Friday, September 30

How to get a small business loan

Are you a small business owner looking to access working capital or a loan to expand your business operations? If you would like to purchase new equipment, finance inventory, or expand your business, consider applying for business financing. If you don’t dare to take the first step, we can help you with this little guide.

We fully understand your uncertainty. Therefore, we decided to take some time to delve into the topic. Some of the steps you must take to apply for a business loan or some type of financing are the following:

1. Choose the right type of business financing.

We know that choosing the best commercial financing for your business is not an easy task. There are several factors that you must take into account:

  • Do you own a recently opened business or does your business have a history?
  • Do you have a bad credit score or credit history?
  • Do you need to access funds quickly?
  • Do you have at your fingertips all the documentation and resources that some traditional lenders require?

Below we will explain what types of business loans are available to small business owners:

Short term loans

Short-term loans, also known as installment loans, are usually provided by traditional banks or credit unions. These provide a specific amount of money at a fixed or variable interest rate for a specified period. They usually come with favorable terms, but their requirements are strict.

The SBA 7(a) Loan Program

The Small Business Administration (SBA) offers 7(a) loans. These work with the help of SBA-approved intermediary lenders, possibly a bank or credit union. For most programs, a strong personal credit score is required. They also have a lengthy application process and funding can take several months to be approved.

Credit lines

People with a high credit history may qualify for an unsecured line of credit. But it is likely that as a requirement you have to provide collateral with the same value as the loan that was requested.

Personal loans

A personal loan is a personal transaction against your own name, completely irrelevant to your business. To obtain this type of loan it is not necessary to present a detailed business plan. Because this loan is not tied to your business profits, you probably won’t get much funding. At least not as much as with a business loan or other financing options. And if you can’t repay the loan on the agreed terms, your credit score will suffer. You can acquire this loan through a bank, a credit union or a lender digitally.

Alternatives to bank financing

Alternative sources of financing are a reliable and quick way to access working capital. Alternative financiers offer products designed specifically to meet the needs of small businesses. Plus, you don’t need to have a perfect credit score or credit history to qualify. Instead, financiers take into account the growth potential of your business.

One option that falls into this category is cash advances or merchant cash advances. This type of loan tends to be more focused on the future income and profits of your business, not so much on your credit history. If you opt for one of One Park Financial’s cash advance programs, you can complete the entire process online. One Park works with small businesses that have been open for three months or more and generate at least $7,500 in revenue. You can fill out our online form and find out today if you pre-qualify.

2. Develop a business plan

Most financiers will want to know how you plan to use the money. They must also ensure that your business has the ability to pay. Developing a solid business plan will give investors more confidence to lend money to your business.

You can also determine how you want to use the funds for your business effectively. Having a business plan will help you decide how much financing you need. Your plan should include finances for the last few months and projected finances. This will be your moment to show that your business has enough cash flow to cover ongoing expenses and payments.

We recommend that your plan include:

  • Brief description of your company, services and products
  • A market or industry analysis
  • Facilities and Operations Plan
  • Marketing and sales strategy.

Last but not least, a SWOT (strengths, weaknesses, opportunities, threats) analysis will also help you understand your current situation and goals.

If you’re just starting your business, we’ll also give you some tips on the challenges of starting a business and how to avoid them.

3. Understand your chances of qualifying

Before applying for a business loan, it’s important to understand how investors will evaluate your application. They may look at your credit score and history, your cash flow, how long you’ve been in business, type of collateral you can offer, your industry, etc.

Filter the applications in an Excel sheet and request those lenders in which you consider to have the best probability of success. For example, SBA loans require that you be current on all government loans with no past defaults.

This means that if you’ve ever fallen behind on a federal student loan or government-backed mortgage, you won’t be able to qualify. Both the bank and SBA loan qualifying process will require a thorough investigation of your credit report. So save yourself a visit to the bank if your credit score is below 700 and forget about SBA loans if your personal credit score is below 640.

4. Prepare your business documentation

Depending on the type of business loans you apply for, the requirements change. At a minimum, they will ask you to show the lender that you have the means to repay the credit. When it comes to bank credit, you will need to provide balance sheets, profit and loss statements, personal and business credit reports and tax returns, bank statements, business licenses, franchise agreements, among other requirements.

Banks will typically ask for three to five years of your personal income tax returns and potentially your business returns as well. In addition, you will need to provide your personal and business bank statements for the last 12 months. Alternative financing options, such as cash advances or merchant cash advances, typically have fewer requirements.


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