business legal documentation (proof of registration, licenses/permits, commercial lease agreement, etc.)
  • Business plan and forecasts
  • Proof of collateral
  • Tax returns (business and personal)

Your credit score will take a small hit since you’re applying for new debt. Thanks to the law, however, you have about two weeks during which you can apply for several loans without each one counting against you.

Getting funding for your business can seem daunting, but BCCUSA is here to help. By working with us, we can match you to the best financing for your business.

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