Running a small business isn’t easy. From paying rent to stocking materials, there’s no shortage of expenses to cover. To help meet these demands, many entrepreneurs rely on business loans.
A small business loan is a sum of money granted by a lender and designated specifically for business purposes. Similar to other loan types, it needs to be repaid (with interest) within a certain timeframe. Thus, it’s best suited for people that already have a business and a regular cash flow (as opposed to those just starting a business). If you need help financing your company, here’s everything you need to know about how to get a business loan.
Evaluate Your Loan Options
When it comes to small business loans, every lender has its own requirements — it’s important to find one that meets your needs. Here are some of the most popular types of business loans available.
Small Business Administration (SBA) Loan
The SBA is an agency that serves as a mediator between lenders and small businesses. Its goal is to reduce risk for lenders while making it easier for small businesses to get loans. Funds usually range from $50,000 to $5 million and come with favorable terms.
Traditional Bank Loan
One of the simplest ways to get a loan is by going to your bank. To determine whether you qualify, many banks will evaluate factors like your credit score, profits and the amount of time you’ve been in business. Bank loans often have rigid terms and may require collateral.
As the name suggests, a microloan is usually a small sum of money (such as $50,000). This loan type is ideal for businesses that aren’t generating much revenue or for companies and people that don’t have great credit scores. Microloans are available at most lending institutions.
Non-Bank Online Loan
A non-bank online loan is a great option for anyone that needs funds quickly. However, in exchange for speed, these loans generally have short repayment terms and high annual percentage rates (APR). They usually prioritize revenue over credit.
Estimate the Cost of Your Loan
Once you have an idea of your desired loan type, the next step is to estimate how much the loan will cost. You don’t want to spend the time and energy applying for a loan, only to realize that it’s too expensive. To estimate the loan cost, you can use an online loan calculator, which requires the following information:
- Loan amount
- Repayment term
The APR varies depending on the loan amount and repayment term. You can view an estimate of 2021 APRs here.
Get the Right Documentation
To officially get your small business loan, you’ll need to submit an application. Many lenders will ask for the following:
- Business and personal credit scores
- Bank account statements
- Tax returns
- Business licenses and registrations
These documents show lenders that you can pay back your loan. Establishing your credibility and demonstrating your trustworthiness is your best bet for getting favorable loan terms.