How to Get a Small Business Loan
Summary
Learn how to get a small business loan with these 4 steps. From choosing the right loan to applying, you can grow your money know-how and secure the funding you need.
In this article:
*OneMain does not offer business loans.
Starting a small business is an exciting journey filled with the potential for growth and success. However, to get your business off the ground and cover day-to-day expenses, you’ll likely need some funding. Whether it's for purchasing inventory, upgrading equipment or managing cash flow, a small business loan can be a vital resource.
4 steps to get a small business loan
Check out these four steps when you need to secure funds for your small business.
Step 1: Decide which small business loan works best for you
When it comes to securing a small business loan, the most powerful research tool you have is, quite literally, at your fingertips: the Internet. It won’t take much searching for you to realize that you have plenty of funding options beyond standard bank loans.
Here are some ideas to get you started:
Small Business Administration (SBA) loan
An SBA loan is a government-backed loan from a federal agency that offers lower interest rates and longer repayment terms.1 It is a great option for small businesses.
Microloans
Microloans are smaller loans, typically up to $50,000, designed to help new and small businesses that may not qualify for traditional loans.
Microloans are offered by:
Nonprofit organizations: Many nonprofits, like Accion Opportunity Fund and Kiva, focus on providing microloans to small business owners. These organizations often pair loans with mentoring and financial education to set borrowers up for success.
SBA partners: Instead of directly issuing this type of loan, the SBA partners with nonprofit lenders through its SBA microloan program. These loans can go up to $50,000, with the average being around $13,000.2
Community Development Financial Institutions (CDFIs): CDFIs, like LiftFund and Grameen America, are mission-driven lenders providing affordable microloans to small businesses, particularly those in low-income or underserved areas.
Credit unions and local banks: Some community banks and credit unions offer microloans as part of their small business lending programs. However, microloan offerings at these institutions are less common than traditional loans.
Line of credit
A line of credit provides flexible funding that businesses can draw from as needed, which is ideal for managing short-term expenses or unexpected costs.
Many providers offer business lines of credit, including banks, credit unions and online lenders like Bluevine and Fundbox, which often have faster approvals. Additionally, nonprofits offer this option for small businesses, especially those in underserved communities.
Equipment financing
This type of financing allows a business to purchase necessary machinery or equipment such as computers, printers or kitchen gear, and the equipment is considered collateral for the loan.3 Collateral is a valuable asset like equipment or property that the lender can claim if you can't pay back the loan.
Step 2: See if you're qualified for a small business loan
Simply applying for a small business loan will not guarantee that you’ll get approved. Each lender will have different qualification standards, so it’s a good idea to understand what the requirements are before you click submit on a new application. Here’s what lenders typically consider:
Credit history
Lenders look at your personal and business credit history to judge if you are likely to repay the loan. A strong credit history could improve your chances of approval, get you better loan terms, and possibly result in a lower, or more competitive interest rate.
Business plan
A clear, well-organized business plan can go a long way in strengthening your application. Your business plan should outline your goals, strategies, target market and financial projections. Lenders want to see that you have a roadmap for growth and a strategy for how you’ll use the loan to achieve your business objectives.
Length of time in business
You may find it easier to get funds if you’ve been in business for at least a year.4 Established businesses are seen as less risky than startups.
Annual revenue
Your business’s annual revenue is a key indicator of its financial health and ability to repay the loan. Lenders may require a minimum annual revenue from $50,000 to $250,000.5
Step 3: Compare business loan lenders
Comparing business loan lenders before applying is important to ensure you get the best terms and conditions for your business needs. Here are a few ways to compare lenders:
Interest rates
Different lenders offer different interest rates. Comparing these can save you a significant amount of money over the life of the loan.
Repayment terms
Consider the length of the repayment period and other loan terms to find what best suits your financial goals.
Fees
Be aware of any additional fees that lenders might charge, such as origination fees, prepayment penalties or late payment fees.
Customer service
Good customer service can make the loan process smoother and more manageable, especially if you have questions or issues when repaying. Check online reviews and ask other business owners you know and trust about their experience with different lenders.
Step 4: Apply for a small business loan
Once you’ve decided what type of business loan you need and which lender you want to go with, it’s time to apply. Lenders will most likely ask for the following documents during the application process:
- Personal information about all owners (name, address, SSN, date of birth)
- Business plan
- Personal and business tax returns
- Financial statements (balance sheet, profit and loss statement)
- Bank statements
- Legal documents (business licenses, articles of incorporation)
- Details about collateral (if applicable)
To avoid any delay, make sure that you fill out your loan application accurately and submit all required documents. If you're approved for the loan, your next step is to review your loan documents and accept the offer if everything looks good. Funding times will vary depending on the lender and the method of payment you've chosen.
Plan how you'll use your small business loan
Securing a business loan is just the beginning; planning how to use those funds effectively is crucial for your business’s success. Allocate funds to essential areas such as inventory, marketing, employee salaries and operational costs. It's also a good idea to set aside a contingency fund for unexpected expenses.
Review your budget regularly to ensure you're on track and adjust as needed. By creating a plan for your funds, you'll maximize the impact of your loan and set your business on a path to sustainable growth.
Your business dream is just a loan away
Securing a business loan can be a game-changer for your small business, providing the funds you need to grow and succeed. Remember to research your options, ensure you meet the qualification criteria, and compare lenders to find the best fit for your needs.
Source:
- https://www.sba.gov/funding-programs/loans
- https://www.nerdwallet.com/article/small-business/sba-microloans
- https://www.bankrate.com/loans/small-business/what-is-an-equipment-loan/
- https://www.bankrate.com/loans/small-business/how-hard-is-it-to-get-a-business-loan/
- https://www.nerdwallet.com/article/small-business/how-to-apply-small-business-loan
*This article has been updated from previous postings from 2016-2019. Stephanie Lo, Jessica Leshnoff, and Kim Gallagher contributed to this article.
This article is for general education and informational purposes, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any purpose and is not intended to be and does not constitute financial, legal, tax, or any other advice. Parties (other than sponsored partners of OneMain Financial (OMF)) referenced in the article are not sponsors of, do not endorse, and are not otherwise affiliated with OMF.
