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5 Steps to Getting a Small Business Loan

Planning Your Future

If it’s time for your startup to start going up, a small-business loan may just be what you need.

The process of applying for a small-business loan can be confusing, but we’re here to help guide you through the process. Below are five manageable steps to securing funding for your business needs—whether that’s for expansion or handling the day-to-day. If you need any help along the way, a representative from SELCO’s Commercial & Business Banking division is at the ready.


1. See if you qualify

Before you get too far down the lending path, the first step is to make sure you qualify. There are a few factors that determine eligibility:

  • Credit score. Lenders will require a personal credit score and, in some cases, a business credit score. The former indicates your ability to repay personal debts, while the latter shows how likely you are to pay back lenders. Solid scores in both increase your chances of getting a loan (and at a better rate).
  • Business tenure. To land a small-business loan through most credit unions and banks, you’ll need to have been in business for at least two years. Through online-only lenders a minimum of one year is typically required.
  • Annual revenue. Do you make enough money at your business? Many lenders set a minimum annual revenue requirement—typically ranging from $50,000 to $250,000—which again serves as a safeguard for ensuring you can repay them.
  • What you can afford. Weigh your business’s income against rent, payroll, and all other day-to-day expenses to see how much you can devote to loan payments. If your monthly income is at least 1.25x your total expenses—including your new repayment amount for a loan—you’re in good shape.
  • Collateral. Many lenders will require you to put up a piece of property or equipment as collateral. Even if collateral isn’t required, offering one up may get you a larger loan and lower rate.

2. Establish loan type

Now that you qualify, what type of loan will you need? This will likely be determined by business need:

  • Starting a business. As mentioned above, a business must be fairly established to qualify for a small-business loan. But if you need help getting a new business off the ground, a Small Business Administration (SBA) microloan or personal loan are your best bets.
  • Managing day-to-day. Need help bridging the gap between sales and collecting accounts receivable/selling inventory, or covering expenses like unexpected repairs and general equipment upkeep? A business line of credit or credit card could offer a safety net to tap into when the need arises.
  • Growing your business. If you’re looking to expand—whether it be your workforce, equipment, or space—consider a government-backed SBA loan or traditional term loan.

3. Compare lenders

There’s no shortage of lenders out there. Who should you go with? The good news is, there are a number of sources that cater to a business’s situation.

  • Online lenders. Borrowing from an online lender is beneficial if your business is still relatively new, you need funding quickly, or you lack collateral. This is often the quickest way to secure a loan, too—sometimes in less than a day.
  • Credit union or bank. If you’ve been in business for two-plus years and your business operations and credit are healthy, a loan from a credit union or bank could be the way to go. By checking the good-credit and years-in-operation boxes, you’ll likely get a great rate, too.
  • Small Business Administration. If your business is brand new, or you have poor credit or no collateral, an SBA microloan (ranging from $500 to $50,000, with the average loan coming in at $13,000) may be the best option.

4. Gather documents

Time to round up the paperwork. Locating and organizing the proper documentation will help streamline the application process for a small-business loan. Depending on the lender, here’s what you’ll need:

  • Business and personal tax returns
  • Business and personal financial statements
  • Business legal documents (e.g., articles of incorporation, commercial lease, franchise agreement)
  • Business plan, detailing your goals and how you will achieve them.

5. Apply

Once you’ve determined the loan and lender type and have your required documents ready, there’s nothing left but to apply. Place a few similar options side-by-side and take stock in each lender’s annual percentage rate (APR) along with their requirements (collateral, minimum annual revenue, etc.), and make your choice from there. If you’re lucky, you’ll be able to complete the application fairly quickly. The speed of funding can vary greatly, though—from a day to several months—so be patient.

By going through the heavy lifting leading up to the main event, applying for a business loan becomes the easy part. Then hopefully your reward is right around the corner—collecting the funds you need to take your business to the next level.

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