5 Keys to Getting a Small Business Loan

Before applying for a small business loan, brush up on the five “C’s” of credit.

Kallee Feuz Aug 30, 2018

Sometimes the only thing standing in the way of your business dreams is the cash to see them through. When your company needs working capital, equipment or real estate, a small business loan can fill in the financing gaps.

A small business loan lets you maintain decision-making autonomy and doesn’t dilute your equity. It also allows you to establish a banking relationship and build business credit, which can increase your borrowing power.

Before you can secure a small business loan, you’ll need to get the OK from your bank. Here are five keys to getting approved for a small business loan, often referred to as the “The Five C’s of Credit.”

Key to Getting a Small Business Loan #1: Character

A reputation can’t be bought; it must be earned. And when it comes to proving your character to potential lenders, you can show that you are trustworthy to repay debt by building a solid track record of borrowing money and paying bills on time. Your credit score will impact not only whether you qualify for a loan, but also the interest rate and terms offered to you.

Make sure your personal credit is in order and check for errors on your credit report before you apply for a loan. You’re entitled to a free copy of your credit report from each of the three major reporting companies — Equifax, Experian, and TransUnion — once every 12 months at In addition to your personal credit history, you can strengthen your business’s credit profile by applying for a business credit card. 

Key to Getting a Small Business Loan #2: Capacity

You may have a strong history of meeting past debt obligations, but you also need the financial capacity to meet new ones. You will be required to show the lender that you have the ability to repay the loan amount. Get ready to delve into the nitty gritty of your company finances and provide business tax returns and other financial statements, including balance sheets and profit and loss/income statements for the past three years. In assessing your ability to repay the loan, lenders will look at current debt obligations and, if you’re applying for a U.S. Small Business Administration-backed loan, financial projections for the next two years.

Key to Getting a Small Business Loan #3: Capital

You’ll be hard-pressed to find a financial institution that is willing to loan you money without you having some “skin in the game,” or a cash or equity investment in your business. The amount of capital required varies depending on the lender and loan type. For example, the popular SBA 7(a) loan requires borrowers to make a down payment ranging anywhere from 10 to 20 percent toward the total project. Your capital contribution can often be combined with other sources — like gifts from family or friends or money from investors — to meet the requirements.

Key to Getting a Small Business Loan #4: Collateral

In the context of credit, “collateral” refers not to the so-named Tom Cruise movie, but to the tangible assets needed to secure a loan. The collateral can come from assets such as real estate, equipment, vehicles, furniture, accounts receivable, or inventory. Absent sufficient business assets, personal resources — such as a vehicle or equity in a home — may be instead pledged as collateral.

Key to Getting a Small Business Loan #5: Conditions

No company is an island, which is why the business climate — both in your industry and in the broader economy —  will be a factor in whether your loan is approved. While you can’t wield economic winds, you can take advantage of market upswings and apply for a line of credit when business is going well to create a cushion for lean times. When you meet with your lender, be prepared to articulate your strategy for capitalizing on positive trends and mitigating potential risks.

Just as you expect your business to be under the microscope during the loan application process, look carefully at potential lenders before you sign on the dotted line.  Every financial institution differs in how it approves loans, extends borrowing terms and follows timelines.

Consider a small business loan from Zions Bank, where loan decisions are made locally so you can get a quick answer on your loan application. From SBA loans to business lines of credit and from term loans to commercial real estate loans, Zions Bank has small business loans to meet many different funding needs. Visit a Zions Bank location for more information or apply online for your small business loan.

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