San Diego small business loan

Determining First Steps on How to Get a Small Business Loan

posted in: Blog

Are you wondering how to get a small business loan? Are you paralyzed, wondering where to start and what you might even qualify for? If so, then you are in the right place.

Keep reading to learn the first steps you need to take to get a small business loan. We outline the first four steps to get a loan, so it does not have to feel like an uphill battle, and thus giving you the ability to understand the financing options available to your business.

1. What Type of Small Business Loan Do You Need?

The first thing you need to do before you take any other steps is to look at your situation and determine the type of loan you need, including about how much you are hoping to finance. There are financial lending options that cover every business situation. Take the time to analyze your current situation to ensure you get the best financing answer for your circumstances. This is not a one size fits all situation.

A few examples of loans you could consider include:

  • A line of credit
  • An accounts receivable loan
  • A working capital loan to finance daily operations
  • New equipment loan

Each of these business opportunities offers you different financial options and can be used to cover a variety of potential expenses or purchases for your business. This step is crucial to start with, because it can help you to narrow down the type of lender you need.

2. What Type of Lender Do You Need?

Now that you know what you need, you can narrow your focus to the right solution and the lender that offers that financing option. Again, for every scenario, there is a resolution that can work for you, but you have to be open to the different options. Do not assume that you would not qualify, just because you are a small or new business. Various lenders cater to different businesses and industries. Some examples of various lending institutions that work with commercial businesses include:

  • Large banks
  • Small and community banks or credit unions
  • Online lenders
  • Crowdfunding or angel investors
  • SBA backed loans

Each of these opportunities offers different benefits and financing. So, you need to analyze each one to determine the best answer for your business.

3. What Is Your Risk Level?

Every business has various assets and liabilities. You need to have a realistic view of your current risk level. Before you talk to anyone, take a look at your personal credit score, business credit score, and what your current debt level includes. After all, if you are looking to take on more debt, can you handle the current debt ratio? That will be something that lenders are looking at.

Next, you also need to know what you bring to the table. You have assets in your business, even if it does not always feel like it. Your lender will look at your current financial position, including your assets, to determine if you are financially healthy enough to repay the loan.

How long have you been in business? Mature businesses can get favorable funding from certain investors, while others might cater to newer businesses. Likewise, you have equipment for your company, and you have accounts receivables that lenders can count on. All of these factors will end up playing a role in the loan terms that you will be offered.

4. Gather Your Paperwork and Financial Information

Lastly, before you talk with a financial investor, you need to gather all your paperwork. The more you gather, the better prepared you will feel and the better you will look for your potential investor or lender. That means making sure that your financial house is in order, and you can easily provide the information that your potential lender needs. Here are just a few of the requirements that play into the application process.

You will need your business plan, your tax ID, your projected financial statements. Additionally, have all your available collateral mapped out as well as your bank statements and tax returns.

If you are applying for an accounts receivable loan, you will need your current accounts payable and accounts receivables statements. Other lenders could also ask for your cash flow statement, your income to loss statement, and your current debt to equity ratio, so have all this information in advance. Depending on the type of loan being requested, you may need to provide more in-depth financial information. By getting your financial paperwork in order, you can make the application process even easier.

Look For the Right Small Business Loan Help

The small business loan process can feel overwhelming. When you take these simple first steps, you will be well on your way to finding the right loan for your current business situation. Remember, there are a variety of financing options, so do not assume there is nothing out there for your business. Instead, work with your lender to find the right option.

If you need to talk with a small business loan expert, we are here to help you every step of the way. Reach out to us today to help find the right solution for your state of affairs.