How to get a business loan

Planner, problem-solver, risk-taker — as a business owner or owner-to-be, you're used to wearing more than your fair share of hats. When it comes to your venture's growth, however, it could truly pay to have a financial partner.

A business loan — and the right lender — can help you get the financing you need to accelerate growth and supercharge your success. So if you're trying to understand how to get a business loan, you've come to the right place. Whether you want to smooth out seasonal cash flow, rev-up your real estate holdings or simply fund what's next, this guide will walk you through the business loan process, what lenders look for in borrowers, common challenges in the loan process and how to set yourself up for success.

Understanding business loans

Before we discuss how to get a business loan, it helps to understand how they differ from other popular lending products like personal loans.

Businesses have unique needs, so lenders design business loans to help owners solve common business problems. As a result, they have different qualification processes, interest rates and repayment terms than other loan types. Like a personal loan, however, you can use a business loan for a wide range of purposes. Expanding operations, buying new equipment and even covering payroll are all within the realm of possibility with a business loan.

Common types of business loans include:

• SBA loans: Qualified businesses can enjoy these government-backed loans with flexible underwriting requirements.
• Term loans: These loans are ideal for long-term investments, paid out in a lump sum and repaid over time.
• Business lines of credit: Borrow only what you need from a revolving line of credit, which is ideal for smaller everyday business expenses.
• Equipment financing.: These loans can help finance capital equipment purchases to modernize and advance operations.

If a cash infusion could help you reach your goals, it could be time to seek business financing. One or even a combination of multiple business lending types could help open doors.

How do you qualify for a business loan?

Before getting into the step-by-step process of how to get a business loan, it's helpful to understand what lenders expect from applicants. While lending criteria will vary from lender to lender, the following requirements are pretty standard to qualify for a business loan.

• A solid business plan: A well-crafted business plan shows lenders you have a roadmap for future success and repayment.
• Good credit (both personal and business): For newer businesses, your personal credit score plays a role in approving you for business credit.
• Time in business: Lenders usually want to see at least six months to two years of business operations to demonstrate you can sustain operations.
• Revenue and cash flow documentation: Lenders may require a minimum annual revenue ($50,000 is a typical minimum), balance sheets, profit and loss statements and bank account balances.
• Legal documents: Documents like tax returns, business licenses and articles of incorporation are common lender requests to ensure your business is in good legal standing.
• Collateral (if required): Some business loans (like equipment loans) may be secured by collateral. This means that the collateral, or asset, guarantees the loan and could be reclaimed by the lender if you default.

How to apply for a business loan

Once you have your documentation in order, it's time to apply for a business loan. These five steps will get you from start to finish in a seamless fashion.

1. Assess your needs: Decide how much money you'd like to borrow and what it will be used for. This will help narrow down your lending options to the best type for your needs.
2. Determine your ideal loan type: Now, match your needs to the different business loan types. For example, you might choose a line of credit for short-term cash flow or a term loan to renovate your office space.
3. Compare lenders: Shop around to compare a variety of traditional banks, credit unions and online lenders. Ask questions about interest rates, loan terms, customer support and standard approval timelines.
4. Prepare your documentation: Once you decide on a lender, it's time to gather your documents. Be sure to submit your paperwork promptly to avoid approval delays.
5. Apply and wait for approval: Some lenders offer speedy approvals, while others may take more time. Be prepared for additional lender requests, which could look like an interview, additional documentation or application clarification questions.

Overcoming common business loan challenges

If you happen to experience a few bumps along the road toward getting a business loan, you're not alone. Here are a few of the most common challenges and how to tackle them.

• Low credit score: If your score needs some sprucing up, improve it before applying or reapplying. Pay down your current debt, clean up any credit bureau errors and keep your payments on time.
• Limited time in business: If you're just starting your business journey, consider lenders that specialize in working with startups and SBA microloans.
• Low revenue or inconsistent cash flow: Start small — a lower loan amount can help you build a credit and repayment history that makes you a better risk for a larger loan later on.
• Lack of collateral: Look for loans without collateral requirements or SBA loans with more flexible lending requirements.

If you need additional help securing a business loan, consider contacting a business lending advisor at a local bank or credit union. Having a go-to can help you shape your finances and build an application that shines.

Ready to explore your business loan options?

Now that you understand how to get a business loan, you're better prepared to take action. These loans can be a powerful and highly flexible tool that helps take your business from where you are to where you know you can be.

But getting approved isn't about checking boxes — it's about showing lenders you have a plan and a business worth investing in. If your business is ready for its next stage, explore business loan options with Citizens. Our lending professionals will work with you every step of the way to help your vision become a reality.

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