How to Apply for a Small Business Loan

Anne Miller

Anne Miller

Senior Author

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Anne Miller

Senior Author

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If you need funds to finance a business endeavor or to augment your business income, you can take out a loan. However, the process is more than knowing how to apply for a business loan itself.

There are a lot that you should look into before going into the application process.

Why do you need it for? In applying for a business loan, the unwritten rule is knowing what it is for. Does your reason fit in the following general reasons?

Contents

Funding daily expenses

Sometimes, business is slow but the bill keeps on piling up. To avoid losing assets or losing credibility as a business entity, you can take out a small business loan.

Starting your business

You can take a great business idea and possibly make it your main source of income by borrowing money from a creditor.

Growing your business

How to Apply for a Small Business LoanExpanding your business is a big step for you, but is just a bigger hole in your pocket. A loan augments your revenue so you will have enough capital to take your business to the next level.

Settle other debts and payments

Debts such as unpaid taxes from the IRS can have serious repercussions, and a loan can save you from such problems.

What documents should I prepare in applying for a business loan?

Required paperwork vary from lender to lender. However, at least for traditional financing institutions, you would need to produce the following documents:

Application form

Even with alternative lenders, you would need to fill out an application form. Here, you put basic information about yourself and your business, along with other information of interest such as the reason for applying for a loan. Make sure to provide complete information as failing to do so may mean loan disapproval.

Business Plan

In applying for a loan, this would highly speak for you in your absence. Here, you will highlight how your business earns and the financial health of your business. As a guide, simply make a checklist to see if you have included each part of the business plan:

  • Executive summary
  • Business description
  • Audience (local/target market) and competitive landscape
  • Product and/or service
  • Sales, marketing, and promotion
  • Management team
  • Financial data and analysis

Personal and Business Credit Report

Lending officers look at these and other documents to calculate the risk of lending you money. A good credit score (650 and above) means better interest rates, and scores below this mean the opposite.

If you are looking to improve your credit rating, you can pay off some, if not all, of your debts. Needless to say, there should be no discrepancies in your credit reports as this will definitely alarm your creditors. Worse, you may not be granted the loan.

Income Tax Returns

Tangentially related to your business plan, you need to show proof of the figures you have indicated there. One of the most fool-proof way to do so is through income tax returns.

As how much you pay depends on your income, they will see here how much you earn, or in their eyes, your capacity to settle your debt if approved.

Collateral

While not applicable for all, collaterals are usually needed for big loans. It can be anything of value, usually a car or a house.

Putting up a collateral against your debt makes it secured, so chances are you would be offered lower interest rates with this. However, in the event that you default on a loan, you will have to surrender whatever property or asset you have as collateral.

What are my funding options?

There are many funding options to choose from should you decide to apply for a small business loan. These have been arranged depending on the degree of stringency on qualifications, with the first one having the strictest requirements.

Banks

One of the benefits of deciding on a brick-and-mortar place is convenience. They usually have many branches so accessibility is no problem.

However, since the recession, their lending policies have become very strict. For one, they generally only grant loans to bigger businesses as evident in their loan products.

Also, they require outstanding personal and business credit scores. As this rating is basically your past diligence in paying your loans as well as the amount you were able to borrow, you are basically automatically disqualified if you have only borrowed money once or twice for yourself or your business.

Newer businesses should also apply elsewhere as most banks only accept those who have been running for at least three years. Should you decide that bank is the right option for you, you have to wait 30 to 60 days after you submit all the requirements before knowing the results.

Credit unions

Credit unions are owned by its members in a nonprofit status. Meaning, aside from the interest they earn from their accounts, they do not get anything else.

They require a good personal and business credit ratings, but these are not as high as the banks’. One of the main features of credit unions is that they are more likely to lend someone in their community who is a member.

Moreover, they have virtually the same application and funding as a bank, 30 to 60 days. Generally, a credit union is generally more lenient with the qualifications especially with people belonging to their community. This is considered a good option to go with as they have loan packages specifically for small businesses.

