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  • There are many types of financing available, from traditional bank loans to microloans.
  • Your credit score is important in getting a business loan, but so is your total revenue. 
  • The amount of time you’ve been in business is more important than the number of employees you have.

Taking out a loan for your company may provide a needed injection of cash to push ahead on a stalled project or fund other business goals. Whether you’re a startup or already well established, you have many financing options available. 

Before you take out a loan, make sure you have a detailed plan for how you’ll use the money and a budget for how you’re going to repay it. Be careful before taking on financing to solve an immediate, short-term problem. 

“We work with many business owners that are seeking a loan to help to solve urgent cash flow issues and sometimes they don’t think long-term about how they’re going to repay their debts,” says Matt Brewster, vice president of capital access at Hello Alice, an online platform that helps businesses launch and grow. “If you do take on short-term financing of any kind, shop around to find the best rates and fees, pay it down ASAP, and don’t become too dependent on it.”

Here are seven things experts say you need to know about to get the right business loan. 

1. What types of financing can you choose from?

You need to determine what you are using the money for before applying for a loan for your business, as there are a variety of loan types. 

“There are many types of loans, from SBA loans to traditional term loans, lines of credit and more,” says Gina Taylor Cotter, SVP for global commercial services for the online lending platform Kabbage. “All of these may come with various terms, rates, repayment options, and even financial institutions.”

Noah Grayson, a strategic financing advisor at Real Estate Bees, says business owners should research and weigh the pros and cons of all the financing options available. You may also consider contacting a business loan specialist or a direct business lender that offers many options.

“Business loan options are abundant, and it can be very easy to obtain business financing,” says Grayson. “However, obtaining the right financing for your business is essential, and taking expensive financing just because it can be procured quickly and easily is not usually the best option for a business owner.”

2. What are some basic eligibility requirements?

Many lenders have a minimum time in business to be eligible for a loan product, typically ranging between six months to five years. Loans for established businesses usually depend on historical information, including you and your business’s credit history, tax returns, historical financial statements.

It’s harder to get a loan as a new business, Brewster says, as startup loans often require a more robust business plan and financial projections because they have no previous history to on which to base a decision.

“Many financial institutions have loan eligibility guidelines that include a minimum annual or monthly revenue,” Brewster says. “Nonprofit micro lenders, usually community development financial institutions and others, specialize in making microloans of $50,000 or less typically to smaller businesses. They can be a great resource for smaller businesses.”

3. What are the main things lenders consider when making a decision?

Lenders generally look at your time in business, credit scores (both business and personal), cash flow, collateral, and the industry the business is in. You may also have a better chance of approval if you have a previous relationship with the lender. 

Grayson emphasizes three key factors that lenders prioritize before making lending decisions: Ability to repay the loan, the need for the money and how it will assist with a critical business need or growth, and the business and business owner’s overall creditworthiness.

“The number of employees the business has, or the amount of gross revenue (revenue received before expenses) doesn’t matter as much as the net income of the business (revenue after expenses) and the amount of time a business has been in operation,” Grayson says. “The higher the net income of the business and the longer the business has been in operation, the more financing options the business will have, and the more favorable terms will be available.”

4. Does the size of your business matter?

Usually, the size of a business isn’t as important as its age or how much revenue it generates. Don’t feel like the number of employees you have prohibits your ability to apply for a loan. 

“Don’t be discouraged if you’re only beginning or have been in business for decades,” Cotter says. “Research your options and find a partner that best fits your company.”

5. Does your credit score matter?

In short, yes. Credit scores are key in helping lenders determine the likelihood you’ll repay your loan on time and in full. 

“Credit score is a critical component,” Grayson says. “Business lenders will offer the best financing terms to business owners with a high credit score, but more importantly with a track-record of having debt and paying it back on time. A high credit score alone does not guarantee access to business financing.”

However, unlike with personal loans where your creditworthiness may be the only thing a lender considers, small business lenders also take into account a business’ revenue. Revenue is another data point which can illustrate a company’s capacity to pay back the loan, Cotter says.

6. What documents do you have to provide?

To get a business loan, you may need some of the following documents:

  • Bank statements for the business and potentially the owners
  • Tax returns and bank statements for the business and possibly the owners
  • Financial statements, including an income statement, balance sheet, and cash flow statement
  • Legal documents such as articles of incorporation and business licenses
  • Forms of ID to underwrite and validate the business

“You may need additional documentation for specific financing types,” Brewster says. “For example, if you’re applying for invoice factoring (borrowing against money that customers owe you), you will need to supply your working capital accounts, accounts payable and accounts receivable, and potentially specific invoices.”

7. What should you keep in mind during the application process?

Depending on the type of loan you’re applying for and your unique financial situation, the approval process can be lengthy and may require a lot of effort on your part. Come into it knowing why you need the money and hold steady throughout any challenges you may face. 

“Be prepared and be persistent,” Brewster says. “Having strong convocation in your business strategy and all of your documents in place is a good first step. Then you need to keep at it. It can take many ‘nos’ before you get to a ‘yes’ for a financing product that is best for your business.”

Grayson emphasizes that research is the most important tool to be successful with a small business loan.

“There are programs that sound appealing but may be more financially beneficial to the person trying to sell them to you, then they will be to your business,” Grayson says. “Work with a reputable and experienced lender or financing professional but come armed with as much knowledge and research as possible so you will have the tools to select the financing that is best for you.”