How to Get a Small Business Loan in 5 Steps

How to Get a Small Business Loan in 5 Steps
How to Get a Small Business Loan in 5 Steps

Some say engaging in business is too risky if you’ll only use debt capital (funds that a business raises by taking out a loan) to start or support your operations. While this point makes a lot of sense, we can’t also deny the fact that many entrepreneurs have made their respective businesses grow with the help of funds from banks and other lenders.

As per Richard Harroch, Managing Director and Global Head of M&A for VantagePoint Capital Partners, “Small business loans can fund new research and development, help you expand into new territories, enhance sales and marketing efforts, allow you to hire new people, and much more.”

If you’re thinking of getting a small business loan, you’d better keep in mind these 5 steps:

First, know and understand your business needs. (Why do you need the loan?) Getting a business loan is not an easy process and once you are granted the money, there’s always a risk attached to it. Remember that a loan is a debt that must be repaid with interest, so make sure you’ve fully analyzed how much money your business exactly needs and your purpose for borrowing funds. By understanding your business needs, you can create better plans and decisions, which, in turn, may greatly convince lenders to approve your loan application.

Second, know and decide the type of loan you need. (What type of loan fits your needs?) Lenders offer various types of loan products, so make sure that before you submit your application, you’ve already carefully studied the pros and cons of each type of loan. Remember that knowing the loan product that is most appropriate for your situation can lessen any risk involved.

small business loan application
Small business loans can fund new research and development, help you expand into new territories, enhance sales and marketing efforts, allow you to hire new people, and much more

Third, know and compare potential lenders and determine the right one for you. (Which small-business lender is the “right one” for you?) There are many financial institutions out there that provide small business loans and as they say, “the more options you have, the better.” To get the best deal, you must understand what each potential lender offers. This means that you’ll have to be aware of their payment terms, interest rates, and a lot more.

Fourth, know your credit score. (What is your credit score?) One of the important factors that banks and other financial institutions consider when evaluating potential borrowers is their credit score. You should be aware of your own credit standing since it plays a key role for lenders to determine your financial health and how responsible you are in terms of debt management. You can request for a free credit report from various credit reporting agencies to closely monitor your scores. Remember that lenders are looking for potential borrowers who are financially reliable. By simply being aware of your own credit score — that’s already a plus point for you.

Lastly, know all the loan requirements and accomplish them the soonest. (What financial and legal documents do I need to submit?) Getting a small business loan is more complicated than a personal loan, so you must expect that the eligibility requirements are stricter. It can be a long and tiring process, but as the saying goes, “preparation is the key to success.” The requirements may vary from one lender to another, but generally, here are some of them:

  • Business income tax returns;
  • Business bank statements
  • Balance sheet and income statement
  • Business licenses

While the entire process of applying and getting approved for a small business loan may take a lot of your time and energy, remember that you have the power to make it less stressful for you. How?

Don’t leave yourself clueless. Know the process. Remember that “by failing to prepare, you are preparing to fail.”

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