How to Get a Small Business Loan

Written by Kit Jenkin

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Have you ever wanted to start your own business but were held back because you didn’t have the necessary funds to launch your company? You’re not alone, and many entrepreneurs in your shoes turned to small business loans to get started. We show you some of the most common ways to get a small business loan.

Understand Your Financial Needs

While it may sound elementary, you need to determine why you’re seeking a loan (1) before you start looking for a lender. You’re more likely to get approved for a loan if you can clearly explain the following:

  • Why you need the loan (to rent a business space, for new equipment, marketing, to hire employees, etc.)
  • How much money you need (it’s crucial to get this amount correct)
  • Your budget for loan repayments (and how long you’ll need to repay the loan)

It will take some time to work through your business plan to determine what you need, and a realistic way to pay back any funds received.

If you get stuck in this phase of the loan process, you may wish to consult with a business accountant who can help you estimate business expenses and potential income to determine the loan amount you’ll need and an appropriate repayment schedule.

Once you have a clear plan for how you’d use a small business loan, how much you need, and how you’ll pay it back, you’re ready to start investigating the types of business loans that are available.

Types of Small Business Loans

A few of the most common types (2) of small business loans include:

  • Term loans
  • Business lines of credit
  • SBA loans (3)
  • Personal loans

Each of these loans has pros and cons, and we examine each one in more depth below.

Term Loans

A term loan (4) is probably the first thing that comes to mind when you think “loan.”  This type of loan is for a set amount, at a set repayment schedule, for a set or variable interest rate. For example, a $25,000 loan at a 4.5% interest rate that must be repaid within 10 years would be a term loan.

These are offered by nearly every lender, including online lenders and banks, and are usually fairly easy to get if you meet the qualifying conditions.

However, they aren’t very flexible, and it may be hard to find a term loan that meets your specific needs or a lender who’s willing to work with small businesses that don’t have a lot of assets yet. 

Business Lines of Credit

These are often based on the amount of capital you have in your business, much like a home equity loan would be based on the value of your home. Similarly, business lines of credit (5) are accessed when needed, for the specific amount needed.

If you don’t end up using the anticipated line of credit amount, then you’ll only pay interest on the amount you did use when repaying the credit line.

You even have multiple repayment options, such as weekly, monthly, or on some other schedule, depending on the lender. This is by far the most flexible loan option available.

The biggest downside is that it may be more difficult for new businesses to qualify for a line of credit than for other types of loans.

SBA Loans

These loans are issued by the U.S. Small Business Administration, and there are many types available, in nearly any amount you could need. There is a loan cap between $350,000 and $5,000,000 depending on the type of loan.

These loans often have a long repayment period (as much as 25 years for some types), which can be a great option for businesses just starting out.

However, be aware that loans greater than $25,000 typically require some type of collateral to be approved. In addition, you could end up waiting a while to receive the funds—sometimes as long as 90 days (6) after applying.

Personal Loans

Yes, you can take out a personal loan (7) and use it for your business expenses, as long as there’s no fine print in the loan agreement prohibiting it. These may be the easiest type of loan for new small businesses to get since they don’t require any type of collateral.

However, the loan amounts offered are typically smaller than a regular small business loan, and they often need to be repaid more quickly than a small business loan would be.

The Loan Process

Maybe you’ve found the perfect loan and you’re ready to move forward.  Typically, you’ll need to complete a loan application, which can often be done online. 

Loan Application

The application may review your personal credit score, and, if it’s established enough, your business’ credit history as well.

A few of the things that may be asked for on the application (or filed with the application) could include:

  • Credit reports for you and your business
  • Financial statements (personal and business)
  • Cash flow reports (8)
  • Why you want the loan

You may also be asked to provide additional documentation, such as proof of collateral, depending on the type of loan or the specific lender.

Small business lenders want to be sure that your company is a good financial risk for them, and any negative credit history could result in losing the loan.

Of course, some lenders will allow you to get a small business loan even with an unsavory credit history and negative cash flow, but those lenders may charge you a higher interest rate, expect the loan to be repaid more quickly, or require a higher amount of collateral.

Application Review

The loan application will then be reviewed by someone at the lending agency, who will either approve or deny your small business loan.

You may be able to work through any issues with an underwriter during the approval/denial phase, depending on the lender.   

Receiving Funds

Once you’ve obtained your approval and the loan has been underwritten, it will formally close, and you should receive the funds within a few minutes to a few weeks (9), depending on the type of loan you chose and the lender you ended up using.

If you’ve been denied the loan, find out why so you can do the necessary work to apply again at a later date and get approved. 

When you do have your business up and running, you’ll want to think about a few ways to reduce your expenses, especially if you’re working on repaying a business loan.

Cutting Costs

With loan repayment on your mind, you’ll want to keep your other business expenses down.

While streamlining production, reducing duplicate roles, and cutting down on material waste can all play a part in this, many business owners fail to think about how their point of sale system is costing them money.

Epos Now can save you time and money by combining multiple services into one system, including inventory management, data reports, e-commerce integration, and of course, secure checkout and payment options.

Not only that, but Epos Now works with Visa, MasterCard, and American Express to name just a few, and was recently ranked as one of the best POS providers in the country by US News and World Report (10).

Now that you’ve gotten all the funding you need and have increased your cost-effectiveness with Epos Now, you’re ready to welcome customers!

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