Obtaining a small business loan: 5 simple steps

By David Marovich

Most business owners will find out sooner or later that obtaining a small business loan can be a difficult task. But there are things you can do to prepare yourself and make the loan process go smoother. Most will ask that you address five categories when applying for a business loan.

Step 1: Check your credit and get it in order
The company’s financial history and credit history, along with the owner’s personal financials and credit history, will be used as a baseline for determining if you qualify for a small business loan. Check your credit score prior to applying for the loan to make sure there are no discrepancies or problems that need to be addressed.

Step 2: Have a written business plan
Most lending institutions will require a detailed business plan before considering the loan application. The plan should have short-term and long-term goals and objectives, along with information detailing how these goals and objectives will be achieved. Other plan details should include research on earning potential, how much money is needed, how it will be used, and when you can expect a return on the investment. Financial institutions want to be comfortable that you have a plan that shows how you will be able to pay back the loan.

Step 3: Secure collateral
If you have excellent credit history you may qualify for an unsecured small business loan. These loans do not require collateral, but may come with a higher interest rate. If you have average or less than perfect credit you will need to consider a secured loan. In many cases, equity in your personal residence, commercial property, equipment, or vehicles may be considered as acceptable collateral. If you don’t have acceptable credit or collateral, you might have to look to private investors or private lenders for the necessary funds.

filesStep 4: Organize your documents
When applying for a small business loan most institutions will require, at the least, the following documentation:
– The last two to three years of your business and personal income tax returns
– Personal Financial Statement
– Year-to-date Profit and Loss Statement
– Current Balance Sheet
– A copy of your business license
– If incorporated: articles of incorporation, corporate charter, bylaws and governing principles

Step 5: On-site visits
A business banker should visit the business site in order to familiarize themselves with your business operations — from your physical plant to your employees, they will like to see first-hand how you sell your product or service.

Once you have completed the preparation for the loan, you need to consider where to get your small business loan. If you have an existing relationship with a financial institution you may want to start there. Having a personal relationship is the most important start for any type of business. In recent times, credit unions have catered more to small business services and loans. They tend to be smaller than the big banks, which makes loan decisions faster and easier at a local level. The service tends to be more personal at credit unions, as they are owned by members (shareholders) instead of investors and stockholders.

On a case-by-case basis you may want to consider obtaining a Small Business Administration (SBA) Loan. If you are looking for a loan to purchase land, build facilities, or purchase equipment, ask about an SBA 504 loan. Two other great options are the SBA 7A program and the SBA Express program. You may want to research these at or speak with your lender.

Regardless of the loan you need for your small business, it all comes down to the ability to pay, a good relationship with the right lender, and a well thought out business plan.

David MarovichBy David Marovich
David Marovich is a Business Account Officer for 121 Financial Credit Union based in Jacksonville, Florida. 121 Financial’s Business Services Division experienced a 50% increase in small business loans in 2012.


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