Learn how to get a small business loan with help from Rapid Finance

Obtaining financing for your small business can feel overwhelming when there are so many options to choose from. To help set you and your business up for success, we’ve put together a guide on how to get a small business loan in just a few steps.

An introduction in how to get a small business loan

Small businesses are the backbone of America. From mom-and-pop storefronts, to restaurants, barbershops, retail and convenience stores, and startups, there’s always a small business nearby. And as a small business owner, there are a lot of things that must come together to make sure your business is a success — most importantly, capital.

Sometimes working capital is needed to expand, to consolidate debt, to cover payroll, or to simply continue operations if business temporarily slows.

But for most small business owners, they can have a hard time procuring capital from external sources because they don’t know where to start, and what kind of financing is available. That’s why we’ve put together a comprehensive overview of how to get a small business loan for small business owners just like you.

First things first – get to know your business

As a small business owner, you’re probably goal-oriented; you yearn to grow, build, expand and allow more and more people to enjoy the products and services you already love. And that’s only part of process. Here are a few hot-button items to get started on how to get a small business loan:

  1. You should determine why your business may need a small business loan — If you are looking to expand your retail space, or are looking to cover payroll from last month, it’s best to have those needs in mind before applying.
  2. Consider how much your business needs and if your business can afford it — just because your business can receive a high-dollar loan, doesn’t mean it should take a high-dollar loan. Taking a comprehensive look at what your small business can afford to pay back is the best bet in ensuring you’ll have on-time payments without worrying about recourse.
  3. Determine how much financing your business needs — doing your research beforehand can help your loan advisor understand what you’ll be financing. If you’re looking to grow your product offering, or want to make some much-needed upgrades to your storefront, it’s best to have a figure in mind when getting a small business loan.

Taking all three of these seemingly simple ideas into consideration can help you determine what exact loan options there are, and how much your business can afford to pay. When talking with a business advisor, it’s best to have your business plan fully vetted in order to properly secure capital without worry.

Review your business qualifications

Once you’ve determined why your business needs a business loan, how much it can afford, and how much financing it needs, the next step in getting a small business loan is to look at your business qualifications.

Check your credit

Funders most likely look at your credit score. Most importantly, your history of payments, debt to income ratio and any outstanding balances you have that could negatively affect your repayment toward a new small business loan. Although higher credit scores will net you better rates and differing payment options, there are funders for every credit type to be considered.

Review your business’ history

Next, small business owners who are interested in getting a small business loan will have to take how long they’ve been in business into consideration. Most funders will be leery of a small business that’s been open for a few months, but an established small business that’s been around for a while will have better odds at securing a small business loan. Don’t let that dissuade you from applying though as small business funders will look at a multitude of factors in order to determine your eligibility for receiving a small business loan.

Evaluate your business’ revenue

A vital component in getting a small business loan is how much revenue it brings in. Repayment is a top priority for funders, and having a consistently positive revenue stream is of utmost importance when trying to get approved. Coupled with your credit score and your business history, your revenue will play a large role into how much the business can receive in funding, and what your repayment terms will be like. Together, all of these factors will determine your repayment terms, which will ultimately decide how much the business will receive and how the business will be able to pay off the financing.

The best small business financing options

So, you’re looking for small business financing but don’t know where to start. Here is a list of the best funding options that small businesses have at their disposal:

  • Bank loan: a bank loan is a traditional form of lending deposits a one-time sum of cash into your business bank account and offers varying repayment and interest fees based on your business qualifications. Although this is a preferred method for most small business owners, banks typically require high revenue and excellent credit in order to qualify.
  • SBA loan: The Small Business Administration is a government-funded entity that provides government-backed loans through partners who can distribute funds when capital is needed. These loans have stringent policies on who qualifies, and typically are used in times of economic distress across the entire market.
  • Line of credit: A line of credit is a flexible funding option that allows small businesses to access capital on a need-be basis. Your small business is approved for a set amount of credit and then allows you to draw on the approved amount when needed. This option allows you to take out capital when it’s necessary, without having the need to take it all out at once.
  • Asset-based loan: Asset-based loans allow businesses access to working capital through a loan secured by assets that the business has. This means that for this type of loan, the lender is collateralized with assets of the business borrower. For small business owners, their collateral typically allows them to have lower rates as its secured with assets they already have.
  • Business credit card: Much like a personal credit card, a business credit card allows for small businesses to make purchases and payments using a line of credit that’s easily accessed through a credit card. A business credit card, however, will have higher requirements for small business owners to be approved, and can have high rates if those requirements are insufficient or aren’t in their satisfactory range.

Choose between a traditional lender or an alternative funder

While most small business owners will want to receive financing through traditional funding options, when you have lesser collateral or unsatisfactory credit, you might want to eye something from an alternative funder. Most alternative funders provide your business with the ability to receive funding in various forms, like a term loan or line of credit, based on your business needs. Alternative funders typically require less collateral, and can be offered to those who have bad credit.

On the other hand, traditional lenders like banks and other financial institutions, offer loans and lines of credit to those with satisfactory credit and high collateral amounts to ensure they are able to be paid back at lower rates and more structured repayment options. They also take a strict look at profitability and revenue because they are very strict in who they choose to lend to.

Gather the required documentation

If you want to get a small business loan, you should have the following documents available to ensure you’re approved in a timely manner:

  • A detailed business plan

  • Your profit-loss financial statements

  • A business banking account

  • Three months of bank statements

  • A business license

  • Tax returns

  • Collateral for investment documentation

  • From of identification

Apply for financing

When applying to get a small business loan, you should always remember that each funder is different. If you choose a traditional lender to receive a bank loan, you’ll have to take into consideration their stringent methods of approval. Whereas an alternative funder, like Rapid Finance, will holistically take into consideration your situation, and offer varying methods of financing and funding for your small business to use.

  1. Gather required documents

One of the most important steps in receiving small business loans is to ensure that the documents listed above are all in order. When applying for a small business loan you’ll need to ensure that all of the requirements are satisfied so that you’re not set back in timing when trying to get a small business loan.

  1. Submit application

Once you’ve accumulated all the requirements and are ready to apply, you’ll need to submit your application. This process can be done online for most funders; however, you may need to speak with a business advisor in order to figure out the best route for you and your business to take.

  1. Review your options

Once you’ve received pre-qualification, you’ll need to discuss with a business advisor what options would work best for your business. If you know the repayment options and how much the business can afford, you’ll be able to best determine which route of financing to take for your business.

  1. Receive your funds

And lastly, you’ll need to discuss a timeline for receiving your funds. This can be quicker for most alternative funders through funding options like a short term loan, or can take a longer period when dealing with bank loans or SBA loans.

Your business, your way

When getting a small business loan, it’s important to consider all factors in making your funding decision. Whether a small business loan is your first choice because of the speed and ease of access to capital, or you want to explore your line of credit options, small business owners like you can make informed decisions on your business’s financing future.

Your working capital can work even harder for you if you take the necessary precautions when deciding which financing route to take, and what your business should do based on your business’s current profitability and revenue situation.

If you have any financing questions or would like to speak to a business advisor, speak to one of our expert representatives at Rapid Finance today: (877)-252-0827.