Alternative Lenders

Usually found online or in pawn shops, alternative lenders are considered a savior for people with bad personal or business credit rating, or with an immediate financing problem. Their application is usually done online, so you can apply even at the comforts of your home.

What makes an alternative lender very attractive to small businesses is the turnaround time. For credit unions and banks, you have to wait for at least a month. However, some of alternative lenders can guarantee funding in as soon as 48 hours.

Originally, they only serve as a last resort for borrowers. Today, they have various packages that can fit both sides of the spectrum, credit rating-wise.

What do creditors look at before granting me a loan?

Essentially, all of their requirements that they ask for serve to provide information on the following:

Personal and business credit rating

While not all creditors would require an excellent credit score to grant you a loan, they still have a threshold on what they can tolerate.

For example, to qualify for a loan in credit unions, you need a score of 650. For alternative lenders, however, they only require 500.

Aside from deciding on whether or not to consider you, they also use this information to decide on what interest rate to charge you as well as on the payment terms.

Years of operation

Your lender will also look at how long you have been in the business should you decide to apply for a small business loan.

If your business has been in continuous operation for a few years, they would probably see it as a form of stability. The fact that you have keep the lights on for so long means that you have the capacity to pay.

Financial history

In applying for a business loan, the actual financial history matters more than scores as this presents your actual spending and paying activity.

From here, they can guess how you will diligently you will be in settling your debt in case your loan is approved.

How to apply for a small business loan?

1. Familiarize yourself with the different types of business loans

Before you even start to apply for a small business loan, you must learn about your options. Know what they are meant for. In familiarizing yourself with this, you must be able to answer the following questions:

  • What lending institutions offer this?
  • What is the prevailing interest rate for this kind of loan?
  • How long before it matures?
  • Is it secured or unsecured?
  • How soon do I get the funding?

Your ability to answer these questions will help you in the next step.

2. Determine the right kind of loan for you

Now that you know which is which, look now at your own situation. What small business loan fits your needs? Base this from the information you got from the first step.

If you are looking for a long-term loan, of course, you to cross all short-term options out. The same goes for every other factor mentioned.

Unfortunately, it is possible that there is no perfect small business loan for you. For example, you cannot find a long-term loan that is unsecured. In this case, if you do not have anything to put up as collateral, look for the next best thing, which is applying for a series of short-term loans.

3. Shop for lenders

This step consists of two parts: a) deciding between banks, credit unions, and alternative lenders, and b) the actual creditor shopping.

As you know the major similarities and differences among your three options, you now have an idea where you qualify and which you prefer.

Then, you can go shopping for lenders. First, you have to make sure that they offer the kind of loan you need. After that, you can compare their features like funding time and interest rates.

4. Inquire about the particular product you are looking for

In applying for a small business loan, it is still best to inquire first before submitting your application. You may have questions that they have failed to address in their website. Now is the time to ask them.

If there is anything that you feel you cannot tolerate like relatively high interest rates despite your excellent credit rating, go to your second option.

5. Prepare the necessary documents

As mentioned in the previous section, you will probably be required a series of documents so gather and organize them. The same should be done for other requirements not mentioned there.

As always, make sure that the information you provide is accurate and complete to avoid any hassles. Check and double check everything before proceeding. Discrepancies will make you look unprofessional.

6. Submit your application

Now everything is set, you are ready to submit your application, the very highlight of applying for a small business loan.

Whether the documents need to be submitted online or in-branch, ensure that everything is in order.

7. Be prepared to specify how much you need and for what purpose

Even with complete documents, your lender may still want to acquire additional information about you or your business, including how much you need and for what you need it for.

You may have a number in mind, but you may want to borrow a little extra just in case. If you are borrowing for business expansion and the cost of raw materials increase, you may find that the loaned amount to be insufficient.

8. Get ready for your interview

When being interviewed for a loan, treat as a job interview or a first date. You should be professional because although the money you will get is not for your personal use, you are still representing your business.

