4 Key Steps to Getting a Small Business Loan


When starting a small business, every day is a battle. There’s a never ending list of things you need to be taken seriously. Things like web presence, prototypes, product photos, a mission statement, and shipping infrastructure are just a few of the essentials. As such, small business loans can be incredibly beneficial when used as a kick starter for your business. These loans can mean the difference between expansion or being stuck in your current state. They can lead to breakthroughs in research and development, or  help with something as simple (but just as important) as company morale. We’ve put together a short list of important steps to consider when approaching small business loans so that you can have a better chance of getting approved for one.

Step One: Have Your Books in Order

Whether borrowing from a big bank, small local lender, or a peer-to-peer lending site, the lender that is qualifying you is going to want to dig deep, and rightfully so. They’re going to want to make sure that you have professional business practices, that you pay your bills on time, and most importantly, that you are a consistent and stable business-minded individual that understands that money doesn’t come free. Depending on the size of the loan and the lender you choose you will have to provide information such as cash flow, gross margin, debt-to-equity ratio, accounts payable, accounts receivable, etc. Make sure you are able to speak coherently on all your financials and goals. The lender will not only want to see your books, but will probably want to speak to you regarding your long term plans, even your more pie-in-the-sky aspirations. One overlooked aspect of this step is knowing what you have in your pocket in terms of collateral. The difference between a secured and unsecured loan is what you put up as collateral so understanding what assets you possess is very important.

Step Two: Decide What Kind of Loan You Need

There are several different kinds of loans available to you. The fact is, people want to lend you money because they make money in the process. With that in mind, there is a long list of options to explore in order to gather loan capital. Namely:

Accounts receivable financing: This type of loan is a line of credit that is secured by your company’s accounts receivable and can be very helpful while waiting for payments from customers/clients but also needing to keep the lights on. The interest rate is usually variable and the loan is paid down as you are paid by your customer.

Working capital loans: This type of loan is used to finance the day-to-day operations of your company. This can take the form of expenses, low points due to seasonality, rent/lease, and equipment cost/upkeep, etc. The majority of working capital loans require some form of collateral in order to be secured and run for up to a year with a range of $10,000-$100,000.

SBA small business loans: These loans are offered by certain banks and come with low-interest rates and are backed by the Small Business Association. Despite looking very attractive at a glance, these loans are incredibly time consuming and have very strict requirements for eligible small business. You can learn more about them and the SBA here.

Small business term loans: Easily the most popular loan. The terms can be anywhere from six months to three years, amount ranges vary depending on the business, its needs, and the case it makes. They can be used for any purpose you want, can come secured or unsecured, and the interest rate can be fixed or variable. All this to say, this is a very malleable business loan and often ends up being the best choice.

Step Three: Figure Out Why You Need the Loan

Once you have your books in order and have decided on a loan to go after, you must focus on being able to explain why you need the money. This may seem somewhat backwards, but hear me out. There are always going to be reasons you need more capital, but when you actually decided to go after a loan you need to be very clear on your reasoning. Focus on one area, figure out how much you are going to need, and how you are going to spend it. Furthermore, look beyond the spending and have a sense of what you think spending will do, how long it will take, and why you think it’s important for your business long term. The lender is going to ask you very specific questions and it is good to know what you are talking about.

Step Four: Understand How Loans Work and What It’ll Cost To Have One

This may seem like too much for one step, but these are very important things you should spend time studying. Do you understand how loans work? It isn’t free money, it’s costing you interest. Sure you are getting x amount of dollars, but it will actually cost you more depending how diligent you are with payments, whether you only make your minimum payments, how long it takes to pay off the principal, etc.

Nothing is free, especially when it comes to running a business, but even more so when it comes to a business loan. As a business owner, all you can do to prepare yourself and know that you can never have too much capital. When applying for a business loan, it’s of the utmost importance to be well informed, obsessively organized, and to know what you need, where you are going, and have a clear vision of how you are going to get there. You have to prove to your chosen lender that you are a relatively safe bet, and the only way to do that is know all the pertinent information and be ahead of any question they could ask. Put in the adequate time in the preparation/studying phase, and although it won’t guarantee you the loan, it will definitely help you chance! 

Dante Berardi Jr.

Dante Berardi Jr.

Dante Berardi Jr comes to Hubba from a background in content creation and grant writing for musicians and artists. A writer/musician himself, Dante has a thirst to consume words and the stories they create when pieced together. He sleeps too little, reads too much, lives on coffee and will talk your ear off about vinyl.
Dante Berardi Jr.