Small Business Loan Application: 7 Standard Questions Asked

The small business loan approval process can be complex. Before you start an application, it’s a good idea to be as prepared as possible. Generally, small business lenders will ask for tax returns for the last three years, asset information, an income statement along with a year of bank records and collateral if required.

To help you get organized, we’ve outlined seven of the most common questions you may be asked on a loan application below.

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1. How long have you been in business?

About half of U.S. small businesses shut down within their first 5 years. If you’ve passed that benchmark, lenders know that you’re on track for growth. For a SmartBiz® SBA loan, you must have two or more years in business. There are many options for funding a startup or younger business but you’ll get the best rates and terms the longer your business has been around.

2. Do you have steady cash flow?

Cash flow statements tell lenders how much money you have available at any given time and if that flow is steady enough to take on debt. A company needs sufficient cash to meet its expenses, repay loans to its investors, and reinvest for further business growth. If you manage your business’ cash flows well, you can keep expenditures in check and have enough cash reserves to meet contingency expenses.

If you’re struggling to manage cash flow, visit the SmartBiz Small Business Blog. Our article, A Guide to Managing Cash Flow, gives a high level overview of this important statement. You can use various accounting software like Xero® , QuickBooks®, and Sage® to generate cash flow reports.

3. How do you plan to use your funds?

Use of funds allowances and restrictions vary from lender to lender. For an SBA loan from a bank in the SmartBiz network, there are several ways to use loan proceeds to fuel growth, including:

  • Working capital – Defined as the difference between current assets and current liabilities, working capital funds the day-to-day operations of your small business.
  • Business expansion – You’ve survived the roller coaster of starting a business, now what? If you’re ready for the next step, there are business expansion strategies you can fund with proceeds from a loan. These include opening another location, hiring new employees, implementing marketing programs and more.
  • Equipment Financing - Equipment can range from an x-ray machine to a used van to computers and more. As an example, “The Tree Guy®” is a SmartBiz customer that used SBA loan proceeds to buy new equipment. With that equipment and a few new hires, he was able to expand his business to an additional location.
  • Debt Refinancing A popular way to use funds from a low-cost, long-term loan is to refinance existing high interest debt. SmartBiz customer Milton Martinez owns Triple D Towing® in Texas. He says, “By getting rid of the two small loans I’m saving $15,000 - $18,000 dollars. That’s money I can put back into growing my business or into savings.”
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4. How much do you want to borrow?

Take time to look at your business plan and current financial situation before you start an application. Not knowing how much you need can stop the process dead in its tracks. Work with a financial professional to determine how much you need to reach your financial goals if you’re not sure.

5. How is your credit?

Strong credit scores generally lead to lower cost and faster funding. When working with a lender, both your business and your personal credit scores will be considered.

Business credit is based on your business’s financial history and is tied to your business’s employer identification number (EIN). An EIN is a unique nine-digit number that is assigned to a business entity and allows the IRS to easily identify businesses for tax reporting purposes. All businesses that meet certain criteria must have an EIN before they can begin operating.

Personal credit is based on your personal spending history and is tied to your social security number.

Although different, business credit and personal credit are often connected and business owners should monitor both carefully and strive to keep scores high.

6. What loan terms are you seeking?

A loan term is the duration of the loan until it's paid in full. For example, an SBA loan from a bank in the SmartBiz network has a 10-year term. Monthly payments are typically low as the balance is spread out over more months.

7. How quickly do you need the funds?

Do you need funding ASAP or can you wait? Fast business loans are generally more expensive. If you have the time and strong credit scores, consider applying for an SBA loan or Bank Term loan with SmartBiz.* Simply start an application here.

Final thoughts

Although taking on a loan might sound intimidating, getting the right loan at the right time can help your business flourish. Check out our blog post on how a small business loan can help spark growth: The Benefits of Long-Term Debt for Your Small Business.

*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.

WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.

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