How to Get a Loan for Small Businesses
- 1). Order your credit report. Although you're applying for a small business loan, lenders use your personal credit score to determine approval. If you have a poor score, the odds of getting approved for a business loan are low. Check your credit report beforehand. Do you need to improve your score? If so, postpone applying for a loan and practice better credit habits. Submit timely payments, reduce your debts and pay off collection accounts.
- 2). Write a business plan. A large percentage of new businesses fail within the first five years, and before a lender approves your loan request they'll want to see a business plan. A business plan details several elements such as a description of the business, marketing plan and financial projections. You can hire a professional writer or write the business plan yourself.
- 3). Find collateral. If you have an excellent credit history, you may qualify for an unsecured small business loan. You'll pay a higher interest rate, but these loans don't require collateral. If you have average or less than perfect credit, consider a secured small business loan. Use a vehicle title or your home's equity as collateral.
- 4). If you don't have collateral or good credit, you'll need the help of a co-signer to acquire a small business loan. The co-signer agrees to pay back the loan if you're unable to, and the lender reviews the co-signer's credit report and income.
- 5). Compare interest rates. Banks charge different rates for small business loans, and if you want to find the cheapest rate, you've got to shop around. Contact two or three lenders and ask for a no-obligation loan quote. They'll review your credit score and application, and will offer a quote based on this information. Review the quotes. What are the loan terms, interest rates and monthly payments? Pick the small business loan with the cheapest rate and lowest payment.
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