9. Analyze the key terms of your business loan

Once you are approved for the loan, you do not have to get the money right away. You can still reject it and apply for the same loan on another creditor or present a counterproposal. Here are the main features to look for in the proposal:

  • Interest rate (variable or fixed? Is it acceptable for you?)
  • Payment terms (how much? Monthly or weekly?)
  • Principal rate (when is it due? How is it repaid over the life of the loan?)
  • Origination fee
  • Other costs
  • Defaulting the loan (under what conditions can they do it?)
  • Collateral
  • Limits of fund usage

10. Wait for their counterproposal

If you have decided to look for another lender, you have to go back all the way to step 3. However, if you made a counterproposal, just review the same features detailed in step 9.

Once you and your creditor have agreed on the terms, you can sign the agreement, and wait for the funding.

FAQ

The Process 

Completing a small business loan application can seem like a daunting task, but with some time and organization, it doesn’t have to be stressful. Finding the right lender and keeping your financial documents in order are two of the most important aspects of finding and being approved for a small business loan.

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How to apply for a small business loan?

Applying for a small business loan is the same as applying for a personal loan. The important part is before and after you apply. Before, you’ll want to make sure know the exact amount you need to borrow and finding the lowest interest rate is key. You also need a repayment plan. After the loan is approved, you need to make it your goal to make the installments to repay the loan on-time.

Would I qualify for a small business loan application?

There are quite a few traditional and online options for small business loan applicants. Even if you don’t have the best credit score, you can still find a small business loan that will allow you to get the working capital you need.

How to apply for a business loan with bad credit?

There are a few lending options for business loans, even if you have bad or poor credit. Many online lending organizations have loans designated for business owners who may not have the best credit. Although there may be a few drawbacks, you can still get the capital you need to keep your business up and running.

How to apply for a startup business loan?

If you are looking for a loan for your startup business, there are a few different options to consider.   The Small Business Administration (SBA) is a federal government entity that specifically deals with small business and startup loans. You can also look for more traditional lenders, as most financial institutions now have offers for small businesses loans.

How to apply for a small business loan online?

Almost all small business loan offers can be completed online, or mostly online. First, you’ll want to do some research to find the best loan offer for your small business needs. You will also need to gather all pertinent documentation for your business, so you can complete the online application.

How to apply for a business loan without collateral?

A business loan that does not required collateral is known as an unsecured loan.  Most traditional banks don’t offer unsecured business loans, but there are online options you may want to consider. It’s important to understand that an unsecured loan will have a higher interest rate than a secured loan that does involve collateral.

How to apply for a loan to buy a business?

Applying for a loan to buy a business doesn’t have to be a painful process. There are several different types of business loans available, and most of them allow you to apply online. The Small Business Administration (SBA), Rollovers for Business Startups, and Seller Financing are all options to consider funding your business purchase. 

How to apply for a business loan successfully?

There are a few steps you can take to increase the chances of successfully applying for a business loan. The higher your credit score, the more likely you are to be approved. An excellent business plan is another key to success when applying for a business loan.  You may also want to have a presentation prepared that highlights the strengths of your business plan.

How to apply for a business loan at Standard Bank?

Applying for a business loan at a bank is not much different than applying for any other business loan. You will need a good credit score, personal and business finance and income statements, and a well-developed business plan and presentation, which may improve your chances of being approved for your business loan.

How to apply for a business loan with EIN number?

You can use your EIN (Employer ID Number) to apply for a business loan by using your corporate information (EIN), although the business owner may also be required to provide their Social Security Number (SSN).  Most lenders allow a business to use the EIN to apply for loans and credit cards.

Can I apply for a small business loan online?

Yes, there are many lenders who offer online applications for business loans. As long as you are able to upload the required documentation, you can compete the entire business loan application online.

How to apply for a business loan for a franchise?

It can be difficult at times for a franchise to maintain working capital, so a business loan is a great alternative. Traditional and online lenders offer business loans for franchises, but it’s important to remember that online lenders typically have less stringent requirements, although they may also come with higher interest rates.

