Getting A Small Business Loan in 2024: 7 Key Steps

Updated April 11th, 2024.

Undoubtedly, small businesses are a crucial pillar of many economies worldwide. They contribute significantly to job creation, innovation, and economic expansion. In fact, data reveals that small businesses generate approximately 64% of fresh employment in the United States.

However, small business owners encounter a significant barrier, i.e., accessing the required funds to launch, advance, or maintain their firms. This obstacle affects the prosperity and growth of small businesses and has far-reaching repercussions for the entire economy.

This guide will explore seven essential steps that small enterprises can follow to improve their chances of obtaining a loan. 

By adhering to the procedures outlined in this piece, small business owners can secure the funding necessary to scale their enterprises to greater heights.

So, let’s take a look at some of the key steps to getting a small business loan in 2024:

Getting a Small Business Loan: 7 Key Steps

Getting a small business loan can sometimes be daunting and stressful, but knowing your eligibility and taking the appropriate steps can simplify the process considerably.

Here are the fundamental steps necessary to acquire a small business loan:

1. Evaluate your Business Requirements

Before embarking on the loan acquisition process, you should answer some critical questions. These questions include, but are not limited to:

• What is the purpose of the loan? Why do you need it?
• What is the amount that you are looking to borrow?
• When do you need the loan?
• Does your current financial situation allow you to repay the loan?
• What is my creditworthiness?
• What collateral can I offer?
• How will this loan impact my business’ future?

Answering these questions equips you with all the details required to determine the best loan type for your business. This knowledge is vital in avoiding incurring unnecessary debt.

It’s best to start assessing your business needs by identifying why you require the loan. For instance, you may need the funds to acquire new equipment, expand your business, or handle short-term cash flow shortages.

The next step is ascertaining when you need the funds. The time you require the loan will be crucial in deciding whether to opt for short- or long-term loans. If you need the funds immediately, a short-term loan is preferable. 

Conversely, a long-term loan is ideal if you’re investing in a large project that will take a few years to pay off. This is one of the key things to consider before getting a small business loan. 

Once you’ve determined your requirements and the time at which you require the loan, you should ascertain the amount you need to borrow to achieve your objectives. 

This process requires scrutinizing your financial records and creating a comprehensive budget that factors all expenses associated with your business needs and additional expenses like interest and fees.

Consequently, when you take sufficient time to evaluate your requirements, you’re better positioned to identify the best loan type for your business and ensure you only acquire what you can manage.

2. Check your Credit Score

Many individuals still need to be made aware that their credit score plays a pivotal role in determining whether they are approved for a loan. So, checking your credit score is crucial if you are looking to get a small business loan. 

As Colin Palfrey, CMO of Crediful, explains, “Your credit score is a numerical representation of your creditworthiness, indicating how likely you are to repay debts based on your payment history, debt-to-credit ratio, credit history length, and credit utilization.”

When applying for a small business loan, the lender will review your credit score to assess your creditworthiness and other crucial information, such as loan terms, including the interest rate and repayment period.

• Ideal credit score – between 720 and 850
• Good credit score – between 680 and 719
• Fair credit score – between 620 and 679
• Bad credit score – between 580 and 619
• Very bad credit score – below 580 

A high credit score can be advantageous as you will typically be viewed as a low-risk borrower, making you eligible for more favorable loan terms. Conversely, a low credit score may be considered high-risk, potentially resulting in higher interest rates or loan denial.

As a result, checking your credit score before getting a small business loan is critical. You may use a credit monitoring service to keep tabs on your credit score or request a free credit report from any of the three main credit bureaus – Equifax, Experian, and TransUnion – once a year.

If your credit score is lower than the minimum required to obtain a loan, there are several measures you can take to improve it. One approach is to ensure that you pay all bills on time, settle outstanding debts, and avoid applying for excessive credit simultaneously.

In summary, always verify your credit score as it is a vital step in obtaining a small business loan, impacting your eligibility and loan terms.

Understanding the influence of your credit score on your chances of getting a small business loan will enable you to take the necessary steps to enhance it, thus increasing the likelihood of securing a loan with favorable terms.

3. Prepare your Business Paperwork

To secure a small business loan, it is essential to have all your documentation in order. Without it, getting approved can be an uphill battle. To avoid delays in obtaining your loan, ensure that all your financial and legal paperwork is in order so lenders can assess your business and determine the risk of lending to you.

