How to Get a Small Business Loan in 5 Easy Steps

Looking to expand your small business with a low-interest, long-term SBA loan? Check out these 5 simple steps to prepare you for the application and approval process.

Questions? Call us! 866-283-8726

Step 1: Decide how you want to use the funds

Before you begin working on your SBA loan application, decide how you will use the funds. This will help you stay on track when considering different loans. Are you planning to expand your business with a commercial real estate purchase, refinancing existing debt like cash advances or lines of credit, or for working capital (such as marketing, hiring, and inventory upgrades)? Draft a breakdown of your financing plan so that we can help you achieve your specific goals. If you need assistance, work with your bookkeeper, accountant, or another financial professional to help you crunch the numbers.

Step 2: Determine the type of loan that works best for your business

Depending on your business, you can consider various funding options. For new businesses and startups in operation for under 1-2 years, some possibilities include business credit cards, lines of credit, alternative loans, merchant cash advances (MCAs), SBA microloans, and personal loans. These may come with higher interest rates and shorter terms than options like SBA and traditional bank loans. These higher cost funds can take a toll on overall credit and cash flow. Ensure your business has strong cash flow and good credit so you can have access to better funding options. Be sure to weigh the pros and cons of convenience.

Once you demonstrate sufficient cash flow and solid credit, you’ll be eligible to work with more affordable and less risky resources. SmartBiz Loans provides SBA 7(a) loans for businesses seeking secure, government-backed funding with long terms and low interest rates. Use our loan calculator to determine exactly how much the loan will cost. You’ll find specific interest rates, fees, and monthly payments associated with the amount you need. These metrics can help you decide the loan amount that works best within your business budget.

Step 3: Check requirements and eligibility

Once you’ve decided on your choice of financing, make sure to confirm that you’re on track in terms of eligibility so that you don’t run into issues down the line. Common factors that lenders look for include credit score, cash flow (templates here), and revenue trends.

To ensure you’re on track to achieve your small business goals, keep these basic eligibility checklists in mind.

To be eligible for an SBA 7(a) loan through SmartBiz of up to $350,000:

  • Time in business must be at least 2 years
  • Business owners must be U.S. citizens or legal permanent residents
  • Business owners must have personal credit scores above 650
  • Business and personal cash flow must be sufficient to service all debt payments demonstrated by tax returns and interim financial data
  • Public Records: No bankruptcies or foreclosures in the past 3 years; no outstanding collections; no open tax liens
  • SBA Specific Requirements: no delinquencies and/or default on government loans

To be eligible for an SBA 7(a) commercial real estate loan through SmartBiz above $500,000:

  • The real estate must be majority owner-occupied. This means at least 51% of the square footage of the property you’re buying or refinancing must be occupied by and used by your business.
  • Time in business must be at least 2 years
  • Business owners must be U.S. citizens or legal permanent residents
  • Business owners must have personal credit scores above 675
  • Business and personal cash flow must be sufficient to service all debt payments demonstrated by tax returns and interim financial data
  • Public Records: No bankruptcies or foreclosures in the past 3 years; no outstanding collections; no open tax liens
  • SBA Specific Requirements: no delinquencies and/or default on government loans
  • The rent replacement option requires a loan payment that does not exceed the current monthly lease expense

Find out where your business stands before you apply for an SBA or bank loan by getting started with SmartBiz Advisor™. Advisor is an educational online tool that helps you learn whether your business is loan ready and recommends ways to increase your likelihood of approval. This free, AI-based tool reveals key criteria SmartBiz bank partners use to evaluate your business and provides you with personalized insights to strengthen your lending profile.

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Step 4: Build your credit score

Most lenders will consider credit when evaluating potential borrowers. Strong applicants typically have fairly high personal and business credit scores, which demonstrates their ability to pay back the loan amount. With higher credit scores, you’ll also have access to more funding options with lower rates and longer terms. Your credit report will usually be pulled from one or more of the three major credit bureaus: Equifax, Experian, and TransUnion. You can find your information there as well as through your credit card issuer.

For tips on establishing and building business credit, check out our SmartBiz Small Business Blog! In addition, learn about where you stand when it comes to being Loan Ready by signing up for SmartBiz Advisor. This online, educational tool will help you understand how banks evaluate your business and deliver personalized recommendations even before you apply. We’ll show you how you can strengthen your lending profile and increase the likelihood of approval.

Step 5: Gather paperwork and relevant documentation

Once you’re ready to apply for an SBA 7(a) loan, the best strategy is to begin preparing so that the process is as easy as possible. Some of the documents that are most often requested by the lenders in the SmartBiz marketplace are: 1. Personal Background/Resumes
Information needed includes your business background as well as previous addresses, names used, criminal record, educational background, etc.

1. Personal Background/Resumes

Information needed includes your business background as well as previous addresses, names used, criminal record, educational background, etc.

2. Business Plan

Though SmartBiz doesn’t require a business plan, your bank may require one. And if you need help preparing a business plan, there are free or low-cost resources available. Check out your local SBDC office; they can help.

3. Personal and Business Credit Reports

Be sure to obtain a credit report from all three major consumer credit rating agencies - Equifax, Experian and TransUnion. If there are inaccuracies, try to resolve before getting started.

4. Income Tax Returns

Most lenders require the previous 2-3 years of business income tax returns.

5. Financial Statements

Owners with more than a 20 percent stake in a business are often required to submit signed personal financial statements. Business financial statements have three components 1) Profits and loss statements. 2) Cash flow statements 3) Balance sheets (though SmartBiz only requires #1 and #3).

6. Collateral

Requirements for collateral vary - some bank loan programs don’t require it, others with do. Have a document prepared that describes personal or business property that can be used to secure a loan.

7. Legal Documents

These documents can include business licenses, Articles of Incorporation, 3rd party contracts, franchise agreements and commercial leases.

Step 5: Apply!

Your first step will be choosing the application method, either directly through a bank or a credit union, from a certified loan broker or via an online platform. You’ll save lots of time and headaches by working with an online marketplace with a streamlined process like SmartBiz Loans. Borrowers simply upload requested documents to a secure platform. If questions arise, a dedicated loan specialist is on hand to help.

Each lender has different processes, whether online or in person, depending on the specific product. With SmartBiz, you can pre-qualify in under 5 minutes without an impact on your credit score*, and connect with a Loan Specialist who can answer any questions and assist you every step of the way to ensure the process is transparent, clear, and easy to follow.

 

*We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.

 

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