What do banks look for when you apply for a business loan?

If you are looking for a business loan, there are a few things you can do to improve your chances of being approved.  You want your credit score to be as high as possible.  Before going to a bank, you may want to see if you are eligible for any federal or state grants. Banks also look for developed business plans, profits and earnings, and having a prepared presentation may also improve your chances of being approved.

The Application – Supporting Documentation

There are quite a few supporting documents that will need to be submitted along with your loan application. Financial statements, income tax returns, business plans, and many other documents may be required depending on the lender you select to fund your loan.

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What to bring when applying for a business loan?

Although the requirements may vary depending on the lender you choose, there are a few documents you will need to provide to complete your business loan application. You will need to provide all your business income and earnings documents, as well as your personal financial statements. You may also need to provide income tax statements and copies of leases and licenses related to your business.

What goes in a business loan application?

When completing your business loan application, you want to include as much supporting documentation as possible showing proof of income, expenses, projected earnings, and all other aspects of your business. A complete business plan is also an effective supporting document.

What are costs of business loan application?

The application for a business loan is typically free, but the fee for the loan (not including interest) can range between .25% and 3% of the loan amount. The fee varies depending on the length of the repayment term.

How to write a business loan application letter?

There are four items you need to address in a business loan application letter: how much money you need and how it will be spent, repayment of the loan, and what you would do if you are unable to repay the loan. There may also be a format preferred by the lender. A typical format includes a summary, business profile and marketing experience, loan amount and repayment, and any other aspects of the loan unique to your situation and business needs.

How to fill out business loan application?

Before you begin filling out a business loan application, you will want to have your business and personal finance and income paperwork in order. If you are not comfortable going through the online application process alone, you may want to choose a lender with a physical location, so they can walk you through it.

What is needed to apply for a business loan?

You will need a good credit score and financial and legal documents including personal and business income tax returns, proof of income, bank statements, copies of leases and licenses, and financial projections. You may need additional documents depending on the requirements of the lender you choose to fund your business loan.

Where to apply for a business loan?

You can apply for a business loan online, or you if you prefer, you can go to a physical location of a more traditional bank or lender. You will want to have a good business plan documented, as well as personal and business finance and income statements.

What do banks check when applying for a business loan?

There are many different factors that banks take into consideration when examining a business loan applicant.  Taken into consideration are your credit score, profits, projected earnings, amount of debt, and the stability of your business. Of course, there are many other aspects of your business that a bank may consider, so you should check the requirements of any loan before you proceed.

How to apply for first small business loan?

Applying for your first small business loan may seem daunting, but with a little organization, it can be done without too much stress.

How to fill out a small business loan application?

Before you access the application, if you choose to do so online, first check the eligibility requirements and the documents you will need to complete the process. Once you have all that in hand, go section by section through the application and provide the necessary statements and forms.

How to fill out a business loan application?

Filling out a business loan application is not as difficult as you may think, but it may take a little time to prepare all the required documentation you will need. It’s important to be as precise as possible when filling out your business loan application, and you’ll want to provide as much supporting documentation as possible.

What financials to include with a business loan application?

You will have to provide finance and income statements for your business, and for your personal accounts and assets. Income tax returns, copies of leases and licenses, and any other documents related to your income and expenses should be included in your business loan application.

How to write a business plan for loan application?

There are a few online resources for writing a loan proposal, but the basics are just to include the reason for your loan request, how you will use the money, and how you plan to repay the loan. You should also include your current and projected profits and expenses. Any and all supporting documentation should be included.

Can one partner apply for a business loan?

Typically, one partner may be able to apply for the loan, but all partners must sign the application, unless the business is incorporated. Although the loan may have been to one partner, in most cases, all partners are equally responsible for repaying the loan.

What are the typical small business loans people apply for?

A good place to start is the Small Business Administration (SBA), then check out traditional business loans from a bank and offers from online lenders. There are many variables when it comes to the business size and type, so there is a wide variety of loans to choose from.

What to consider when applying for a business loan?

