Looking For A First-Time Business Loan? Here’s What You Need To Know
Trying to decide if your small business needs a business loan? Check out this guide to discover your funding options.
While not every business owner is going to need a loan, it is very common for small business owners to seek additional financing for their business, and loans can be a good option. But how does a business loan work? And how do you get business loans for a new business?
A first-time business loan can be daunting and confusing, but it doesn’t have to be!
Read on to learn more about everything you need to know before applying for a first-time business loan.
Do you know your way around a business loan and just need a refresher? Head over to our step-by-step guide on applying for a business loan.
Table of Contents
Before You Apply For A Business Loan: 5 Easy Steps
Getting a business loan doesn’t start with filling out the loan application. Instead, the process should begin before you even talk to a lender. Before you hop online to fill out your application or head to your local bank branch, prepare by taking the following steps.
How To Find the Right Lender
The lender you use depends on various factors.
You’ll want to consider:
- The loan amount
- The type of loan
- Your creditworthiness
- Your time in business
Most business owners turn to three main types of lenders for their business loan needs: traditional or online banks, the Small Business Administration, and alternative lenders.
Check out the best small business loans for reputable lenders we recommend.
When You Should Apply For A Bank Loan
When they need a business loan, many business owners turn to a source they already use for other financial purposes: the bank. Bank loans are popular with business owners because they offer some of the most affordable loan options on the market.
You should apply for a traditional business loan from a bank if:
- You need a high loan amount
- You want low interest rates and great repayment terms
- You have a strong credit history (score of 600-700+)
- You can provide collateral
- You have time to wait for the application process
When You Should Apply For A SBA Loan
Small Business Administration loans are extremely competitive because of their low rates and flexible terms. Because these loans are backed by the government, lenders known as intermediaries have more incentive to loan to small businesses that have trouble qualifying for conventional loans.
SBA loans have similar documentation requirements as banks, as well as similar timelines for approval and funding.
You should apply for a SBA loan if:
- You have a strong credit history (score of 600+)
- You’ve never defaulted on government loans
- You can provide collateral for higher loan amounts
- You fall under the SBA definition of a small business
You can do a deep dive into SBA loans to learn everything you need to know about the specifics of the different programs, but here are the main ones:
- 7(a) Program: The 7(a) program provides up to $5 million for almost any purpose.
- 504 Programs: 504 programs are best for the purchase or improvements of real estate.
- Microloans: Microloans are smaller loans of $50,000 or less.
- Veterans Advantage Program: The Veterans Advantage Program is exclusively available to military veterans and service members.
- Community Advantage Program: The Community Advantage Program is exclusively for businesses in underserved areas.
Qualified business owners can apply for these loans through SBA-approved banks, credit unions, non-profit organizations, and Certified Development Companies.
When You Should Apply For An Alternative Loan
More businesses are turning to alternative loans for several reasons. Difficulties qualifying for conventional loans and the need for fast financing are two of the biggest reasons alternative lenders are becoming more popular in the small business world.
You should apply for an alternative loan if:
- You have difficulty qualifying for conventional loans
- You need fast financing
- You have a lower credit score (500+)
- You own a startup/new business
- Your business hasn’t generated a lot of revenue
- You want a faster application process
- You can provide collateral for larger loan amounts
It is important to note that these loans often come with higher interest rates. Because alternative loans are more expensive, qualified business owners with high credit scores should consider more affordable options.
First-Time Business Loan Application Best Practices
You’re almost ready to apply for your loan, but before you do, it’s important to understand a few best practices. While it’s easy to focus solely on the money, it’s also critical to present yourself as a professional, trustworthy business owner to lenders.
- Be Thorough: This will help expedite the entire loan process. Shop around to make sure you’re getting the most affordable financing deal, know what you want to say to potential lenders and how you want to present your business, and have all of the paperwork to back it up.
- Be Honest: Be upfront with your lender about how you plan to use the money and your current financial situation. Lying will get your application rejected. Be honest with yourself as well when you’re determining how much of a loan your business can handle.
- Be Available: After a potential lender receives your application, they’re most likely going to have follow-up questions. Answer phone calls and/or emails from your future lender whenever you are available to avoid delays in your application process.
Additional First-Time Business Loan Resources
Have more questions? We’re here to help! Click on the options below to learn more about the different aspects of business loans.
Applying for a business loan can be intimidating, but with careful planning and a little knowledge, you can move through the loan process like a pro. Be prepared, know your numbers, keep in contact with your lender, stay professional, and you’ll soon be on your way to securing your first business loan!