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How to Get a Small Business Loan

You’ve decided to take your small business to the next level with a small business loan. But how do you get a small business loan? While it’s exciting to see your small business take off, applying for a loan can be complicated and intimidating. That’s why we created this 5-step guide to help you apply for a small business loan.

small business loan document on desk

1. Learn How Banks Assess You.
You’ll save yourself the disappointment later on if you go into the small business loan application process knowing how banks will evaluate your application. When reviewing your application, lenders will consider a variety of factors, including personal credit score, length of credit history, period of time in business, collateral, cash flow and more.

It might be helpful to create a business plan to specify exactly how much you want to borrow and what you plan to do with the money once you get a small business loan.

2. Decide on the Right Type of Loan.
There are many different types of small business loans you can get. Whether you’re looking to expand your small business, need to cushion operating costs, or are starting from scratch, there’s a loan option for you.

A traditional term loan might be a good option if you want to obtain a loan for a specific expense like equipment, real estate or seasonal purchases. This loan option often has the lowest interest rates of all the options and can be short term or long term.

Startups have the unique challenge of not having a business credit history, collateral, or other proof of financial reliability. If you’re taking out a loan to help start your new small business, you may consider a personal loan from a local bank to get you started.

If you’re a small business looking to cushion day-to-day costs with a bit of extra cash, consider a business line of credit. This allows you to tap into financing as needed for things like payroll, one-time purchases, and unforeseen expenses.

3. Gather Your Documentation.
Have the necessary materials ready before reaching out to lenders. Lenders ask for and review an extensive amount of documentation, so your small business loan application will go more smoothly if you have your documents on hand. These are a few (but not all) documents lenders may require for your application:
  • 2 years of personal and business Tax returns
  • Bank statements for your business and personal accounts
  • Business financial statements (i.e. Profit & Loss, Balance Sheet)
  • Licenses or registrations for doing business
  • Legal contracts (commercial leasing, incorporation, franchise, partnership)
  • Business plan
4. Find a Lender.              
Before you apply for a small business loan, evaluate potential lenders to decide which will meet your specific needs and goals.

Here are just a few questions to get you started in comparing your options:
  • What is the interest rate, and can it vary over time?
  • What happens if I default on my loan?
  • What are the fees associated? (i.e., administration fees, processing fees, etc.)
  • Can I pay off my small business loan early, and if so, is there a fee associated with that?
  • What periodic reports will I need to submit to the lenders?
  • Are there limits on how my loan can be used?
It’s worth considering local banks when comparing lenders for a small business loan. Local banks have a vested interest in small businesses in the area and understand regional challenges and opportunities you might be facing. They can work more closely with applicants (often making for a faster approval process), and can often adjust the loan to your particular needs. 

5. Apply!
Once you know what kind of small business loan you want to get, it’s time to apply. Filling out the application and submitting all the documentation may take some time, but hang in there. With a little bit of preparation and research, you’ll be prepared to put your best foot forward in applying for your small business loan. Congratulations on taking the first steps!

At First National Bank and Trust, we’re committed to helping small businesses like yours flourish. Find a branch near you, or contact us to learn more.

Looking to buy a building for your business? Check out our Guide to Getting a Commercial Real Estate Loan in Southern Wisconsin.