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Comprehensive Guide to Obtain a Small Business Loan to Grow Your Business

Are you a small business owner struggling to secure the necessary funding to grow and plan to expand your business? Do you find the loan application process confusing and frustrating?

Many small business owners encounter financial obstacles that call for a boost in working capital. That's where small business loans can be a lifesaver.

Obtaining a business loan can be a game-changer for your company, providing the necessary working capital to fuel your growth and success.

In fact 40% of business owners seek out loans every single year to supplement their working capital?

However, navigating the complex world of small-business loans can be daunting.

What do lenders expect from you? What are the typical conditions you must meet to secure a small business loan? And how can you ensure that you're aligning financing with your goals? These are all essential questions to consider when exploring your options for business funding.

Don’t worry. We're here to help you!

In this article, we'll break down the requirements for obtaining a small business loan and provide insights into improving your chances of success and achieving your business goals.

So, are you ready to take your business to new heights? Let's get started.

What is a Business Loan?

As a small business owner, you're constantly looking for ways to turn your dreams into reality. However, it's no secret that achieving those goals often requires funding. That's where business loans can help.

Simply put, a business loan is a loan that a business takes out to support its operations or to grow. But it's not just any loan - it's specifically designed to meet the unique needs of businesses.

Whether you need to purchase inventory, cover payroll, or upgrade your facility, a business loan can provide the working capital you need to achieve your goals.

Understanding the requirements and types of loans available can help you make informed decisions and secure the funding you need to take your business to the next level.

Types of Business Loans

It can be overwhelming to navigate the different types of loans available, so we've compiled a list of the most common options to help you out. Here are some loan types you should know about:

  • Business lines of credit: These let you spend up to a certain amount and only pay interest on what you use.

  • Equipment loans: Need heavy machinery or other physical assets? Equipment loans can help you pay for them.

  • Invoice factoring loans: No more waiting on slow-paying clients. Get paid the amount of your outstanding invoices (minus a fee) with invoice factoring loans.

  • Merchant cash advances: If you're willing to trade a lump sum for a percentage of your future sales, a merchant cash advance might be right for you.

  • Peer-to-peer lending: This newer platform lets you borrow from a group of investors online.

  • SBA-backed loans: These loans are backed by the U.S. Small Business Administration and tend to be reliable and have low interest.

  • Term loans: Need cash fast? Term loans can get you a lump sum within 24 hours but be prepared for high-interest rates.

  • Unsecured business loans: Many business credit cards and lines of credit fall into this category, meaning they don't require collateral.

  • Working capital loans: If you need funds to cover daily operations, pay employees, or deal with temporary drops in profit, a working capital loan might be the solution.

It's important to note that short-term loans typically expect repayment within 18 months, while long-term financing can provide larger sums of cash for business growth and profits. So, take some time to figure out which loan type best suits your needs and goals.

6 Requirements for Small Business Loan

Before you can secure funding, you need to meet certain requirements. We'll discuss 6 common requirements lenders look for when evaluating business loan applications.

From credit score to collateral, we'll provide you with the insights you need to position yourself for success in the lending process. So, let's dive in!

1. Personal/business credit score

When it comes to seeking a loan, your personal credit score is a big deal. It shows lenders how well you manage your debts and whether or not you can be trusted to pay back the loan. So, before you apply, take a good look at your credit score.

Most lenders prefer to use the FICO® Scores, which range from 300 to 850. A score of 670 to 739 is considered good. And if your business has multiple owners, each lender will need their credit scores too.

For established companies, you'll also need a business credit score from one of the major credit bureaus, such as Experian, Equifax, or Dun & Bradstreet. This score ranges from 1 to 100; the higher it is, the better your chances of qualifying for a loan.

Remember, your credit score reflects your financial responsibility, so make sure you're staying on top of payments and keeping your credit in good standing.

2. Business Plan and Funding Request

To increase your chances of obtaining a business loan, you must show lenders that you have a solid plan for borrowing money and a clear strategy for paying it back.

This means having a detailed business plan that outlines how you'll use the loan, whether it's for expanding your business, buying new equipment, or covering short-term cash flow gaps.

