Five Steps to Getting a Small Business Loan

Interested in a loan for your small business? Apply these five essential steps to amplify your success.

Ali Hardy Jan 17, 2019

Originally published Jan 17, 2019, and refreshed on Nov 3, 2020.

Getting financing for your business doesn’t have to be a headache. Follow these five steps to prepare yourself for success when applying for a U.S. Small Business Administration loan or any other type of small business loan.

Small Business Loan Step #1: Examine your funding options

The first step to getting a small business loan is evaluating your goals and determining what type of funding you need. Seek out an experienced lender with knowledge of your industry and various loan options and alternatives.

A good lender will help you match the purpose of the loan with the right loan product, depending on how you plan to use the proceeds and your overall time frame. For example, SBA loan programs can fund commercial property, equipment, inventory and working capital for startups or established businesses with terms ranging from seven to 25 years.

Small Business Loan Step #2: Write a business plan

Your business plan should be based on facts you’ve researched to include both a narrative and a financial spreadsheet section. There is really no substitute for doing your homework. As you prepare your financial documents, be sure to compute the exact amount of the loan you are seeking, show what the money will buy, and explain how receiving those funds will translate into business profitability.

Small Business Loan Step #3: Know your credit

Understanding your credit is critical to the loan process, and would-be borrowers should know their credit score, how it fits with the lender’s requirements and what can be done to improve it.

Lenders make loan decisions based on what are referred to as the “Five C’s of Credit.” These include:

  • Character: Character refers to your industry experience and personal credit history, including a demonstrated willingness and ability to repay debts. You can expect a lender to review the credit of anyone with 20 percent or more ownership in the business, because these individuals will be required to personally guarantee the loan.
  • Capacity: Capacity is the business’s ability to generate positive cash flow and profit to cover business operations, including any debt service. You will be asked to provide documents to show the company’s historical and current financial situation.
  • Capital: Capital is the owner’s cash or equity contribution to the business. The amount of capital required varies depending on the loan type. For example, an SBA 7(a) loan typically requires a 20 percent down payment of the total project cost.
  • Collateral: Collateral refers to tangible assets pledged to secure the loan amount. If a business cannot repay its loan, the lender wants a second source of repayment. Both business and personal assets can be sources of collateral for a loan.
  • Conditions: Lenders consider the local economic climate, your competitors, supplier relationships, and industry trends that could impact the business. Conditions also describe the intended purpose of the loan. Is this a business startup, acquisition or expansion? Will the funds be used for working capital, additional equipment or inventory?

Small Business Loan Step #4: Prepare your proposal

It’s important to come prepared to a lender meeting with a complete loan package, a professional appearance, and a compelling pitch articulating the strengths and weaknesses of your proposal. Make sure you understand and can explain the assumptions behind the numbers in your financial projections. Don’t leave it to chance — taking the time to prepare in this case can literally pay off.

Small Business Loan Step #5: Follow up and don’t give up

The time it takes to process your loan request depends on a variety of factors, including how quickly you respond to a bank’s requests for information or documents. You can also avoid frustration by discussing expectations and deadlines early on when you meet with your banker. To help create a good experience and outcome, keep in contact with your lender and don’t give up if you encounter challenges or delays.

As a preferred SBA lender, Zions Bank’s team of relationship managers can help you find the right SBA loan for your business. Apply for a business loan online* anytime or visit a local Zions Bank branch to learn more.

*Loans are subject to credit approval. Terms and conditions apply. See a banker for details.

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