Here are some crucial documents that you should have prepared when applying for a small business loan:

• Business Plan: A comprehensive business plan is crucial when applying for a small business loan. It should include essential information such as your company’s goals, products or services, financial projections, market analysis, and mission statement.
• Financial Statements: Financial statements, such as balance sheets, profit and loss statements, and cash flow statements, are also necessary for lenders to evaluate your business’s financial health and determine if you are a suitable candidate for the loan.
• Tax Returns: Some lenders may require your company’s tax returns to better understand your business’s financial history and repayment capability. Making sure that everything is in check will increase your likelihood of getting a small business loan. 
• Business Licenses and Permits: Certain businesses require licenses and permits to operate legally. Ensure that you have all the necessary documents in place and up to date.
• Contracts and Agreements: Contracts and agreements with vendors, suppliers, or customers are excellent indicators of your business’s stability and operations. Ensure that all such documentation is up to date and organized.
• Insurance Policies: Proper documentation of your insurance policies is vital when applying for a small business loan. It includes liability insurance, property insurance, and worker’s compensation insurance.

Shawn Plummer, CEO of the Annuity Expert, advises, “By making sure that your insurance policies are up-to-date and accurately reflect your coverage needs, you can increase your chances of securing the funding you need to grow and succeed in today’s competitive business landscape.”

• Personal Information: Providing personal information about yourself, your business, and other key team members is also necessary. Lenders may use this information to evaluate your ability to manage your business effectively and repay the loan.

Having all your business paperwork in order can demonstrate your business’s financial stability, legal compliance, and overall readiness for the financing you need to grow your business.

4. Research and Choose Your Lender

Numerous financial institutions exist, with each having its terms and conditions. How can you select the ideal lender to provide you with the best loan deal? 

This is where research comes in! It would be best if you do not hastily accept the first loan offer you get but compare different lenders to identify the one that meets your specific needs.

When conducting your research, it’s important to consider the various loan types available and the interest rates, repayment terms, and additional charges associated with obtaining the loan. You should also consider the lender’s reputation and quality of customer service.

If you are planning on getting a small business loan, we highly recommend applying to multiple lenders at the same time so you are able to compare and contrast the best offers. You can do this easily with National Business Capital, gaining access to exclusive offers from more than 75 lenders.

Apply now!

5. Complete the Loan Application

After assembling all the necessary paperwork and identifying a suitable lender, the subsequent stage to getting a small business loan is to complete an application that requires data about your enterprise and your finances.

In addition to fundamental information about your enterprise, you may be asked to provide vital documents, such as financial statements, bank statements, and tax returns.

It’s essential to ensure that all the required information is provided accurately and truthfully because any fraudulent details may result in the rejection of your loan application.

Once you have completed the loan application, the lender will need some time to evaluate the information provided and decide whether or not to approve your loan request.

6. Wait for a Decision

Following the completion of the loan application process, a period of waiting ensues. The duration of this waiting period may fluctuate based on factors such as the lender, the loan amount, and the intricacy of the loan application.

You must maintain patience during this interval and refrain from submitting applications to multiple lenders concurrently. Such a course of action could impede your credit score and jeopardize your capacity to obtain the desired loan.

Upon the lender’s determination, you will receive notification of the verdict and be provided with information about the loan terms if approved. This step to getting a small business loan requires some patience, but it is a part of the process.

7. Negotiating and Finalizing the Loan

Congratulations! Your small business loan has been approved. However, you still need to take some important steps to finalize the loan.

• Negotiating Loan Terms: After your loan is approved, you will generally receive a loan offer from the lender. At this point, you can negotiate the loan terms, such as the interest rate, repayment period, and associated fees.

It’s important to review the loan offer carefully and comprehend all of the terms before beginning negotiations with the lender. Seeking advice from a financial advisor or lawyer can be beneficial in negotiating the loan terms.

• Closing the Loan: Once the loan documentation has been submitted and approved, the lender will prepare the documents for you to sign. The documents usually include a promissory note outlining the loan terms and a security agreement providing the lender with a security interest in your business assets as collateral for the loan.

Take your time to review the loan documents carefully, and ask questions before signing them.

• Receiving the Funds: Once all documents have been signed, the lender will usually transfer the funds into your business account. Remember to use the funds for the purpose specified in the loan agreement and make all payments on time to avoid default or late fees.

Getting a Small Business Loan in 2024: Conclusion

There’s no doubt that getting a small business loan can be an intimidating assignment for numerous small businesses, but it is a vital stride toward growth and progression.

By adhering to these seven pivotal actions, you can increase your probability of procuring the funding required to propel your business to greater heights.

The crucial aspect of obtaining a small business loan is being equipped, persistent, and patient. By investing the energy and exertion, you can effectively secure the funding you need to prosper and flourish in your business endeavors.