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If you’re a business owner, there may be times when you need an infusion of cash to cover business operations, buy equipment, make upgrades, or to start the business in the first place. That’s why it’s important to know how to get a business loan in case you ever need one.
Getting a business loan involves figuring out the right loan for your needs, comparing lenders, gathering the proper documentation, and completing an application. Follow the detailed step-by-step process, learn what you need to qualify, and understand your business loan options.
How to Get a Business Loan
Getting a business loan is similar to other loans you might have gotten, but there are a few additional aspects that come into play.
Step 1: Determine Why You Need A Loan, and How Much Money You Need
There could be a number of reasons why you’d need to borrow for your business, from having enough working capital to meet your operating costs, to purchasing new equipment or refreshing your retail or office space, to expansion. As for how much, ideally, you want to figure out the “just right” amount so you’re not overextending yourself, but you also don’t want to come up short.
Step 2: Figure Out the Type of Loan That’s Best for You
Do you want a loan with fixed payments and a long period of time to pay back? Would you be better off with a line of credit you can pull from as needed? How do you feel about putting up collateral? Does your credit and business situation put you in a good position to qualify for competitive loan options? These are just a few of the questions to ask yourself.
Step 3: Shop Around for Lenders
Once you know how much you need and the type of loan you’re aiming for, you can start looking into lenders to get more details on how to qualify. You can also get an idea of rates and term options so you can compare and find the best deal for you.
Step 4: Review the Qualifications to See If You Meet Them
Every lender and type of business loan could vary when it comes to what’s required for approval. It may be a particular credit score, or having a certain amount of business income. Make sure you meet at least the minimum requirements before you apply, so you can save yourself time and effort.
Step 5: Gather Your Documentation and Apply
Once you find a lender and loan that works for you, make sure you have everything you need in front of you so you can complete the application. This can include business banking statements, tax returns, personal information, and more.
Just because you don’t meet the eligibility for one lender doesn’t mean you won’t qualify for another product. There are business loans for all levels of business, even start-ups that have poor credit. Just note that your credit status and business financials will impact the cost of borrowing.
What You Need to Qualify for a Business Loan
Getting a business loan is possible even if you don’t have perfect credit or are a fairly new business, but qualifications vary depending on the loan program and lender. That said, there are a few eligibility factors for business loans that most loan programs have in common.
Credit Score
Business lenders will most likely review both your personal credit score and your business credit score, but in some cases, they might focus on one over the other.
Business History
Usually, to qualify for a business loan, lenders require that you be in business for a certain amount of time. It could be two years, one year, or six months. It all depends on the lender.
Revenue
Knowing that your business brings in a certain level of revenue on a consistent basis will make you a less risky borrower. That’s why some lenders want to see your business financials to determine if they will extend the loan to you.
Documents You Need to Apply for a Business Loan
Personal
When you apply for a business loan, you’ll still need to show a form of personal identification, provide your social security number, and give permission for the lender to run a personal credit check.
Financial
Lenders may want to see a mix of personal and business financial documents, including tax returns, profit and loss statements, bank statements, etc.
Legal
Most of the legal documents you’ll need are for your business, such as your business license, business lease, articles of incorporation, and business plan (if going for a start-up business loan).
Types of Business Loans
When you’re looking for the best business loan for your needs, here are some options to consider:
- Term loan: Get an up front, lump sum of cash and pay off with fixed payments for the loan term.
- Line of credit: A revolving credit line that lets you borrow as much as you need, pay it back, and draw from it again.
- Secured: These loans require the borrower to put up collateral to offset the risk to the lender.
- Unsecured: These loans rely on credit history and other factors to determine eligibility since there is no collateral involved.
- Merchant cash advance: Borrowers get a lump sum of money, and then pay the lender, which is often a payments processor, a small percentage from the revenue they earn.
- Invoice factoring: Short-term loans used to provide cash flow in which the lender applies a factor rate to the principal amount. Example: A $20,000 loan with a factor rate of 1.2 would be $24,000 ($20,000 x 1.2).
Compare the Best Business Loans
| Lender | Loan Amounts | Days to Fund | Note |
|---|---|---|---|
| OnDeck | $5,000–$250,000 | Same day as approval | Minimum credit score: 625 |
| Rapid Finance | $5,001-$1 million | As fast as 24 hours | No minimum credit score; variety of business loan types |
| Fundbox | Up to $150,000 | Next business day | Minimum credit score: 600 |
| Bluevine | $5,000–$250,000 | Same day as approval | Minimum credit score: 625 |
| Accion | $5,000-$150,000 | Not disclosed | An option for startups |
Can You Get a Business Loan With No Business Revenue?
While most business loans want to see consistent business revenue as one of their eligibility requirements, there are some loans like microloans that are geared toward startups that won’t yet have that track record of earnings. Another option is to find an alternative lender that offers loan programs that offset risk by asking for collateral or having higher credit standards.
What Credit Score Is Required for a Business Loan?
Do Business Loans Require Collateral?
Not all business loans require collateral, but some do. Usually, if you’re putting up collateral, it’s to compensate for not having a high enough credit score or being in business for a short time. Going with a collateral loan (or secured loan) may allow you to get a lower interest rate than an unsecured loan. Some businesses will use their inventory as collateral during warehouse financing.
What Qualifies as a Small Business?
While some may think of small businesses as solo practitioners or mom and pop shops, the Small Business Administration has a far broader interpretation. To qualify as a small business, a company cannot exceed standards for average annual revenue or average number of employees, depending on the industry. For example, soybean farmers are considered to be a small business up to $2.25 million in annual revenue, while flooring contractors are small up to $19 million in annual revenue. New car dealers can employ up to 200 people and still be considered a small business, while short-line railroad operators can hire as many as 1,500 workers and still be considered small.