If you have exhausted all other means of income that would be cheaper than taking out a loan, then a business loan is a good option to consider, because it’s a reliable source of funding. You will want to consider interest rates, repayment options, and whether you are putting up collateral against the loan.

Federal Funding Options for Small Business Loans

The US Government provides federal programs specifically designated to support small business loans and grants. There are multiple programs available for different sizes and types of businesses, so you will need to find the one that best fits your situation and your loan needs.

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How to apply for minority business loan?

There are a few different options for minority business loans or grants through federal and state business programs. Grants.gov, the SBA (Small Business Administration), and other non-profit organizations offer funding specifically for minority owned businesses.

How to apply for Obama small business loan?

The Obama small business option is actually a grant, not a loan. You can find a government grant website online, and some states also offer grants for small businesses as well. Once you find the grant you qualify for, you’ll have to complete all the required documents, which can be done online. You will then be able to apply for the grant.

How to apply government loan for small business?

Federal and state governments offer loans and grants to help promote small businesses. The Small Business Administration (SBA) is the federal government office that oversees small business loans. On their website, you can find qualifying information and a list of documents you will need to complete the loan application.

How to apply for a Veteran’s small business loan?

There are quite a few options for Veteran-owned small businesses when it comes to loans. The Small Business Administration (SBA) has an Office of Veteran’s Affairs that specifically oversees business loans for veterans who own their own business. Other lenders like Bank of America and PNC Bank also offer business loans for veterans.

How to apply for a VA business loan?

The Department of Veteran’s Affairs (VA) does not offer business loans to veterans, but the Small Business Administration (SBA) does have a special office designated to oversee small business loans for veterans, and they also offer special funding, such as Patriot Express loans.

Does SCRA apply to business loans?

It depends.  The Servicemembers Civil Relief Act (SCRA) does not apply to obligations associated with trade or business, but it does cover business obligations if they are not tied to business properties (so, if they are unsecured loans, with no collateral).

Does the federal national mortgage association accept business loan application?

The Federal National Mortgage Association may accept certain business loan applications depending on the number of investors in the business and other factors. Information about Fannie Mae business loans can be found on their website.

How to apply business loan in SBI?

SBI (or State Ban of India) offers business loans for large and small organizations. They offer both secured and unsecured loans, and you can apply online. You may need to upload financial documents and other required paperwork in order to complete the application process, so you may want to prepare those items before you apply.

How to apply business loan in HDFC bank?

HDFC (Housing Development Finance Corporation) has several eligibility requirements for business loan funding. Some of the requirements include profits for the previous 2 years, an established business for a minimum of 3 years, and a minimum turnover rate. You can find all the requirements at https://www.hdfcbank.com/personal/products/loans/business-loan/eligbilty-criteria.

How to apply for a guaranteed VA business loan?

The Small Business Administration (SBA) includes the Office of Veteran’s Affairs, which oversees business loans and grants for veterans. You can find resources for applying online through the SBA website, along with a list of eligibility requirements.

Should I apply for a small business loan?

If you need working capital to keep your business running, or you are looking to expand your business, then a small business loan may be a good option to consider. You can find a variety of small business loan options online and from traditional bank lenders.

How to apply for an SBA small business loan?

Filling out an application for a Small Business Administration (SBA) loan may seem challenging, but if you break it down into sections, it makes it a bit easier.  First check the eligibility requirements, then choose the loan program that best fits your business. The third step is to find a lender, since SBA doesn’t directly fund the loan. Gather your paperwork, fill out the application and required forms, and you’re all done!

What is the FEMA business loan application require?

You should start with the Small Business Administration (SBA), and you’ll need to provide documentation of your income and expenses. If you are not approved for an SBA loan, then you will be redirected to FEMA to be considered for FEMA loan assistance.

Anne Miller


Anne is a Senior Author for SBL. She began her career as an independent consultant for local businesses after graduating with a BA in Management. Since that time, she’s expanded to writing as well as consulting to spread helpful knowledge to small business owners across the country.

 

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