How to get your small business loan

Small business loans can help you maintain and start your business. While tightening lending standards may make it difficult to get a loan, learning to navigate the process ahead of time will help you succeed. Finding a business loan for your business with the right interest rate can be difficult. From SBA and PPP loans to term bank loans, we'll go over all the information you should know so that you can make the best choice. Some small business loans come quickly, others take longer, some are expensive, and others offer inexpensive funds.

Decide why you need a small business loan

Lenders will ask the reason for getting the loan, and you should ensure that you can articulate that clearly. There are four main reasons why a business owner applies for a loan and it very likely that your reason may fall under one of the following categories:

  • For business expansion
  • To start your business
  • For cash flow to manage daily expenses
  • To build a safety net

Your purpose for applying for a loan will help you determine whether you are trying to meet short term or long-term financial assistance. You will also need to determine a suitable payback period. Long term loans with a payback period of 10 years or more tend to have the lowest interest rates, resulting in low monthly installments. Therefore, if your business needs require long term financing, long terms loans may work in your favor. However, if you are planning an early repayment, check with your lender about penalties.

Prepare your business plan

According to the small business mentoring organization research, a business plan has two main goals. First, it acts as an organized roadmap to help you analyze your plans for marketing, sales, production, distribution, etc. The second goal is to seek funding from a credit union, bank, or another type of lender. Many lenders and financial institutions will not approve your loan unless you submit a thorough business plan that details your steps to success.

To ensure that you have a strong business plan, you should include both projected and current financials as well as demonstrate that the business will have adequate cash flow to handle current business expenses along with the new loan installments. This will improve your chances of having the loan approved. Other important details to include are:

  • Business and service description
  • Industry analysis
  • Senior management team overview
  • Operations plan
  • Sales and marketing strategy
  • SWOT analysis (strengths, weaknesses, opportunities, threats)

Decide which loan is the right fit

The reasons why you need a loan will help you decide on the type of loan. It is important to note that if you have a startup business, you may not get a loan in your first year of operation. Lenders need cash flow to support loan repayment, which is why startups are usually not eligible for funding. Instead, aspiring entrepreneurs can rely on business credit cards, crowdfunding, a micro loan from a non-profit lender, loans from friends and family, and personal loans. For businesses with one-year history and income, you have more financing options, including SBA loans, business lines, invoice factoring, and term bank loans. The Paybby and Wicket blog has various articles to help you decide which lenders suit your business needs.

Check your qualifications

Begin the loan application process with a clear view of the financial position of your business. Then ensure that you have a strong credit score and have gathered all the required documents.

Credit Score

It is important that every small business owner is aware of and actively monitors their credit ratings so that they can quickly correct any mistakes in their credit reports. Both business and personal credit ratings are essential and will determine which loans you are eligible for. The Paybby and Wicket blog has many informative articles on business lending, small business loans, personal loans, banking, and more.

Collect documents

The paperwork requirements for each lender are slightly different. Typically, the required documents include:

  • Business tax returns
  • Balance sheet and income statement
  • Profit and loss statements (from the beginning of the year to the date)
  • Commitment schedule (list of all the company's debt)
  • Personal tax returns
  • Commercial or Business Leases
  • Additional Resources
  • Personal financial statement

The Paybby and Wicket blog was created to support entrepreneurs with up-to-date information on running a successful business. We have everything you need for banking, PPP loans, small businesses, and startups.