How To Get A Business Loan: The Ultimate 10-Step Guide

Knowing how to get a business loan will allow you to expand your company.

The application process can be complex if you are not familiar with the ins and outs of borrowing money from financial institutions.

That's why we've put together this guide. We'll cover what lenders are looking for, the different business loans available, and how to complete an application.

How To Get A Small Business Loan

1. Decide Why You Need Business Financing

Before taking any steps, you must understand your reasons for getting a loan. Also, you should know what advantages you expect to see out of getting out of the planned investment. Some helpful questions to ask yourself could include the following:

• How much money is the business going to need?
• How much return on investment will the company benefit from?
• What will you use the money for? Instead of a generic answer, get specific – for example, increase the ROAS by doubling our monthly ad budget.
• Are there any benefits to getting additional money through a loan instead of waiting for the business to save up some cash?

Once you know what benefits you expect from a loan, it will be easier to keep your goal in mind and communicate it clearly to the lender.

2. Decide on the Type of Loan

There are many lending products, all with their pros and cons. The type of loan you choose will depend on your business needs and the interest rates and repayment period your business can afford. Here are just a few options to choose from:

Term Loans

A term loan will provide your business with a lump sum of money upfront that you must repay over time. Term loans are repaid with interest and have a pre-determined repayment timeline. They are some of the most popular types of loans. Apply For A Business Loan!

Equipment Loans

If your business needs machinery or equipment, you may look for an equipment loan. These loans will help you acquire these products, and the loan terms last the lifetime of the equipment. However, you risk using outdated equipment in the future without the ability to replace them.

SBA Loans

Banks and lenders offer these loans through the Small Business Administration (SBA). Because they are government-backed, SBA loans can provide you with low, reasonable rates. That said they can be challenging to qualify for and even harder to apply for. They offer different loans that allow business owners to buy equipment and real estate or to expand employment.

Microloan

Microloans are loans typically under $50,000. Commercial banks rarely make these loans, but you may be able to get them through:

• nonprofit organizations
• small business lenders
• online lenders

Because microloans are smaller, there is less interest to pay and a shorter repayment period.

3. Calculate How Much Money You Need

Depending on where you are in your business journey, you might already have a good idea of your expenses, such as office space or licenses and permits. However, if you're in the earliest stages, you may not be sure about that. Using the Small Business Administration's Startup Costs Worksheet is a good place to start. If you're unsure of what these expenses look like in your area, it may be helpful to build connections with other entrepreneurs. They can help you make an accurate projection of your costs. If you are getting a loan to fund progress toward a specific goal, there are some other factors to keep in mind, such as:

• How long you will need the money. This could impact what interest rate you are willing to accept because that interest will compound over time.
• What your future financing needs might be. Projecting your cash flow over the next three years and how much money you'll need to keep up is important before deciding how much to borrow now.

4. Determine the Payments You Can Afford

Based on your cash flow, credit score, and personal debt-to-income ratio, you may not be able to afford the loan you're looking for. It's crucial to figure out a realistic estimate of how much you can afford.  Even if you can comfortably afford monthly payments on the amount borrowed, the interest can stack up fast. Account for the average business loan interest rates and determine what payments you can afford. If you don't include these interest rates in your calculations, you could end up with payments you cannot pay. We recommend that you use a business loan calculator to simulate a loan. [bussiness_loan_calculator]

5. Decide if You Want to Offer Collateral

If you have collateral to offer, it may increase the amount you can borrow. It can also add increased risks if you cannot pay back the loan for whatever reason. Whether this risk is worthwhile is a decision that only you can make. Collateral is an asset that has value, but some assets are better to use as collateral than others. In general, when applying for a business loan, the best collateral to use would be an asset that lenders can liquidate quickly if needed. Securities can also work, but they aren't as favored by lenders.

6. Compare Business Lending Options

You will want to compare as many as possible to get the best rates and terms for your business loan. The three main types are:

• Banks. They are the most traditional type of lenders. Generally, they usually have the lowest interest rates but also require the most documentation.
• Online lenders. These lenders have become popular in recent years. They use technology to speed up the lending process and often have more flexible requirements than banks.
• Alternative lenders. They are a type of lender willing to take on more risk than traditional lenders. They often have higher interest rates but can be a good option for businesses that don't qualify for a loan from a bank.

7. Check Your Eligibility

Once you have narrowed down to a handful of lenders, you need to check your eligibility. Most lenders require the following:

SSN

You must provide your social security number to apply for a business loan.

The lender will use this number to check your credit score and determine your eligibility.

