How to Apply for a Small Business Loan
Small business loans can make the difference between keeping your business running and closing it down. The process for applying can be intimidating and time-consuming, but the results may be well worth it. Loan amounts vary depending on your business needs, your business's profitability and your personal and business credit history. The U.S. Small Business Administration, banks and credit unions all offer small business loans. With some research, you determine which loan may suit you and then begin your application.
- Difficulty:
- Moderate
Instructions
Things You'll Need
- Financial statements (business and personal)
- Bank statements (business and personal)
- Tax returns (business and personal)
- Business licenses
- Business contracts
- Incorporation papers
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1
Review your loan application. Look for what documents you are required to include with the loan application. Typically, you will need recent financial statements, bank statements, copies of your business licenses, articles of incorporation, copies of business contracts and franchise agreements, a copy of your resume and your recent tax returns (personal and business). Look for any other needed information. Typically, you will need to include an executive summary, a business profile, a repayment plan and business projections.
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2
Write an executive summary, which is a summary of your overall loan application. It should include your business background, the nature of your business, how much you're applying for, how you plan to repay it and what your plans are for the loan.
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3
Write a business profile, which is a more detailed description of your business. This should include what your business does, your business's history, your business location(s), your annual sales and profit, the number of employees you have and your customer base.
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4
Write a repayment plan. This should include how long you're planning to take to repay the loan and detailed information on the source of repayment funds. Include details from your budget and cash-flow projections.
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5
Compile your projections. Project at least one year forward or until your business is profitable, outlining potential earnings and expenses. The Small Business Administration recommends using a profit and loss format for your projections, along with a written explanation and documentation to support your projections. A profit and loss format details your sales and income, then itemizes and details your losses, which include administrative and operational costs. Subtract your losses from your sales and profit, and that is your profit.
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6
Complete any other loan application forms. Generally, there will be a form to fill in your personal and business information and a form to outline your collateral. Collateral is what secures your loan; in other words, if you don't repay the loan, your collateral can be taken to repay the loan. Real estate and savings are two potential sources of collateral.
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7
Review your completed application. Look for spelling errors, grammatical errors, missed words and any missed sections or signatures. Consider having a trusted friend or family member also review the application for any errors.
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8
Submit your application by hand or by mail, whichever is specified by the loan application. If you're mailing the application, consider using certified mail for tracking purposes. Follow up with the financial institution in seven to 10 business days to confirm your application is being processed.
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9
Submit any additional information requested by the financial institution promptly. When you receive your answer, review any enclosed documents carefully. If you're declined, find out the terms for reapplying. If you're approved, review the terms of the loan and complete any needed paperwork.
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1
Tips & Warnings
Take your time when filling out the application. Make sure anything handwritten is legible.
If you have a poor credit history, consider taking steps to improve your credit before applying for a small business loan, as this may impact whether your loan will be approved.
Don't be unrealistic about your ability to repay. Make certain to commit to what you and your business can afford.
