How to apply for a business loan in 5 steps |
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How to apply for a business loan

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What to expect during the application process and how to cut down on time and stress.

Sometimes, getting a small business loan takes no more than a few minutes. Other times, it involves months of finding and submitting documents, paperwork and other forms. Either way, knowing what to expect ahead of time can help you find the right lender and make the process more manageable.
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    6 questions to consider before applying for a business loan

    Even if you’re sure your business needs funding, a business loan may or may not be the best solution. Asking yourself a few questions before getting started can help you decide if it’s the right choice and help you prepare for your search.

    1. How is my business’s financial health?

    Taking a close look at your business’s finances can help you decide if taking on debt is the right move. It can also give you an idea of what types of loans your business might be eligible for. There are a few key numbers to know, including your business’s current ratio and debt service coverage ratio (DSCR).

    • Your business’s current ratio is its assets divided by its liabilities.
    • Its DSCR is its annual net operating income divided by its debt obligations for the year.

    Both can give you a sense of whether or not your business can take on more debt. If your business has a current ratio below 1.2 or a DSCR below 1.25, you might have trouble handling repayments on a new loan.

    2. What’s my personal credit score?

    Lenders tend to consider the personal credit score of all owners with more than a 20% stake in the company more often than they look at your business’s credit score. They do this partly because personal credit scores are more standardized than business credit scores.

    Generally, you and all other business owners need to have a personal credit score above 620 to qualify for a loan and excellent credit to be eligible for the largest amounts and lowest rates. However, it’s possible to get a business loan with a score as low as 500 with some alternative lenders — though it will likely be much more expensive.

    3. Why does my business need financing?

    There are some situations where a loan might be expensive and risky. For example, startups looking for seed money might not be able to find a loan. Even if you do, you may not be able to pay it off if your business doesn’t meet its financial projections, and it could be extremely expensive. Some other options to consider are investors, crowdfunding and other startup-friendly options.

    Knowing why your business needs money can help you decide what type of business loans to apply for. If you need money for a one-time project or expense, a term loan could be the way to go. If you need something ongoing, consider taking out a line of credit.

    4. How much funding does my business need?

    Knowing how much you need to borrow helps you decide where to start looking. Online lenders typically offer financing between $5,000 and $100,000. Banks and SBA loan providers can get your business up to $5 million. Microlenders offer small-dollar financing as low as a few hundred dollars.

    5. How much time can I spend on an application?

    Realistically understanding how much time you and your employees can spend on an application can help you decide what type of lender to go with — or if a loan is even worth it.

    Applying for a loan with an online lender sometimes only takes a few minutes, and you might get your funds as soon as the next day. But rates are usually higher than if you had spent several months working on an SBA loan application.

    Online lenders also don’t typically offer loans in amounts as high as banks and other traditional lenders. And those that do often require extra documentation and have a longer underwriting process. If you’re looking for a $500,000 business loan or higher, expect to invest some time in the application.

    6. What loan options are available to my industry?

    Even if your business is in perfect financial health and you have excellent credit, you still might not be able to qualify for a loan if you’re in a high-risk industry. Nonprofits typically can only get loans through a community development financial institution (CDFI) and might want to look into grants or crowdfunding instead.

    Trucking companies, retail businesses and restaurants could have a difficult time getting a traditional business loan compared to those in lower-risk industries. Instead, you might want to look at factoring companies or merchant cash advance providers.

    How to apply for a business loan in 5 steps

    Once you’re sure a loan is the way to go, follow these general steps to apply.

    Step 1: Compare lenders

    Start by looking for lenders that offer the type of financing your business needs. Immediately rule out any provider that your business can’t qualify with.

    Then, pay attention to the loan’s cost, how much you can borrow, terms and turnaround time. Also look at customer reviews to make sure it’s a lender you’re interested in working with.

    Step 2: Get prequalified

    After you’ve narrowed down your selection to a few lenders, see if your business can prequalify to get an idea of the rates and terms you’re eligible for. Many online lenders let you do this by filling out a quick form. If you’re applying for a loan with a bank or credit union, consider getting on the phone with its lending department to find out what you’re likely eligible for.

    Step 3: Gather your documents and information

    Being prepared can cut down on how long it takes to apply. Have basic information about your business ready before you start the application, including its annual and monthly revenue and tax ID number. Many lenders also ask applicants to submit copies of their business tax returns and bank statements, along with state-issued IDs for all business owners.

    If the loan requires a personal guarantee from each business owner, have personal bank statements, tax returns and other information about your assets and liabilities on-hand as well.

