How to get a small business loan

Editorial Team

6 min read
Couple meeting with consultant

There are many reasons why small businesses may need to take out loans, including to:

  • Cover immediate operational expenses
  • Finance location expansions or product launches
  • Get a new startup venture off the ground

No matter how important your reasons might be for requesting a small business loan, banks won’t simply give you the money – especially if your venture is a startup. Equally important, you don’t want to immediately commit to the first loan that comes your way. Instead, do some research to help ensure you receive the best possible rates and repayment terms.

Below are some of the main steps for getting small business loans.

1. Decide what types of small business loans you need

There is a wide variety of small business loans, allowing you to pick and choose the most appropriate financing options for your goals. Below are some of the more popular types of small business loans:

  • Term loans provide a quick infusion of cash that you repay over the course of three months to ten years (plus interest) depending on whether you use a traditional bank or an online lender.1 These loans may be best suited for one-off expenses, such as expansions or product launches.
  • Equipment loans are designated for purchasing supplies, machinery, software, and other tools to run your business. While terms from different lenders may vary, there is usually a down payment required (e.g., 20%).2 Whatever equipment you buy can be used as collateral.
  • SBA small business loans are offered through banks and backed by the Small Business Administration. The application process for these loans can be time-consuming; but, thanks to government underwriting, SBA loans often charge lower-than-average interest rates.
  • Corporate credit cards also fall into the “loan” category, since you are technically borrowing money and paying it back with interest. However, it’s possible to apply for introductory offers that charge zero percent interest for a certain number of billing cycles. Unlike other types of loans, you can spend this money at your discretion – without requesting prior approval for every purchase.

A few lesser-known types of small business loans include:

  • Personal loans – Although blending business and personal expenses can get complicated
  • Invoice financing – You sell your unpaid invoices to a third party who will advance some of the funds the invoice is worth for a percentage of the total invoice value
  • Merchant cash advances –  A percentage of future credit card sales goes directly to the lender for repayment

2. Take stock of your risk profile

Most lenders will want to review your company’s credit history before approving any loans. Take the time to clean up any potential blemishes on your record – including missed payments or outstanding balances.

If you’re just starting out, you may not have a business credit score yet. However, you can still demonstrate:

  • Your ability to repay the loan. This can be done with recent sales receipts or by offering any existing assets as collateral (in case of default).
  • A good business plan – Especially if other investors are already helping to finance your venture.

3. Research potential lenders

When sourcing small business loans, banks are an obvious choice, whether you choose to work with:

  • Large commercial banks – These institutions usually have the most requirements and strictest underwriting rules.
  • Credit unions or community banks – These institutions can be easier to work with, since they are more focused on local economic development.
  • Banks tied directly to the Small Business Administration– Visit the SBA website for a list of approved lenders.

There are also aggregator sites, such as LendingTree and Fundera, which can help you easily connect with direct online lenders.

4. Get your documentation in order

Every lender uses different approval processes. Large commercial banks typically ask for the most documentation, and credit card companies ask for the least. Either way, it’s a good idea to organize all of your supportive documentation, including:

  • Personal financial records and credit histories of any principals in the company
  • Credentials, degrees, awards, accolades, and executive bios to help add legitimacy to your application

You also need a clear picture of the loan amount and how that money will be used.

5. Apply and compare

Once you have a list of potential candidates, apply to as many lenders as possible. Doing so helps minimize the chances of being declined – and maximizes your chances of receiving the best possible offer.

What “best” means varies from business to business. In most cases, you want the largest amount with the least strings attached, and you want to receive that money as quickly as possible.

Getting small business loans during COVID-19

The above steps outline the traditional loan process under normal circumstances. With the coronavirus pandemic, some lenders may be stricter with their lending requirements and approvals. With many small businesses struggling and needing financial support, this also minimizes the pool of available financing.

However, there are lending programs that have been developed specifically to help businesses during the pandemic. The SBA’s Economic Injury Disaster Loan (EIDL) program, for example, provides small businesses with low-interest loans of up to $500,000. You may be able to find similar programs simply by doing a Google search of “COVID small business loans.” Just make sure any lenders you work with are licensed and credentialed.

How much is a small business loan worth to your business?

Getting small business loans isn’t always easy. Still, it is often necessary to save or expand your existing operations – making the research, prep, and approval processes worth the time and effort.

If you’d like to learn more about the Clover Capital merchant cash advance program, contact a Clover Business Consultant today.

This information is provided for informational purposes only and should not be construed as legal, financial, or tax advice. Readers should contact their attorneys, financial advisors, or tax professionals to obtain advice with respect to any particular matter.

1 “Small Business Term Loans: Where to Find Options,” Nerdwallet, 19 March 2021

2 “Equipment Financing,”, 4 May 2021

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