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Startup Business

How To Qualify For A Small Business Loan

Posted by Ross Taets on Friday, February 15, 2019

Updated: May 2022

What does it take to prepare for a small business loan? Follow these tips and best practices to prepare yourself when applying for a small business loan.

As a small business owner, there will come a time when you consider taking out a loan. Going through the loan application process for the first time can be overwhelming. Maybe even a little intimidating. That’s why Northwest Bank has put together a list of tips and best practices to help you prepare for your first meeting with a commercial banker.

Steps to Qualify for A First Time Business Loan. Startup Business Loan Diagram & Small Business Loan

First-Time Business Loan Terms You Should Know

Two terms you should know and understand prior to meeting with a commercial banker are collateral and equity. Collateral is tangible; it is something you can touch. Items that are commonly used by a new business owner for collateral include equipment or machinery, office furniture, computers and building space.

Equity is the opposite of collateral. You can’t see it or touch it. Equity is related to what your business is worth. For example, if your business is worth $1 million and you have $600,000 of debt, your business has $400,000 of equity.

Documents For A Small Business Loan

Prior to meeting with a commercial banker there are four pieces of information they will request to see:

  1. Past three to four years of tax returns
  2. Personal financial statement
  3. Business plan
  4. Financial projections

Sharing this information with your banker helps them understand your business’ assets and liabilities. It also helps guide their initial conversation with you to discuss the type of loan your business might need and what your business can afford.

If your start-up does not have a business plan or financial projections, there are number of free resources available to help you. Small business owners can connect to resources in their community through the Small Business Administration (SBA). The SBA has a network of small business development centers, women’s business centers and business mentors that are available to help you develop a business plan and financial projections.

How To Qualify For A Small Business Loan

Types Of Small Business Loans

Deciding to explore a business loan isn’t an easy decision. And then on top of that you have to determine what type of loan is best for your business. Your commercial banker will provide guidance on what loan option is best for your business. But it doesn’t hurt to go into your first meeting knowing the types of loans available.

Equipment Loans

Equipment loans help small business owners with the purchase or lease of equipment. A commercial banker will work with you to structure your equipment loan so it works with your business’ current financial position.

Real Estate Construction Loans

Real Estate Construction loans help finance the acquisition and development of residential properties, owner occupied facilities and income-producing properties. This type of loan also provides small businesses with builder construction lines of credit.

SBA Guaranteed Loans

SBA Guaranteed loans provide small businesses with longer repayment terms and higher borrowing limits. SBA loans can help with purchasing equipment or real estate. They also assist with business renovations or acquisitions.

Working Capital Loans

Working Capital loans allow small business owners to obtain financing that help them through the start-up phase. A working capital loan can be used to cover costs related to inventory, employees or rent.

How To Qualify For A Small Business Loan

Do Your Research

All banks are not created equal. A commercial banker might have a type of business or market they specialize in. Take the time to learn the banker’s area of expertise. If they are knowledgeable in restaurants, but you own a tech start-up, that might not be the right banker for you. Another great way to do your research is to ask your trusted community of small business owners which banks they recommend. Talking with another small business owner gives you insight into their personal experience and level of satisfaction.

Doing your research also helps you create a list of banks you want to consider. The first banker you meet with may say no, but that doesn’t mean you should stop. Set up a meeting with the second bank on your list. They may have other ideas or resources that allow them to approve your loan request.

Small businesses help drive our economy. They help communities grow and support the job market. Small business loans are one way new businesses can gain the financial support they need during the early stages of their business.

If you are considering if a business loan is the right move for you, visit with one of our commercial banking experts to learn what a business loan can help you achieve.

Small Business Financing for the Next Step

You’ve worked hard to build your business. Now make sure it continues to thrive. Local businesses are vital to the community, which is why helping yours grow is our priority.

Talk to a Business Banker Today                                                                                       

The Author

Ross Taets

Ross Taets

Commercial Banker, VP

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