Your business plan should also include your current financial position and revenue projections, so lenders can see that you have a realistic plan for generating income to repay the loan.

In short, the key to securing a business loan is to present a comprehensive funding request that shows lenders you're prepared, responsible, and capable of using the funds wisely to grow your business.

So take the time to prepare a well-crafted business plan highlighting your strengths, opportunities, and financial projections, and you'll be one step closer to getting the funding you need to achieve your business goals.

3. Bank Statement & Ratings

Lenders will typically require access to your bank statements. This is because your financial status plays a significant role in determining your eligibility for the loan.

If you're borrowing from your bank, they'll check your account rating, which reflects your borrowing capacity at that specific bank.

You need to have a strong rating and bank statement to improve your chances of securing a loan.

For instance, to obtain a good rating, you should maintain an average daily balance of at least $10,000 for a minimum of three months. In addition, your bank statement should demonstrate a steady flow of regular account deposits.

A higher balance and consistent deposits indicate that your business is financially stable, increasing your chances of getting the loan you need to take your business to the next level.

4. Collateral or a Personal Guarantee

To secure a small-business loan, you may need to provide collateral to the lender, which can be seized and sold if you can't make your payments. This asset can be equipment, real estate, or inventory.

Lenders may also require a personal guarantee from every business owner of 20% or more. Unsecured business loans are also available but often come with a personal guarantee.

Some lenders may take a blanket lien on your business assets. It's important to note that each lender has its own set of rules and requirements, so it's crucial to ask questions to clarify any uncertainties.

5. Cash Flow

Your business's financial health is reflected in its cash flow, which indicates your ability to meet your financial obligations. This information is essential for lenders to assess the risk of lending to you.

Lenders will typically look for a debt service coverage ratio of less than 1.25 or 1.35 times your expenses. They will compare your accounts receivable and accounts payable and review your net operating income to gauge your cash flow.

Therefore, it's crucial to ensure your cash flow is healthy and stable to increase your chances of qualifying for a loan.


6. Important Documents Required for Business Loans

When applying for a small-business loan from traditional lenders such as banks, you will need to prepare various paperwork to prove your financial and legal standing.

Here are some of the essential documents you may need:

  • Personal and business income tax returns.

  • Balance sheet and income statement.

  • Personal and business bank statements.

  • A photo of your driver's license.

  • Commercial leases.

  • Business licenses.

  • Articles of incorporation.

  • A resume that shows relevant management or business experience.

  • Financial projections if you have a limited operating history.

Make sure to have all these documents ready and organized to help speed up the loan application process and increase your chances of getting approved.

Next Steps to Secure a Loan

Now that you understand what lenders typically require, it's time to take the next steps toward securing the loan your business needs.

1. The first step is to compare lenders to find the best deal. Look into options like that of the Small Business Administration, your current bank, competing banks, and online lenders. Be sure to compare interest rates and payment terms while watching out for hidden fees. Take the time to research and find the perfect loan for your needs.

2. Once you've chosen the right lender, be prepared for a potentially long wait. It can take weeks or even months to complete and approve your application. For example, an SBA loan can take up to two months! To stay on top of the process, ask for a clear timeline upfront and be responsive to requests for additional documents. Remember, time is money when it comes to getting your loan.

3. Once your loan funds clear, the money is yours to use for your business needs. Pay off overdue expenses, improve infrastructure, or even launch a franchise. Just be sure to make your payments on time to protect your credit and maintain a good relationship with your lender.

Follow these steps and take your business to the next level!


Obtaining a small business loan can be critical in taking your business to the next level. However, it's crucial to remember that proper documentation is essential to support your loan application and safeguard your business interests.

By starting with the foundational documents outlined in this article and keeping everything organized, you can set your business up for success and secure the funding it needs to thrive.

Remember, preparation is key, and with the right preparation, your small business can achieve great things. So, take the necessary steps today and build a strong foundation for your business!

How Certify My Biz Can Help You

Certify My Biz has helped hundreds of entrepreneurs turn their dreams into reality the proper way. Book a New Business Setup Consultation today!


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