Whether you’re launching a new business or seeking to expand, a business loan can secure the future of your company. The good news is, securing a loan is easier than you think. Here’s how to apply for a business loan in eight steps.
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1. Gather the right documentation
Credit unions ask for all sorts of legal and financial documents when you're applying for a business loan. Here are some examples of the items you may be asked to provide:
- Driver's license
- Business license
- Bank statements (personal and business)
- Income tax returns (personal and business)
- Business leases
- Balance sheet
- Financial projections
- Documentation of entity and industry type
2. Ensure you have a strong credit score
If you don't have a strong credit score already, it's time to build one. This means paying your bills every month by the deadline and building credit over time.
If you're running a small business, you'll want to make sure that your personal credit score is in order, too. A larger business might have its own credit score, but if your personal score isn't strong, that is likely to be a red flag for the lender.
3. Write a business plan
When a credit union lends you money, they want to know how you'll use that money to turn a profit. It's assurance that you'll have the ability to repay the loan. So your business plan should detail how this loan will help you increase the success and profitability of your business.
4. Be prepared to offer collateral
Small businesses may need to provide collateral in order to qualify for a loan. This might be a valuable asset in your possession already, such as real estate or equipment that you own. Make sure that you feel strongly that you can repay the loan according to schedule, otherwise the lender can seize the equipment or other assets you've offered as collateral if you become unable to repay the loan.
5. Decide what type of business loan you want
There are many different types of business loans. Research each kind and see which is the best fit for you. Here are a few of your options:
- SBA small-business loan
- Working capital loan
- Business term or equipment loan
6. Determine how much you want to borrow
When you apply for a loan, you should be able to explain how much you need and what you will use the money for. You should also be prepared to explain how you will be able to pay that money back.
7. Find the right business lender
Research various lenders before deciding which one you want to approach. Make sure the terms of the loans they offer are healthy for your business. While it may be easier to get loan approval from one lender, on the flip side, it may charge especially high interest rates. Don't make a commitment that you won't be able to pay back.
8. Read through the terms of the loan
When a lender offers you a loan, read through the terms and conditions carefully. Determine what the interest rate is and how much you'll have to pay on a monthly basis. Ask yourself if this is something that fits within your budget.
The loan may also set specific requirements for your business — that you maintain a certain debt-to-equity ratio, for example, or always have a certain amount of cash on hand. Can you realistically meet these standards?
If the terms of the loan aren't realistic for you, think about what changes you'll need to make. Can you get by with a smaller loan? Are you working with the right lender for you?
Follow these eight steps and you'll feel confident you found the right business loan for your company.
Learn more about business financing options with BECU.