How to Find a Loan for Your Small Business, Step-by-Step
The world of small business financing is confusing and intimidating. Whether you’re applying for government funding or a private loan, finding a fair loan that will meet your needs can be overwhelming. In addition to our curated loan opportunities, we are committed to providing education for small business owners so they can make empowered decisions about funding. In this post, you’ll learn how to find a fair loan for your small business, step by step.
1. Consider why you need the loan and how much financing you need
The first step for finding the best loan for your small business is to determine what you would like to use the funds for. Government programs like the PPP or EIDL have requirements for how you can use the funds, as do some private loans. Spending requirements for loans should be easily available online. If you aren’t sure exactly how much money you will need or what you’ll have to use it for, you could apply for a line of credit, flexible funding where you only pay for what you actually use (such as through our partner Fundbox).
2. Check the lender's eligibility requirements
Lenders use a variety of factors to determine whether to lend to someone who applies for a loan with them, including their company’s revenue, their credit score and credit history, and how long they have been in business. Most lenders will make this information publicly available, and government programs like the PPP have clear guidelines for which businesses are allowed to access the program. Make sure to check guidelines for whichever lender you are interested in working with. Community Development Financial Institutions, or CDFIs, often lend to people who don’t qualify for traditional financing, as do fintech companies like Funding Circle.
3. Check the loan terms carefully
Once you choose a loan to apply for, make sure to read through the loan’s terms very carefully before signing on to receive the funds. Loan interest rates can vary broadly; many business loans have interest rates between 3% and 7%, but there’s a wide range; some lenders, like Kiva, have no interest at all, while others have interest rates as high as 15% or 20%. Loans also vary in their maturity (when the final payment is due). Finally, some lenders have penalties for making loan payments late. Make sure to consider all the factors before signing on!
4. Check the lender’s BBB rating
The Better Business Bureau (BBB), is a nonprofit organization that vets both businesses and charities in the U.S. and Canada. BBB ratings are given as letter grades, such as A or A+. While the BBB rating system isn’t perfect, it’s still a good indicator of a reliable lender. You can search the BBB website to see the rating for your lender, or some lenders provide their rating on their own site.
5. Gather materials and apply for your loan
Once you’ve finished your research, you’re ready to apply! Most lenders will require documentation of your credit score and credit history, your annual revenue, and a business plan that shows how you will use the loan. The more prepared you are with your application, the better your chances are of getting funded.
Conclusion: Research is Key for Finding the Right Loan
There is no loan that’s perfect for every business. We do our best to curate grant and loan opportunities that we think will be helpful for our Premium users, and hope that some of the dozens of funding options we have available will work well for you and your business. We also cultivate partnerships with lenders we know treat business owners well and offer them fair terms, such as Fundbox and Kiva. Follow along with us here on the blog for more loan and small business insights!