Getting a small business loan needn’t be intimidating. When you have a straightforward plan, obtaining  funding becomes far easier. Whether you need capital to expand or to weather a downturn, we’ve assembled all the steps below.

Gather All Relevant Information

No lender parts with their capital without first assessing risk. To secure a loan, you need to demonstrate your creditworthiness. To do that, you’ll have to quantify things like your FICO score, assets/liabilities, and so forth.

Before looking for lenders, find/acquire the following documents/data points:

Credit Score

Lenders will want to see both your business

AND

your personal credit score. To obtain both, request a credit report from bureaus like Transunion and Equifax. Also contact Dun & Bradstreet, an agency which focuses exclusively on business credit.

Profit/Loss Statements

These reports summarize your company’s revenue, expenditures, and income. If you don’t already produce them internally, you can hire an accountant to produce these documents.

To create a P&L statement, they will need bills, invoices, and bank statements from the last 12 months. However, lenders may require more than that, so take note of their requirements before contacting an accounting professional.   

Debts

How much do you owe creditors? Dig up balances owed to banks, private lenders, credit card companies, and so forth.

Assets

What is the value of everything in your company? This figure includes things like business account liquidity, computers, office equipment, and more. In some cases, you can also include intangible assets like the value of your customer base.

When in doubt, bring in an appraiser. They’ll account for things you might miss, like depreciation or unrealized intangible assets.

Tax Returns

If you don’t already keep paper/digital records of past tax returns, now’s the time to start. Contact the IRS and request copies from the past three years. Not only will this satisfy your lenders, but you’ll also be covered should tax authorities decide to audit you.

Figure Out How Much Capital You Need

The maxim “measure twice, cut once” comes from the trades, but it also applies to business. When applying for a loan, ensure the requested amount covers not just your company’s needs, but yours as well.

In addition to evaluating the cost of new machinery, lost income, or new employees, include a personal stipend. This living allowance should be sufficient enough to pay for housing, healthy food, and self-care expenses.

Research Funding Sources

It’s time to find a lender. These days, you have numerous options at your disposal:

Banks

Traditional financial institutions are notoriously difficult to borrow from. However, they are the lender of first resort for most businesses. It’s true they reject more than 70% of business loan applications, but they do offer the lowest interest rates around. If approved by a bank for a non-SBA loan, you’ll get a rate of 4 to 6 percent.

Private Lenders

A majority of loan-seeking small business owners get denied by banks. So, many turn to non-bank private online lenders. These entities boast higher acceptance rates, and they often offer flexible terms.

The downside? Average interest rates are much higher, ranging from 13 to 71 percent. The variance is considerable, so shop around for the best rate.

P2P Lending Sites

Private lending interest rates can be a turn-off for some borrowers. For them, P2P lending sites may be a viable alternative. On these platforms, private individuals lend to borrowers, not banks/firms. Often, borrowers report finding lower interest rates on these sites.

On the other hand, processing times vary greatly. Some lenders render a decision in a few days. Others, a few weeks. 

Crowdfunding Sites

Can you translate your need for capital into an inspiring idea? If so, you may be able to raise capital on crowdfunding sites like Kickstarter. Unlike traditional loans, funds from these sources lack interest payments, nor do you need to pay them back.

However, funders do expect a finished product/gifts in return for their investment. If you don’t have a compelling offer upfront, you’ll struggle to fund your proposal.