How to Get a Business Loan?

Not every entrepreneur can fund his or her business venture or idea using only their own personal money. In fact, the National Small Business Association states that 73% of small businesses in the United States have used financing in the past 12 months. The SBA also states says that 63% of small business employers have some form of debt. But while acquiring a personal loan is a relatively straightforward process, getting a business loan can be more difficult. Today we’ll take a deeper look at how to get a business loan.

How to Get a Business Loan?

Understand the Different Types

Not all business loans use the same structure. There are several different types of loans available for businesses, each of which has unique characteristics. Here’s a brief overview of the different types of business loans:

• Line of credit: this loan allows the business to draw money as needed up to a specific amount. There’s usually a set up fee for creating a line of credit, as well as interest on the amount drawn.
• Working capital loan: classified as a debt borrowing vehicle, a working capital loan is used to manage changes in revenue and expenses. Businesses that operate seasonally, for instance, may use them to cover additional expenses during periods of high traffic/sales.
• Term loan: this is the traditional loan type used by small businesses. As the name suggests, term loans have a specific dollar figure (e.g. $10,000 or $25,000). They can be used to cover payroll, operations or other expenses.
• Accounts receivables financing: an alternative type of small business loan is accounts receivables financing. Under this loan, the business owner sells his or her company’s outstanding invoices — money owed by customers or clients — to a financing company.

Find the Right Lender

Once you’ve determined which loan is right for your business, you should begin searching for a lender. Banks are usually the most common lender for business loans, but this doesn’t necessarily mean they are the best choice. Banks generally require good credit and/or collateral. If you don’t have either of these, you may have trouble getting approved for a line. Independent financing firms and investors may prove more useful in this scenario.

Check Your Credit

You should also go ahead and check your credit history, regardless of the lender or loan type that you are trying to acquire. Don’t just check your business credit, though; also check your personal credit. It’s a little-known fact that lenders look at an applicant’s personal credit to determine whether or not they are a suitable candidate for a loan.

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