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How to Get a Small Business Loan

A small business could need financing for a number of reasons. Perhaps your business is growing and you want to move to a larger office space; or you need more access to working capital to support your day-to-day operations.

Whatever your funding need, you’ll need to prepare the following information in advance to help secure the small business loan you’re looking for.

1. Why you need funds, and how much you need

This might seem like an obvious step, but it’s critical. Lenders — banks, credit unions, or other lending institutions — will want to know your plan. Be ready to explain how you'll use the funds and how you determined the amount you’re requesting.

Be as descriptive — and exact — as possible. Provide a detailed cost breakdown for the expenses or asset purchases you’ll cover with the loan.

2. Your credit history

Want to appeal to lenders? A strong credit score is one characteristic that shows lenders that you’re able to pay back the loan. A track record of on-time payments improves your chances of being approved for a loan.

Lenders will look at your business’ credit history as well as your personal credit history. Review them both in advance. You’re entitled to one free credit report from each of the three major credit bureaus (Experian, Equifax, and Transunion) every year. If you find any errors on your reports, challenge them by contacting the reporting credit bureau directly. You want to make sure your credit history tells the lender an accurate story.

3. What type of financing you’re requesting

This depends on your specific goals. Consider these three options:

  1. Term loans: If you’re in need of a large, one-time investment, this option is best. With a term loan you borrow a lump sum and repay the loan over a fixed schedule, typically over the course of years. Interest rates can either be fixed or variable.
  2. Lines of credit: This option makes the most sense for short-term cash needs. For example, let’s say you’re waiting for customer payments to arrive, but you need access to cash now to support the purchase of new inventory. You can use a line of credit to tap into the funds you need, and you only pay interest on the funds you withdraw. Once you repay what you borrowed, you regain access to those funds.
  3. Business credit cards: Business credit cards give you access to revolving credit that resets once you’ve repaid the funds you took out. Credit cards are best for day-to-day expenses since transactions — which tend to be smaller — are easy to track and provide cash-back rewards that can go right back into the business. Although credit cards tend to have higher interest rates, the application process is typically quicker and requires less information than term loans or lines of credit.

You can learn more about each of these options here.

4. Your business plan

A business plan helps lenders understand your business and why it’s primed for further growth and success. Does your business fill a unique need in the marketplace? What separates it from the competition? What is the revenue opportunity size of your business?

It will also include a description of your company’s organizational structure that outlines leadership’s experience and educational background. Other documents you’ll need are tax returns; historical financial statements and future projections; your business’ legal documents; and any statement of collateral available to secure the requested financing.

5. A presentation

Bring your business to life for your lender by providing an in-person presentation that clearly shows where you see your business going with the help of the loan. This presentation will review your business plan and include an executive summary that amounts to an elevator pitch for your company.

This is your chance to express your passion and vision for the business, so make sure the presentation is concise and impactful.

Choosing the right lender

Now that you know what you’ll need to prepare, it’s important to select the right lender for your needs. Banks tend to have the best-priced lending options for small businesses. They are the best option for companies that:

  • Have been in business for at least a year or two,
  • Generate an adequate level of income to comfortably make the debt payments on all obligations, and
  • Have good credit histories

You’ll want to plan ahead because the approval process may take several weeks or more, depending on the amount you want to borrow. Additionally, banks have Small Business Administration (SBA) financing options, which offer more flexible terms and lower down payments than conventional loans.

Businesses may also want to consider online lenders, which tend to provide fast funding (sometimes within 24 hours) for smaller loan amounts. However, they tend to have higher a Annual Percentage Rate (APR).

Always compare the APR and terms different lenders offer to find the right option for your business.

What to remember

Access to capital and debt financing is vital for most businesses. That’s why you want to be as prepared as possible when it comes time to apply for a loan. Make sure you have all of the necessary documentation available, and do your due diligence before applying to give your loan application the best chance of being approved.

And don’t forget to advocate for your business. Nobody knows the business better than you, so help lenders see your vision and understand how their financing will prime your business for success.

More information

We are committed to helping your business reach its potential. Our dedicated business banking professionals can help you find the right product to meet your business’ needs. To learn more, please call 1-800-428-7463, visit us online, or stop by your nearest Citizens Bank branch.

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