You’ve run the numbers and realize that your business needs an injection of cash, either to get off of the ground or to grow. And you’ve decided to get those funds by applying for a business line of credit or loan.

The next step is to understand what your business needs to qualify for the best small business loans with low interest rates and favorable repayment terms, and what you can do to prepare your business for the application process.

Small business owners who take the time to prepare their businesses beforehand who end up with the best offers and rates. 

What Are the Top 3 Steps in Getting a Business Loan?

Here are the essential steps you’ll need to take to prepare your business to get a loan.

Step 1: Know what you want

Start by understanding your business’ needs. How much do you need to borrow? Do you need access to cash or credit? How quickly can you repay it? How much are you willing to pay in interest and fees?

There are many types of small business loans, each with its advantages and disadvantages. Some must be repaid quickly, within a few months. 

Others may have high limits and can be repaid over decades. Another popular option is a business line of credit that gives you access to cash when you need it. Pay it back, and tap it again when you need it. 

And then there are business credit cards, which can be helpful to cover business expenses like office supplies, inventory, and even larger purchases like equipment. 

Step 2: Know where to go

Not only are there different types of financial products, but there are also different types of lenders. You might qualify for a loan guaranteed by the U.S. Small Business Administration (SBA). Most SBA loans aren’t made by the SBA, but are made by lenders approved to offer these loans. Or you might opt to apply at a traditional bank. Credit unions, too, often offer low rates on business loans. 

One of the fastest and most flexible ways to get business financing is through online lenders. Many approve loans in hours, and can often fund the next business day if the loan is approved. 

Step 3: Get your business lender-ready

Once you know what’s required to apply for the loan, you’ll want to make sure your business is in a good position to qualify.

If your business is a startup, it probably won’t have a business credit history. Tradelines (including vendor accounts) can help you establish business credit. Business credit cards are another way to build your business credit history, and that may help open the door to more options for a loan.

If your business is well-established but you don’t have great credit, now is a great time to try to boost your business credit scores by paying off old debts and making sure your payments are always on time. This may take a few months for your credit score to reflect your efforts, so plan ahead.

The more attention you put on improving your credit, the more loan options you’ll likely have.

What Do Banks Check Before Giving a Business Loan?

We’ll go more into detail about what specifically you need to apply for a business loan in a bit, but let’s talk about what banks look for to determine your business’ eligibility for a loan.

Ideally, your business will have a history of strong cash flow that shows a lender that your business is capable of repaying a loan. Most lenders (including banks) require business bank statements to verify revenues. They may also ask for financial statements and tax returns. 

The bank may also want to see that you don’t have a high debt ratio. If your business carries a lot of debt compared to revenues, the bank may be concerned that it will have trouble repaying debt. 

Can I Get a Business Loan Without Revenue?

But what if you have a startup that isn’t yet making sales? Are you automatically disqualified from taking out a business bank loan?

Not necessarily. It depends on the type of business loan. Some lenders will approve loans to businesses that haven’t yet launched or generated revenue. They may look at the business’ financial projections. But more likely, they will review your personal credit score and history, since you will be responsible for paying back the loan if your business can’t. (A personal guarantee will often be required, and you may have to provide information about your personal finances.) 

What Is a Good Loan Amount To Start a Business?

The amount of money you’ll need to start a business depends on the type of business and whether you have any cash in reserve to help with those upfront costs.

Consider that it may take months for you to generate enough revenue to cover your expenses, let alone see a profit. Build this factor into your budget to determine how much to borrow to cover those first months of both business and personal expenses.

If you’re launching a home-based business, you may only need $500—$5,000 to get started. But if you’re opening a restaurant or store, you’ll have a lot more overhead, including real estate (rental or purchase), inventory, staff, supplies, permits, and more. You may need to borrow $50,000 or up to a million dollars, depending on the type of business.

When calculating how much you want to borrow, keep in mind the repayment terms of the loan. It may feel good to be approved for a large business loan, but keep in mind you’ll need to cover those loan payments, whether you’re generating enough to pay for them or not.

Do I Need a Business Plan?

While not every lender will ask for a business plan, for entrepreneurs starting a new business, it’s always a good idea to have a business plan. It can help you clarify how much money you need, how much you can afford to pay, and how much annual revenue you’ll need to generate to pay back the loan. It can also help you envision what you want for your company, both now and in the future.

A good business plan will include an executive summary that provides a high-level overview of your company. It should also include a market analysis, a summary of your target audience, an overview of products and services, and a marketing plan. Finally, be sure to include your budget as well as plans for business funding.

Need help with your business plan? SBA resource partners like SCORE and Small Business Development Centers can help for free. 

What Do You Need To Get a Small Business Loan?

Now let’s look at some specifics of what you’ll need for a business loan application. While the application process and requirements will vary from one financial institution to another, these are always good documents to have at the ready.

Applying for an SBA loan may require a few more hoops to jump through than, say, an online loan, so consider how long you’ll need to gather everything you need for the application. Also, approval times vary. Bank loans and SBA loans can take one to three months to review, approve and fund a loan application, while many online lenders will approve and fund loans in as little as a few hours or ays.

To prove your ability to repay the loan, you may be asked to provide business tax returns for past years, if you’re already in operation. You may also be asked for bank statements or financial documents including:

• Income statements
• Profit and loss statements
• Cash flow statement
• Balance sheets

If your business bookkeeping is up to date, it should be easy to produce this information. If it’s not, get accounting software and bring your books up to date.

You will be asked for government-issued photo identification, as well as your contact information as the representative of your company. You may also be required to provide your business bank account details so that the loan proceeds can be directly deposited into the account, and/or your payments can be debited.

Be aware that, depending on the type of business you operate as (corporation, partnership, sole proprietorship, LLC), and the terms of the loan, you may be personally liable for the debt, should your business not be able to repay the loan.

What Credit Score Do I Need for a Business Loan?

In general, if your business (or you personally) has good credit, you’ll qualify for the best loan terms and have the most loan options to choose from. Depending on the type of financing, there may be a personal credit check, business credit check, or both. 

Poor credit scores make it harder to qualify for some types of loans, or may mean you’ll pay higher interest rates. 

If you’re a first-time borrower and don’t have much of a credit history, learn how to establish business credit. Not all lenders check business credit reports, but some do. 

Don’t know what your credit score is? Check before you apply so you know what lenders will see. With Nav, you can review and manage your business and personal credit. 

Small business financing has the power to change your business for the better, so take your time to ensure your business is well-positioned to qualify for the best rates.