How to Apply for a Small Business Loan

The vast majority of people who decide to go into business for themselves will, at some point, need a small business loan. Obtaining such a loan can be achieved through several different methods, including: A direct bank loan; A government guaranteed loan; A private entity loan. Whichever method is ultimately explored, certain factors will be taken into consideration and certain steps should be followed. Factors that will always be taken into consideration, no matter the loan source, include: The collateral available; The equity available; Your credit rating; Your character; Your experience in the field as well as in business management; and The written business plan. Follow the steps below to prepare your application for a small business loan.

Instructions

Difficulty: Moderately Challenging

Things You’ll Need:

• A copy of the latest SBA loan requirements and procedures;
• A list of cash and other items that can be used for collateral;
• A list of cash, property, and other items that you can use for equity;
• A list of people, with their address, phone number, and email address, that can be used to attest to your character;
• An SBA approved outline for a small business plan;
• Your personal financial statement;
• Any business plan research material that you can find (hardcopy or online); and
• Any information about small business start-up that you can find (hardcopy or online);
• Small business start-up information;
• Pens and Pencils;
• Paper for notetaking;
• A computer with software that will help you achieve the forms you need.

How to Apply for a Small Business Loan

1. If you have not already done so, meet with representatives of the SBA or their corresponding Small Business Development Centers (SBDCs). Obtain as much information from them as possible regarding current SBA loan requirements and specifications; SBA loan procedures; SBA loan practices; and any other small business loan information they might have. If they have one, also get a business plan outline.
2. Meet with one or more local banks regarding small business loans. Obtain information about their loan requirements and specifications, application process, loan practices, and any other small business loan information that they might be able to provide.
3. Meet with any local private entities that traditionally make small business loans. Obtain information about their loan requirements and specifications, application process, loan practices, and any other small business loan information that they might be able to provide.
4. Review all of the materials that you have gathered and prioritize them, beginning with the loan that appears to offer your best chance for success. Do not apply for multiple small business loans at the same time. Most entities do not want to be pitted against one another.
5. Starting with the small business loan that you believe has the best chances of successful achievement, make a list of everything required in their loan process.
6. Using the small business plan outline provided by the SBA, bank, or lending entity begin drafting your plan. In most instances, business plans must include information like:
   
   A general description of the business, including the industry under which it falls, the specific type of business, and the trends within both;
   An identification of the business's potential market(s);
   Information about the business's competition;
   A list of the products and/or services the business will provide;
   A detailed description of where the business will be located including its address, square footage, internal and external description of the property, and anything else you can provide;
   The pricing structure for the business;
   A list of marketing strategies to be used for the business;
   A detailed list of the business's needs to include capital, equipment, supplies, personnel, and anything else;
   A detailing of the financial requirements to get the business up and running as well as to function until it begins making its own profits;
   A resume for each potential employee of the business, including yourself;
   Projected cash flows for at least the first year of the business's operation;
   A projected profit and loss statement for at least the first year of the business's operation;
   A balance sheet; and
   A break-even analysis.
7. Complete all loan application paperwork required for the specific loan for which you are applying.
8. Obtain at least three letters from individuals who can attest to your character and/or experience in the industry or business management.
9. If an SBA, SBDC, or other loan officer is available, make an appointment for him or her to review your loan paperwork. Make notes of any changes they recommend to the business plan or other information as well as any additional pieces of information they feel important to the application.
10. If changes were recommended by the loan officer reviewing your paper, make them as suggested. Also obtain or prepare any additional information that they suggest should be added to the paperwork.
11. Finalize your business plan and paperwork, making certain that everything required is provided before making an appointment with the loan officer capable of approving your loan.
12. Make an appointment with your approving loan officer. Review your paperwork with him or her, with an eye toward making certain that your paperwork is complete.
13. If necessary, obtain or prepare any additional paperwork required in order for your loan officer to make a loan determination.
14. Make yourself available to your loan officer until such time as he or she can make a loan decision.
15. If your first loan application is denied, move on to the next possible loan and begin the process over again.

Tips & Warnings

• Take advantage of "free" SBA and SBDC counselors to help you with the loan process.
• Take advantage of local bank officers to help you in the loan process.
• Review as much information as you can find about the small business start-up process.
• Explore all of the small business loan options that are available for your business.
• ALWAYS do a detailed business plan even if it isn't "required" in the loan process, as it will help to ensure the potential success of your business.
• Do more work than is required in preparation for your business as each extra step you take will get you closer to potential business success.
• Realize that you will have to offer some collateral against the loan.
• Realize that you will be required to bring some equity into the deal.
• Provide a credit check for your loan officer so that he or she doesn't have to perform that extra step for you.
• Do not attempt to hide anything from your loan officers.
• Do not expect to obtain a loan with a bad credit report.
• Do not try to sidestep or circumvent the business plan process.