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6 Step Guide- How to Get a Business Loan

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6 Step Guide- How to Get a Business Loan

By ngoriel, SBA Official
Published: September 4, 2013 Updated: September 4, 2013

Money is the lifeline of any business, so whether you’re starting a business or running an existing one, securing financing is a major factor, especially for small businesses.  Many budding entrepreneurs find the task daunting and don’t even know where to begin.

Here’s a simple yet practical guide on how to go about preparing to apply for a small business loan.

1.    What criteria do banks look for in making small business loans?

Different banks or lending institutions may have different standards, but in general, in order to consider your application for a small business loan, banks will require:

  • The loan must be for a sound business purpose. For SBA-guaranteed loans, the business must be eligible based on size, use of loan proceeds and the nature of the business (no lending, speculating, passive investment, pyramid sales, gambling, etc.)
  • You and your partner(s) are of good character, have experience and good personal and/or business credit history
  • Ability to pay back the loan- reasonable to strong collateral (personal and business assets) is very important. SBA expects the loan to be fully secured, but we will not decline a request to guaranty a loan if the only unfavorable factor is insufficient collateral. And of course, owners must have personal equity investment in the business/skin in the game.

2.    What information will you need?

Different lenders may require more or fewer documents, but in general, you will need:

  • Personal and business credit history
  • Personal and business financial statements for existing and startup businesses and as well as a projected financial statements
  • Strong, detailed business plan (including personal information such as bios, education, etc.)
  • Cash flow projections for at least a year, and
  • Personal guaranties from all principal owners of the business

3.    How can you set yourself up from the beginning to make the process easier? (i.e. accounting systems, etc.)

Be prepared; be thorough; be truthful.

  • Choose your lending institution carefully. Larger banks tend to shy away from small loans as they are less profitable and take the same amount of underwriting and servicing. That doesn’t mean large banks do not make small loans; it is just more difficult.
  • Approach banks or lending institutions you have worked with or are a customer of
  • Explore community banks and Credit Unions
  • Talk to a lending officer and find out exactly what documentation they require
  • Be thorough, bring everything they ask. Many loan applications are denied or face unnecessary hurdles because of incomplete applications.

Even before you start gathering and organizing the information required by lenders to consider your application, you should educate yourself regarding business loans so you can understand and discuss intelligently with the lending officers when the time comes.

4.    What is the typical size of a small business loan?

Small businesses come in many sizes, from a start-up of a one-person company to hundreds of employees, and their financial needs vary accordingly, so “typical” also varies. That said, in the banking industry the median small business loan is about $130,000 - $140,000 with highest around $250,000. SBA small business loans range from about $5,000 (microloans) to $5 million (largest guaranteed) with the average loan around $371,000.

5.    How can you get financing to start a business since many banks want to fund growth?

Start-ups are probably the most difficult ventures when it comes to securing financing. Many start-up businesses seek financing from family, friends and credit cards.  If the credit is sound, the business plan strong and you have enough personal resources to invest and collateral to guarantee, smaller, community banks and  other community financial institutions and Credit Unions may consider lending you money.

Your best bet by far is SBA assistance. Begin by visiting SBA's website , where you will find a wealth of information not only on how to secure a small business loan but equally importantly, other services and training opportunities to help you succeed.

6.    Are there associations that can help?

SBA works closely with a large network of partners that leverage SBA resources and are just one phone call away and ready to provide extensive help.

  • SBA District/Branch Offices– at least one in every state
  • SCORE– (approximately 300 chapters nationwide)
  • SBDCs – Small Business Development Centers; (approximately 900 locations nationwide; associated with higher education institutions (colleges and universities)
  • WBCs- Women’s Business Centers (approximately 100 educational centers nationwide)

About the Author:

Natale Goriel

SBA Official

Hi, my name is Natale and I'm serving as a Moderator for the SBA Community. Our goal is to continually improve this site to meet your needs, so we appreciate your feedback and participation.

Comments:

It's ture that money is the lifeline of any business,everyone who do business is to earn money. I studied Economics and Management at that time, the manager said :" big business can not do without loans ".
What if you can't get all the money you need from a loan? Or can't get the loan? What then? Our clients come from all walks of life but one common factor is they are all looking to use pretax money to start, buy or refinance a business.
Getting a loan is a difficult. If you have great personal credit fico 700+ and need $35,000 or under, you might want to consider taking a personal loan from one peer-to-peer lending sites, like Lending Club or Prosper. A nice feature of these loans is that you can pay them back over 3 to 5 years. Typically, the rates on these loans are two or three percent less than you would be paying on rolling credit card balance.
I agree that getting approved when applying for loans is very difficult. However, small businesses really need a good business financing terms in order for their businesses to survive. Fortunately, more and more custom credit solutions providers are now answering these kinds of problems. These providers allow fast loan approval with minimal effort and low interest rates.
Very good advice! I'm starting a security business and home alarms and it is difficult to get a loan. I think we should sell our idea of ​​the best way to lend us money. Every step you teach become effective if you know how to convince our good and we solvency. Thank you very much!
We are still in a time where it is just about impossible for a self-employed or small business operation to borrow money in the traditional manner. However there are some alternatives that may be available such as a Merchant Services Advance if your operation supports regular credit card sales. Under this approach it may be possible for you to essentially “sell” your future credit card receipts at a discount where you receive less than the value of the actual transaction, the equivalent of interest on a loan, along with a small processing fee. Check with a provider such as Swift Capital to determine whether your business qualifies for this type of financing support.
Nice list of the things you might need to apply for a bank or SBA loan. However, in any loan application, there is one thing that you can always use to determine yourself if you can qualify for a business loan - and that is the ability to pay for one. Thus, before you start to collect documentation - make sure that your business has the revenue to actually make the loan payments. And, as stated in this post, the SBA and all of its affiliates can help you determine how much you can afford and what you will need to apply.
Good guidelines set to make transaction of business loan easier. It is surely going to help many newcomers before applying for loan.
In addition to the items listed here, before you apply and be successful in receiving any kind of financing, it’s important to prepare a cash flow projection. This will explain just how you plan to use the funds you are receiving. If applying for a loan, the bank will want to know how you plan to pay it down. Your cash flow projection will provide these details and provide the necessary information the bank needs to make their decision.    This post was edited to remove a link. Please review our Community Best Practices for more information about how best to participate in our online discussions. Thank you.
This is indeed a great guide for getting a business loan. Explanations were great for each corresponding questions. This article would definitely help you improve your site. Thumbs up! This post was edited to remove a link. Please review our Community Best Practices for more information about how best to participate in our online discussions. Thank you.

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