How to Apply for a Business Loan

If it is your first time applying for a small business loan, you may be a little overwhelmed and possibly lost because of all the information and options available to you. Applying for a business loan doesn’t have to be overwhelming or confusing. It’s fairly straightforward.

Follow these steps to learn how to apply for a business loan.


Apply for a Small Business Loan in 3 Steps

1. Check Your Personal and Business Credit Profiles

When applying for a small business loan, it's important to check your personal and business credit profiles to determine if you prequalify for a business loan. Many lenders will require both a hard inquiry into your business credit profile and personal credit profile. A hard inquiry can negatively impact your business credit score by bringing it down — making you less qualified for a business loan. Check your personal and business credit scores to avoid a hard credit inquiry.

Here are some things to keep in mind when evaluating your personal and business credit scores:

  • Make sure your business credit score is stellar. There are three main business credit reporting agencies; namely: Dun & Bradstreet, Experian Business, and Equifax Small Business. Pull each of these reports and scrutinizingly evaluate them. Make sure that all the information on these reports is correct and accurate.

    If you haven't always paid your bills on time or your business address is listed differently on your report than what it is with the Secretary of State, you might have a problem. It’s best to fix the problem and then apply for a business loan. Make sure to get your business credit profile up-to-date and cleaned up before you apply for a business loan. Otherwise, you'll likely be declined. 
  • Clean up your personal credit. Many lenders require you to have a fair personal credit score. Ensure that your personal credit score is as good as it can get before applying for a business loan. If you have some outstanding debt that you can easily pay off to improve your credit score, it is a wise thing to do. Doing so can greatly help your chances of getting a business loan.
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Recommended: Check out our guides on business credit and how to get a small business loan with bad credit.

2. Write a Solid Business Plan

A business plan formally organizes your business and provides insight into your business. Before applying for a business loan, you'll want to make sure that your business plan has been prepared to impress lenders.

Here are some tips to help you write a business plan:

  • Take your time when writing your business plan. Writing a business plan can seem like an arduous task that nobody really wants to do. However, writing a solid business plan is the most important thing you can do to help your business grow and thrive. A business plan especially helps when wanting a small business loan. Most lenders require them as part of the loan application process.
  • Include a business finance plan within your business plan. At some point, most businesses will require financing. Think of a business loan as a business tool. It is a tool that businesses can use to leverage other people's money to help it grow and prosper. Make sure you have a financial plan within your business plan. This will indicate to lenders that the reason you're taking out a business loan is to help your business grow, not to save it from previous management’s mistakes. The best time to apply for a business loan is when you don't need a business loan. The worst time to apply for a business loan is when your business is struggling and barely keeping afloat.
  • Include realistic financial projections and forecasting in your business plan. If the sales projections listed in your business plan aren't a true representation of your actual sales over time, this will be a red flag to potential lenders. They will likely decline your business loan application. Make sure your financials add up. The whole purpose of having a business plan is to help you manage your business and keep it on track. Lenders will measure your business track record, compared to your business plan forecasts, to determine if you can be trusted with their money.
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Recommended: Use TRUiC’s Free Business Plan Generator to start creating one today.

3. Decide Which Loan Is Best for Your Business

Selecting the right loan is one of the most important steps when applying for a small business loan. Not every lender will qualify for your time, and you definitely won't qualify for every lender's time. Select a lender that you want to do business with and who wants to do business with you. 

Some examples of the types of small business loans include SBA 7a loans, business term loans, small business lines of credit, factoring loans, and microloans. Some examples of the different types of lenders include traditional banks, online lenders, and microlenders.

Here are some tips for picking a business loan:

  • Know your financials inside and out. Knowing your financials will give you an idea of just how valuable your business is. The higher your business valuation, the more loan you qualify for. A new business that is open less than a year will qualify for significantly less loan than a well-established business with a proven track record. Some lenders won't lend to businesses unless they've been in business for a minimum of three years. Some lenders lend to businesses that have been open for less than a year. Find a lender whose requirements guidelines you fall into and build a list based on this.
  • Know your lending options. Traditional lenders are more difficult to deal with, as they have stricter requirements. Traditional lenders generally offer better interest rates and terms. Alternative lenders may approve you for a business loan easier, but the interest rate and terms may be significantly less favorable. Decide what your options are based on your business' unique circumstances and needs.
  • Apply to the lender with the best rates and terms. Once you've decided on a list of lenders you qualify with, who you want to do business with, go through the list and decide which lender best fits your business needs. Apply to that lender.
  • Submit your application. Submitting your application may require a walk into your bank to meet with a loan officer. Other lenders may require you to upload loan documents online. Other lenders may require a telephone call. Still, others might overnight the loan application through the mail, requiring you to fill it out and have it signed by a notary public.
  • Know the lender’s requirements. Make sure that when you submit your application, you include all the required loan documentation. If you leave anything out, you will be declined for the loan. In most cases, a lender does not reveal the reason an applicant was not approved. If you are declined for a business loan, make sure to ask why.
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Recommended: Learn more about the various small business loan requirements. You can also use our business loan calculator to determine the total cost of a loan.

Conclusion

Applying for a small business loan can be exactly what your business needs to accomplish your business’ goals. It's best to pick a business lender who closely aligns with your business goals.

Different lenders lend out different quantities of money. If you need a lot of money, you’ll need to select the lender that can offer you a lot of money if you need $10,000 or less. A small business credit card may be a perfect loan solution for your small business. Decide which option is best for you. Follow these steps we’ve laid out before you, and soon you’ll have a business loan.

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Next Step: If you’re ready to apply for a business loan, read our guide on How to Get an SBA 7(a) Small Business Loan, or learn about the other types of business loans.

FAQ

How do I get a business loan?

To qualify for a small business loan, you’ll need to do the following:

  1. Decide which loan is best for your small business.
  2. Pick a lender who offers the loan you’re seeking
  3. Gather together your business documents
  4. Complete an application
  5. Submit the requested business documents
  6. Wait to be approved 

How hard is it to get a small business loan?

The difficulty is determined by the type of loan you are seeking and the lender. For example, if you’re applying for a traditional term loan through a bank, you’ll likely be denied if you have no established business credit. If you’re applying for an online loan, they are not as strict on their requirements, and you may be able to qualify for a business loan. If you’re a new business or small business, we recommend applying for an SBA 7(a) loan. These are backed by the government, so they’re easier to qualify for when you’re trying to get funding for your small business.

What is the easiest business loan to get?

Online loans with higher interest rates are easier to qualify for than traditional bank loans and SBA loans. It’s best to select a lender that best suits your needs, and if this is not possible, try our alternative lending solutions.

How do I get a business loan with bad credit?

  • Know your credit scores
  • Research your loan options
  • Write a business plan
  • Provide collateral
  • Find a cosigner

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