How to Get a Small Business Loan

by adidasw1 · Published July 14, 2022 · Updated December 8, 2022

If you own a small business, you may encounter situations that require you to have extra cash on hand. When this happens, it is important to know how to acquire a business loan.

Here is a comprehensive guide to walk you through the loan application steps.

Step One: Prepare

Begin by analyzing your financing needs. This will help you know what type of loan is suitable for your small business.

Ask yourself the following questions:

What is the money for?
How much money do you need?
When do you need it?
When do you expect to start seeing returns on the investment?
What is your ideal repayment period?

Know what the business can afford. Estimate the revenue you expect to get from the investment. If you plan on covering a cash flow gap with the loan, estimate the time it will take to receive the delayed payment. Other things you may want to consider include seasonal ups and downs as well as additional expenses that may popup during the repayment period.

Prepare your business’s basic information. To determine the eligibility of your business, creditors will need to know basic personal and business information. They may ask questions about the revenue, basic structure, etc.

Step Two: Research

Know the available financing options. Understand the various types of financing for small businesses. Assess the ones that are best for your situation.

Check the eligibility requirements and see whether your business meets them. Different providers will have different eligibility requirements. Some of the factors that they consider include industry of business, location, years in business and the business revenue. This information is usually available on the provider’s website.

Step Three: Submit the Application for Review

What are lenders evaluating?

Once you submit your documentation and paperwork, the lender will take some time to review your application. It may take months, weeks, days or just hours. Regardless of the duration, most small businesses use a similar fundamental set of metrics for evaluation. They include the following:

Capacity: this is the ability of your small business to continue operating while paying off debts.
Character: this shows your credit history as a borrower. It portrays your responsibility when it comes to repaying loans.
Conditions: this is a measure of the economy, time in business, geographic location and industry.
Capital: the ability of your business to support the loan amount you have applied for.
Collateral: These are the assets to be liquidated in case you default. Not all lenders require collateral—in that case, it is referred to as unsecured financing.

Step Four: Analyze the Loan

Assess the loan structure.