How to get a business loan

Over 99 percent of all business entities in the US are small businesses, according to “The SBA Loan Book.” These businesses represent over half of the private workforce and the private-sector output and over 40 percent of all private commercial sales in the United States.

How do so many small businesses get started? It all begins with the right type of financing. Whether you're just starting up or you're expanding your existing business, you need money to get rolling.

Methodology: I consulted with experts who have a wide range of experience with funding businesses including Jared Hecht, CEO of the online lending website Fundera, David J. Hall from the Small Business Adminstration, Hal Shelton who is a SCORE mentor and author of “The Secrets to Writing a Successful Business Plan” (Summit Valley Press 2014) and Larry Conley, Senior Vice President and Specialty Finance National Manager for Chase bank. I took a free three-hour online course called “Finding Money for Your Business,” which walked me through the process of finding money to start a small business.I also read 17 articles and studies on funding small businesses.

Steps to getting a business loan

Before you can get a business loan, you need to convince your lender that your business is worth their investment. To do that, you need a solid business plan, some upfront capital and a budget.

  1. Clarify why you need a loan
    Your answer needs to be more detailed than simply “I don’t have any money.” What specifically will you be using the loan for? Startup? Day-to-day management? As a safety net? To answer this question, figure out your budget along with the amount of money you realistically can put up as capital. Take your time with this step since it will have a big impact on whether or not you actually get a loan that can cover your expenses.
  2. Know which kind of loan you need
    Your answer to the first step will determine what kind of loan you need. If you are an established business that needs money to manage your day-to-day expenses (payroll, rent and other bills), you can take out a line of credit, a short-term cash flow loan or accounts receivable financing.
  3. Determine what you qualify for
    According to Hecht, online lenders, along with banks, tend to stay away from lending to startup businesses: “The longer you’ve been around, the easier it is for you to get funding from an online lender.” A lot of lenders require that businesses be established for at least six months before they can qualify for a loan. Some businesses require an even longer history, sometimes up to two years.
  4. Find a business lender that fits your situation
    Shop around for a business lender that has the terms you’re looking for and accepts your qualifications. Be very selective. Every time you apply to a lender formally, they pull your credit report. When your credit report gets a lot of inquiries, your credit score lowers, making it more unlikely that you will get a loan. You should apply to one (two at the most) lender at a time and only move on to another lender if you get rejected.
  5. Get your documents together and apply
    Most business lenders have online applications that are simple to fill out and fast to submit, as long as you have of your documents in order. Once you apply for a loan, it can take anywhere from a few days to 90 days to finalize, depending on the lender and the type of loan.

Small business loans for women and minorities conducted research in 2015 that studied business growth in the United States between 1997 and 2014. They found a 67.8 percent increase in the number of women-owned businesses, compared with a 34.4 percent increase in men-owned businesses. The study also found a huge growth in the number of businesses run by women of color, up an incredible 215.7 percent, with revenues increasing by 193 percent. Latino-run small businesses also saw a massive increase, with small business ownership growing at a rate of double the national average.

If you are a member of a minority group, you might be eligible to seek financial help from one of these five places that specifically help minority-owned businesses get started.

Bottom line

Starting a business involves a lot of moving factors, but the most important one is financing. From traditional banks to online lenders, there are a lot of companies that are ready to help your business grow, no matter what stage it’s in.

Need a business loan?