If you’re a small business owner, you’ve probably already heard the intimidating statistics on average business failure rates. According to the Small Business Administration, up to 20% of all small businesses fail within the first year, and only 33% of all small businesses survive for a full decade.
One of the primary reasons for these business failures? Financing hurdles.
Managing your company’s financing can be both stressful and difficult, but financial strain doesn’t have to be something that puts your business in jeopardy. Getting a small business loan can be a great way to stimulate your finances and increase your long-term profits—as long as you can successfully get approved. If you’re wondering how to get the small business help you need, here’s what you should know.
Decide Where to Apply for Your Small Business Loan
There are many sources of small business aid, though the details of their terms and conditions will vary. Before you work toward approval, it’s important to decide the best source of funding for your business. Here are some of the most common options:
Conventional Business Loan
The traditional method of obtaining a business loan, this option functions much like a personal loan. With conventional business loans, the bank takes on the full risk in the case that your business defaults, meaning that their requirements can be very strict. To take out this type of business loan, you’ll go through a bank, credit union, or other financial institution.
SBA Loans
The SBA backs these loans, which are great for businesses that don’t qualify for a conventional loan or those with a shorter credit history. The requirements are often less strict than those of a conventional business loan and offer more competitive rates and terms.
To take out an SBA loan, you’ll work with a reputable private lender like Your FundingTree. In some cases, you can also opt for SBA Express loans for a faster processing time.
Additional Loan Options
If the more conventional loans above aren’t flexible enough for you, there are a few additional options worth considering:
- Business line of credit: This option works in much the same way as a credit card, offering added flexibility without the need for collateral
- Equipment loans: These loans are designed to help you finance tools and equipment for your business
- Invoice factoring and financing: These options are helpful for businesses with unpaid invoices
- Microloan: These loans come in smaller amounts, often up to $50,000
To decide which option is right for you, you’ll need to determine your business’s needs, collateral, and more—all of which you’ll consider in the next step.
Decide Whether You’re Likely to Qualify for Small Business Financing
Before you start digging into the details of potential business loans, you’ll want to determine whether or not you’d be considered a good candidate for financing. This means understanding what companies are looking for when they consider whether or not a candidate qualifies for a loan.
Credit Score
Creditors prefer to lend money to candidates with a reasonable credit score—often above 680.
If your credit score falls somewhere below this figure, you may not be out of luck, however. Some lenders offer small business assistance for borrowers with bad credit. If you can afford to take time to improve your credit score, of course, you may be able to get a better offer by waiting until you have a higher score.
Time in Business
Lenders will also look at the amount of time your business has been in operation. Businesses that have been around for longer tend to be more stable than newer brands that have just opened their doors. In most cases, you’ll need to have been in business for at least a year for online loans, and two years or more for traditional bank loans.
Cash Flow
Like any other loan, business loans require you to make monthly payments. As a result, any lender you partner with will take a hard look at your cash flow to decide whether or not you can afford these regular payments.
Business Revenue
Your business may need to meet a minimum required revenue if you want to be considered for a business loan. This minimum amount can vary from $50,000 to $300,000, so you’ll need to look at the specific requirements for any loan you’re considering.
Collateral
If you prefer to opt for a secured business loan, you’ll need to provide collateral. For lenders, this will decrease their risk of partnering with you, and it can also score you a lower interest rate. Consider what you might be able to put up as collateral—often real estate or equipment—to decide if you’d qualify.
Fill Out Your Application
Once you’ve chosen a type of loan and determined your likelihood of qualifying, it’s time to fill out an application.
You’ll need to gather essential information about your business, like documentation on your cash flow, tax returns, and any applicable licenses. You may also need to gather your personal tax returns and bank statements.
Depending on the lender, you may also need your business plan or a business forecast. For these lenders, it can be helpful to take time to strengthen these documents with details on how you’ll use the loan to increase your profits.
From there, fill out your application with care, and be sure to follow the lender’s instructions to the letter. You may also want to consider having someone else review it for you before you submit it. If desired, you can get a professional to look over it by reaching out to your local Small Business Development Center.
Once you’ve applied, it can take anywhere from a few days to a few months to hear back, depending on the loan option you’ve chosen. Cross your fingers and settle in for the wait!
Get the Financing You Need for Your Brand
At the end of the day, applying for a small business loan doesn’t have to be an intimidating prospect.
The process does, however, require a substantial amount of preparation and research. Make sure you’ve weighed your options with care, and reach out to a prospective lender with any questions and concerns about their terms. With a little effort, you can find the loan that works best for your company!
Looking for more of the finance tips you need? Check out our other guides for additional insights.
