Regardless of which type of loan you’re applying for, there are certain steps you’ll always need to take to apply for a small business loan. So before you invest time, money, and energy into the process, have a look at these steps.

Step 1: Ask yourself why you need this loan.

In some ways, this is the most obviously answerable question you should ask before you apply for a small business loan. It’s also the most important. You need a loan because your business needs more money. But it can – and should – be more specific than that. Effective borrowing is strategic, well thought-out borrowing.

Are you pursuing a loan because you’re looking to buy new equipment? Are you looking to hire? Are you moving into a new marketplace? Expanding? Acquiring another company? Covering another, older debt?

Once you can fully and honestly answer the question of why you’re in need of money, the rest of the process will be much more clear.

Step 2: Create a Business Plan

Part of answering the question of why you need a loan is determining where that loan fits into the larger goals you have for your business. And to understand that, you should create and maintain a detailed business plan.

While there’s no one way to create one, The United States Small Business Administration (SBA) does provide a business plan guide which may be helpful if you’re getting started or want to brush off some rust on your existing one.

Regardless of exactly how you create it, your business plan is an extremely important document. For starters, it’s like the outline you do before you sit down to write an essay. It gives you a framework for moving forward. But it’s also a means to achieve your financial goals.

Many lenders will ask to review your business plan before they approve a loan. So ensuring that your business plan is feasible, professional, and indicative of how you’ll run your business for the long term will also help you as you seek out capital.

Step 3: Learn about your lending options

Similar to understanding why you need a loan, researching the options you have for getting that loan will help ensure that you’re prepared for the infusion of capital, planning to use it properly, and know how to repay it.

There are a ton of different small business loan options. You might be qualified for a low-interest SBA loan. You might need a quick infusion of cash from a short-term loan or non-loan financing like a merchant cash advance. It’s wise to put some real research into potential lenders so that you can be sure you’re borrowing the right amount of money at the right cost for the right reasons.

Step 4: Determine the documents you’ll need.

This list can change depending on the type of loan for which you’ve decided to apply. But regardless of which type of loan, which lender, and what you’re planning to do with the loan, some docs don’t change. For instance, you’ll almost always have to share recent bank statements and your latest business tax return.

Create clean copies of every necessary document. Having these saved in digital format will make it even easier for you to apply for financing in the future, since many lenders now offer fully digital applications. If there’s even a moment’s doubt of whether you think a document may be necessary, prepare it anyways. Review every document for accuracy, clarity, and relevance.

Check, double check, and triple check the application process to ensure you’ve got everything you may need.

Step 5: Prepare personal documents.

Some lenders will ask for personal documents. These papers might include your personal credit score (even if you’re applying with bad credit), a resume, and other types of documentation that tells the lender you are who you say you are.

Step 6: Prepare business documents.

For most business loans, you’ll need to provide a business license and proof of ownership to ensure that the correct person is receiving the funds and that no one else needs to be involved with signing off on the application.

Step 7: Prepare financial documents.

At its core, a business loan is an investment a lender makes in your business. So they’ll want to see proof that your business is a trustworthy borrower. They’ll want to see credit history in the form of a business credit score and credit report to determine that you’re dependable to your creditors.

The lender may also ask to see your balance sheets and/or tax returns to see proof of whether your company is generating enough consistent revenue to be eligible for the approval of a loan. A company that isn’t generating sufficient income isn’t likely to be a company capable of paying back a loan.

Step 8: Present your case to the lender.

You’ve done the research. You know why you need the money, where it’s going, and your best option for securing the money at a feasible rate. The hay is in the barn, as the old saying goes. With no more research, practice, or preparation to be done, it’s time to prove that your company is worth a loan.

Now, in many cases, you’ll meet with the lender. That could mean walking into a branch in your best suit, or it could just be a simple call over the phone, especially nowadays with so many more alternative finance options out there. You’re going to go into that meeting fully prepared. Your business plan is sound, your finances are strong, well laid-out, and properly accounted. After you’ve explained it all and sent a thank-you note, and all the rest, you’re now ready for what may be the most difficult part of the entire process.

Step 9: Be patient.

Lenders don’t make their decisions immediately. The lender of an SBA loan, for example, might take weeks or months to approve or deny a loan application. There’s no one to pester, and nothing more you can do. Once your application is submitted and your meeting is complete, all you can do is wait for the results.

And when they come, take it in stride. If you’re approved, congratulations! Follow your business plan into the next steps. If you’re denied, that doesn’t mean your company isn’t viable.
Of course, business owners now have much faster options for getting financing than they used to. So if your application is taking too long to process consider looking at alternatives to secure the financing you need.

When the results come, take it in stride. If you’re approved, congratulations! Follow your business plan into the next steps. If you’re denied, that doesn’t mean your company isn’t viable.

Step 10: Plan for the future.

If your application is accepted, this means creating and acting on a plan to repay the loan in full. After all, on-time repayment in full leads to better rates on future loans, which can lead to expansion, improvement, and more money for your company.

If your application is denied, don’t despair. Determine the reasons the lender denied your application. Was it because your company wasn’t a perfect fit with that type of loan? Were your finances the problem? Do you run a high-risk business?

Regardless of why you were denied, you can almost always apply again. Maybe you’ll need to improve your credit score or revamp your business plan. Maybe you need to apply for a term loan instead of an SBA loan. No matter what, you can try again for the funding you need and hopefully be on your way to the capital you require for business success.

Tim Kelly

Mr. Kelly is a 20-year veteran in online business and financing.

He has consulted some of the top brokerages, media companies and financial exchanges in the area of finance, online marketing and content management including: The New York Board of Trade, Chicago Board Options Exchange, International Business Times, Briefing.com, Bloomberg and Bridge Information Systems and 401kTV.

He continues to be a regular market analyst and writer for ForexTV.com. He holds a Series 3 and Series 34 CFTC registration and formerly was a Commodities Trading Advisor (CTA).He was also a licensed Property & Casualty; Life, Accident & Health Insurance Producer in New York State.

In addition to writing about the financial markets, Mr. Kelly writes extensively about small business marketing and finance.

Mr. Kelly attended Boston College where he studied English Literature and Economics, and also attended the University of Siena, Italy where he studied studio art.

Mr. Kelly has been a decades-long community volunteer, he established the community assistance foundation, Kelly's Heroes. He has also been a coach of Youth Lacrosse for over 10 years. Prior to volunteering in youth sports, Mr. Kelly was involved in the Inner City Scholarship program administered by the Archdiocese of New York.

Mr, Kelly was Sr. VP Global Marketing for Bridge Information Systems, the world’s second largest financial market data vendor. Prior to Bridge, Mr. Kelly was a team leader of Media at Bloomberg Financial Markets.
Tim Kelly