It takes money to start a business. And unless you’re carrying around a whole lot of cash, that means taking out a loan. If you’re just getting a new business off the ground, that can be a little overwhelming and lender requirements can be intimidating. The good news is that you can absolutely handle it.
So how do you actually get a loan?
1. Start with a Business Plan
Most experts advise that all new businesses start out with a clear business plan. Turning ideas into a written business plan forces you to crystallize your company goals, financial projections, and plans for growth. If you’ve never a written a business plan before, you may not know where to start or what to include. Visit this resource on how to write a business plan.
Your business plan shows lenders that you’ve put in the work and that your business makes financial sense. They’ll be able to see where you want to use the money and how you’re going to make the money you need to repay it.
2. Speak with the Small Business Administration (SBA)
The SBA exists to help small businesses get started and be successful from inception to retirement. SBA representatives are available to help guide small business owners regarding their prospective business plans and to help them turn those dreams into action.
In addition to providing educational resources, training, and materials, SBA lending programs help small businesses gain needed startup funding. Check out what options exist for new small business owners and see whether you can qualify for any special programs under the SBA. That can make it easier for you to get through the loan process, connect you with reputable lenders, and may even help you get more competitive rates.
3. Prepare the Documents You’ll Need to Apply
You’ll need to prepare proper documentation to apply. Check with your prospective lender on what they require for a loan application. Be honest and forthright when applying; don’t overestimate potential profits or underestimate expenses. Providing accurate data will ensure you don’t in over your lending head.
4. Find the Best Lender for You
Bank loans aren’t the only way new businesses can qualify for startup funding. Other lending potions exist for new businesses to get the funding they need. Check out these financing options / lenders for possible backers of your first business loan.
I. Community Development Financial Institutions (CDFIs)
CDFIs provide low-interest financing of amounts less than $250,000. These loan amounts can be used for new business startup costs. CDFIs focus on providing accessible lending to underrepresented entrepreneur groups and lower-income areas.
CDFIs may be a good option for first business loans, since they also offer hands-on business resources, mentoring, and technical assistance. To learn more about CDFIs, visit the Opportunity Finance Network.
II. Community Banks
Community banks are smaller local businesses that seek to work with other smaller local businesses. Because of their regional client base, smaller banks may offer more financial products and financing to local businesses than their national counterparts do.
Community banks have connections within the local community, so personal connections are important to these banking institutions. The community focus may make a community bank a good choice for a brand-new business seeking a loan.
For more information on community banks, visit the Independent Community Bankers of America.
II. Credit Unions
Credit unions are non-profit institutions that offer small business loans to their members. Joining a credit union can give new small businesses access to a variety of loan options. Credit unions usually offer lower-interest rates than traditional banks.
To find credit unions in your area, visit the National Credit Union Association.
IV. Alternative Online Lenders
Online lenders are another option for small businesses who seek their first business loan. Online lenders offer rapid approval of applications and quick fund disbursement. The disadvantage of online lenders is that the online lending world is broadly unregulated.
With that each mind, new business owners should be careful of those who are acting unethically. Before committing to an online lender, you should conduct proper due diligence on the business to see if they are ethical and have had any BBB complaints.
5. Find the Right Loan for You
There are multiple loan options and loan products available to small businesses. Make sure you do your homework on the types of funding available for your small business. SBA loans, microloans, term loans, and business lines of credit are potential loan options products to consider.
Consider what you need in terms of the amount, the length (term) of the loan, the interest rate, ability to borrow more, ability to pay the loan back early if you want to, and what interest rate you’re being offered.
6. Read the Fine Print
Most importantly, make extra sure you read all the fine print before you sign any documents. Make sure that you understand all the terms, the fees, and the payment schedule so you don’t encounter any surprises down the road. To ensure you’re working with an ethical lender, check out the Borrower’s Bill of Rights so you're aware of your rights. If you have any questions about any terms, ask the lender—they want you to understand what you’re signing, too. And consider taking those terms and asking a third party, like a lawyer or financial advisor, to make sure that you’re clear on the terms.
The First Step
Getting your first small business loan is an exciting time! It means you will soon be on your way to heading up your first company. With preparation and knowledge, you’ll secure the right funding for your new small business.
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