    Step 4: Complete the application

    Often the application itself only takes around half an hour to complete. The more prepared you are, the less time it takes.

    Many lenders let you fill out the entire application online. But some banks and credit unions might ask you to stop by a branch to fill out the rest of the application in person. Some might also ask business owners to go in for an interview.

    After you submit your initial application, your lender might ask you to submit additional documents.

    Step 5: Review and sign your loan documents

    Take a close look at the terms and conditions before signing off on your loan. If there’s anything you don’t understand, ask your lender or an expert to explain what it means. That way, you won’t be hit with any surprises down the road.

    Compare business loans you can apply for today

    Rates last updated December 16th, 2018
    Unfortunately, none of the business loan providers currently offer loans for these criteria.
    Name Product Product Description Min Loan Amount Max. Loan Amount Requirements
    LoanBuilder, A PayPal Service Business Loans
    Customizable loans with no origination fee for business owners in a hurry.
    Annual business revenue of at least $42,000, at least 9 months in business, personal credit score of 550+.
    LendingTree Business Loans
    Multiple business financing options in one place including: small business loans, lines of credit, SBA loans, equipment financing and more.
    Varies by lender and type of financing
    Varies by lender and type of financing
    Varies by lender, but you many require good personal credit, a minimum business age and minimum annual revenue.
    Credibly Business Loans
    Funding to cover business expenses with daily or weekly repayments.
    500+ personal credit score, 6+ months in business, $15,000+ average monthly deposits
    Lendio Business Loan Marketplace
    Submit one simple application to potentially get offers from a network of over 75 legit business lenders.
    Must operate a business in the US or Canada, have a business bank account and have a personal credit score of 560+.
    National Funding Small Business Loans
    Working capital loans and equipment financing, some high-risk industries may be eligible.
    Be in business at least one year and make at least $100,000 in annual sales. Other loan types have additional requirements.
    LendingClub Business Loans
    With loan terms that vary from 1 to 5 years, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.
    12+ months in business, $50,000+ in annual sales, no bankruptcies or tax liens, at least 20% ownership of the business, fair personal credit score or better
    OnDeck Small Business Loans
    A leading online business lender offering flexible financing at competitive fixed rates.
    500+ personal credit score, 1+ years in business, $100,000+ annual revenue
    Fora Financial Business Loans
    No minimum credit score requirement and early repayment discounts for qualifying borrowers.
    Business age 6+ months. Monthly revenue $12,000+. No open bankruptcies.

    Compare up to 4 providers

    I applied for a business loan. What happens next?

    Here’s what you can generally expect after submitting your application.

    Getting approved

    Some business lenders offer quick approval decisions based on preliminary information. These lenders tend to require authorized connection to your bank accounts in order to see proof of your revenue and evaluate your cash flow.

    If the lender doesn’t offer this kind of preapproval, you’ll likely be contacted by a loan officer to discuss your application in more detail. At this point, you may be asked to submit additional documentation such as tax returns.

    Getting your money

    How long it takes to receive your funds varies depending on your lender. Many online lenders can transfer the funds to your business’s bank account as soon as the next day. Banks, credit unions and CDFIs can take anywhere from a few days to as long as a month. Generally, smaller institutions like local banks, credit unions and CDFIs take longer because they don’t have as much staff.

    Repaying your loan

    With a business term loan, your business is responsible for making full repayments on principal and interest until it’s fully paid off. With a line of credit, your business can withdraw from the credit line as it needs. Some lenders turn each withdrawal into a short-term loan, while others add it to your balance and require a minimum monthly repayment — similar to a credit card. Other types of financing have different repayment methods.

    If it’s possible, consider signing up for automatic payments — often called autopay or auto debit. That way, you won’t have to take time out of your day each month to make repayments.

    Paying your loan back early

    If your business can afford to, consider paying your loan back early to save on interest. Some lenders charge prepayment penalties, however, meaning that you won’t be able to save. You also can’t save with certain types of loans that come with built-in fees, like merchant cash advances.

    Bottom line

    Knowing what to expect during the business loan application process can help you cut down on the time and stress of applying. It can also help you decide in general if a loan is the way to go for your business.

    Learn more about how it all works and compare lenders with our business loans guide.

    Frequently asked questions

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    Anna Serio

    Anna Serio is a staff writer untangling everything you need to know about personal loans, including student, car and business loans. She spent five years living in Beirut, where she was a news editor for The Daily Star and hung out with a lot of cats. She loves to eat, travel and save money.

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