Small business loans can help you start or maintain your business. Applying for a small business loan can be an overwhelming experience if you’ve never been through the process. Learning how to navigate the process ahead of time can help you secure necessary funding more quickly when you need it. Here’s how to apply for a business loan.

Types of Business Loans

There are numerous ways to fund a business including the following types of loans:

Government-Backed Loans

Startup loans are available through programs administered by the U.S. Department of Commerce’s Small Business Administration (SBA). Borrowers apply for an SBA loan through affiliated private financial institutions, including banks.

LenderMatch is one tool startup businesses use to find those affiliated private financial institutions. Government-guaranteed loans charge lower interest rates and are easier to qualify for than non-guaranteed bank loans.

Traditional Bank Loans  

A traditional bank loan is the most popular form of business funding and generally offers attractive interest rates. Banks are usually reluctant to lend to new businesses without a track record. Using a bank to finance a startup generally involves taking out a personal loan, which means the owner will need a good personal credit rating and be ready to put up collateral to secure loan approval.

On-Line Business Lenders 

Online business loans have become a popular financing option as banks have scaled back on loans to small businesses. These resources often provide faster and easier access to business loans than traditional banks, though at higher rates.

Borrowing from online lenders isn’t best for everyone. If your business is just starting, you probably won’t qualify. If you’ve been in business for at least a year and need quick access to cash or don’t qualify for a traditional bank loan, online lenders are worth investigating.

The Loan Application Process

There are typically four steps involved to successfully apply for a business loan:

1. Decide What Type of Loan Fits Your Needs

Lenders will ask why you need outside financing and your answer will likely fall into one of the following categories:

  • To start your business
  • To manage day-to-day expenses
  • To expand your business
  • To provide a safety net

The reason will determine which type of small business loan you can obtain. For example, if you’re starting a business, it’s almost impossible to get a loan from a bank within your company’s first year of operations. Lenders require cash flow to support repayment terms, so startups are typically not financed by banks.

Instead, you’ll likely rely on personal loans, business credit cards, or other types of startup financing. Businesses with a year or more of history and revenue have more financing options, including government-backed loans and business lines of credit.

2. Gather Required Documents and Information

Before you apply for a loan, you need to make sure you have all of the required documentation organized and readily available. Depending on the lender, you’ll need to submit a combination of the following:

  • Business and personal tax returns (usually the last two or three years)
  • Business and personal bank statements
  • Business financial statements
  • Business plan
  • Business legal documents (articles of incorporation, commercial lease, franchise agreement)

3. Shop Around for the Best Small Business Loan

If you already have a business bank account, start with your bank but don’t end there. Check out several lending options to compare loan terms. Factors to consider include the annual percentage rate (APR), amount and term of the loan, fees, penalties, and how quickly the loan will be processed. Consider the total cost of the loan and make sure the monthly payment fits your budget.

4. Apply for a Business Loan.

Depending on the lender, it can take several weeks to get a loan approved, so don’t wait until the last minute to complete the loan application. Missing or incomplete information will delay the process.

Any lender will ask several questions including why you’re applying for the loan, how the funds will be used, and what other business debt you have. Also, anyone with a 20% or larger stake in the business usually needs to be listed on a loan application.

Find the Best Business Loan Options

A business loan can help you start your business, survive a slow season, buy essential equipment, or expand your operations. Whatever the purpose, obtaining a business loan is a serious financial commitment.

Before you apply for a loan, do your research. Identify your business goals and how financing can help you achieve those goals. Taking the time to research the right loan option for your business will help you save time and money.

Business owners often need assistance qualifying their financial needs, quantifying their current and projected financial performance, and presenting a complete loan application. An experienced accounting firm has the skills and knowledge to help small business owners as they consider loan options. Helping business owners through the loan process is just one example of how accountants provide financial consulting services for their clients.

At Nolan Accounting Center, our team of accountants and CPAs provide accounting, tax preparation, bookkeeping, and payroll services to small business owners in Southeast Wisconsin including Milwaukee, Greenfield, New Berlin, Muskego, West Allis, and Waukesha. We look forward to helping you with all of your accounting needs.