Personal and business credit scores

Some lenders may be more lenient on credit scores. If you are looking for a small business loan, however, they may look more closely at your personal credit score.

Most lenders require a personal score over 600.

Annual revenue

Many lenders have minimum monthly or annual revenue requirements you must reach so they can even consider you as a candidate.

Most financial institutions will ask you to make a minimum of  $100,000 annually.

Lenders will ask to see bank statements to learn what your revenue is.

Business plan

How you plan to run your business will play a prominent role in your eligibility. Lenders will want to know how you plan to manage your business with this potential financing.

Years in business and industry

The minimum amount of years in business will depend on the lender. Most banks require at least two years in business.

Business industry and size

If you want an SBA loan, ensure your business qualifies as a small and for-profit business.

The SBA will also ensure you are current on all ongoing and previous government-provided loans.

Plus, there are some industries whose applications lenders don't approve.

At Camino Financial, we have lenient requirements for our loan process. Here are some examples of how we stack with the competition:

• We don't require a business plan
• You only need to have an active and registered business for 12 months
• You need an annual revenue of just $30,000
• If you don't have an SSN, you can apply with your ITIN.

Start a loan application

8. Gather the Required Documents

Depending on the type of loan you are applying for, there may be some differences in the documents required. However, some standard documents are good to have in one place that is easy to access. This list includes

• The goals and ROI you expect to achieve with this loan
• How do you plan to pay it back (collateral)
• Both personal and business income tax returns from the past three years
• Financial statements include your balance sheet, income, cash flow, and bank statements.
• Accounts receivable and accounts payable
• Articles of incorporation
• Business licenses and registrations
• Copies of any contracts. This includes contracts with third parties, commercial leases, and franchise agreements

Also, consider if there are any industry-specific documents that a potential lender would like to see and add those to your list. Some lenders, like Camino Financial, offer a completely digital process. This allows you to submit all documents online anywhere, anytime.

9. Submit Your Commercial Loan Application

It's time to apply! Depending on the lender, you can do it online or in person. Visit the lender's website and fill out an online form, or go into a branch and speak to someone in person. Ensure you provide accurate information about yourself, your business, and your plans for the loan. Providing false information will hurt your chances of getting the loan. Be prepared to send additional documents or information and verify your identity.

10. Wait for a Decision

The amount of time it takes to receive an answer will depend on the lender. More traditional lenders often take several weeks to decide your eligibility and provide you with an answer. This timeline may also fluctuate if there is a collateral requirement. If this is the case, you may need to wait for an appraisal of your collateral. This adds to the time it takes to decide but will provide you with the amount and interest rates your business qualifies for.

At Camino Financial, you can receive an answer in a few days.

The next step is signing the loan agreement and making repayments if you receive loan approval. If you are not approved, the lender will usually:

• give you feedback on why your application was unsuccessful
• tell you what you can do to improve your chances of receiving approval

Tips for getting a commercial loan

These tips will help you submit a successful loan application:

• Make sure your credit report is free of errors. Review your credit report to be sure everything is correct; if not, fix the errors.
• Be realistic. If you set an unrealistic goal (like turning a mom-and-pop store into a multinational in 6 months), the lender will think you don't know how to run a business.
• Have a plan. Even if the lender doesn't require it, writing a business plan is a good idea. It will be the road map to help you make sound investments and stay on track.
• Be sure to ask questions. Ask any questions you have before submitting your application. Having all the information upfront can help ensure that everything goes smoothly.
• Stay organized during the process. Keep track of the documents you submit and follow up with your lender periodically to ensure everything is going smoothly.
• Strengthen your credit score before applying. Try to improve your score by making timely payments on your existing debt or paying off past debt before filing a new application.

Why You Should Apply For A Business Loan

Help you keep ownership of your company

Other financing forms, such as selling equity, can mean letting other people take on some level of ownership of your company.

With a business loan, you maintain full ownership.

Submitting payments online can raise the credit score of your business

By making payments on time, you can improve your business's credit score. This empowers your business to access more opportunities later.

Not all lenders report payments to credit bureaus.

There are a variety of loans available

Some examples you may have heard about include lines of credit and commercial installment loans.

Helping your business grow

When used wisely, business loans can empower you to expand into a new market, offer new products, or hire more employees.

While the upfront costs of these decisions can be high, a loan can help you pursue them sooner, leading to profitable and relatively fast growth.

If you have realized that a business loan is exactly what you need, we recommend applying with Camino Financial. Our requirements, easy application process, and customer service differentiate us from the competition. Act now! Apply For A Business Loan!