How to Get a Small Business Loan

Posted by Melinda Toy on Dec 12, 2015 06:00:00 AM

Topic: ALL

Painter standing in front of his van

Congratulations—you’ve finally taken the step to realize your dream and start your own business. You know exactly what equipment you’ll need, where you want to be located, and how your staff will be organized. You’ve imagined how your office will look and pictured how everything will operate. You’re mind is racing with all you need to do. The only thing holding you back from really taking off is the fact you need to secure a small business loan to make your vision a reality.

If this is the first time you’ve gone through the business loan process, it may seem ambiguous or overwhelming. Where do you start? How can you get a small business loan? What information will the bank want from you? There are steps you can take to simplify the process and get organized.

What information will I need to provide the bank?

Depending on the lending institution, criteria may greatly differ.

However, this general list can help to start preparing for your business loan: 

  • Detailed business plan including key constituents in the business

  • Income tax returns and bank statements

  • Personal information including work history, bio, resume

  • Revenue projections for one year or more

  • Personal and business credit history

  • Personal and business financial statements for several years

  • Collateral may be required and vary by associated risk

  • List of assets that need to be purchased

  • Well-defined plan for how you will use the loan proceeds

How much money can I get?

Small businesses can differ greatly in size. There is no one size-fits-all in amount or loan structure. In general, the median small business loan in the banking industry is about $130,000 - $140,000 with highest around $250,000. SBA small business loans range from about $5,000 (microloans) to $5 million (largest guaranteed) with the average loan around $371,000.1

Once I provide information, what happens next?

After you provide information, the lender begins a formal underwriting process. This process involves gathering data from the borrower so the bank can complete an analysis in order to make the approval decision. Criteria considered include the ability to repay the loan; personal aptitude including management expertise, education, and experience that would indicate success in this business; personal investment in the company; history of paying other creditors on time; and determination of the level of collateral versus risk associated with the potential borrower.

After the underwriting is completed, and assuming the loan is approved, a commitment letter will be offered by the lender for acceptance by the future borrower. Once the borrower accepts, the loan closing process ensues.

How does the closing process work?

This is the day you get to sign a bunch of papers and finally get your loan funded. It is important to know exactly what you will be signing off on at the closing. Every small business loan application will have a long list of closing and funding requirements for the borrower and lender.

items typically needed for closing a business loan include:

  • A promissory note that gives the terms of the loan

  • Insurance documents including the property title and insurance for collateral

  • Various documents that need to be filed with governmental entities to ensure a lien on the collateral for the lender

  • Your loan application and any related documents

  • Authorization for background and credit checks

  • Reports from third parties such as business, real estate, appraisers, permit agencies, environmental assessment engineers, etc.

How long will the closing process take?

The underwriting process needs to be done accurately and therefore includes research, attention to detail, and also relies on a number of third party resources. Each case is unique, but typically this can be accomplished in one to three weeks.

Are there resources that can help me?

Make sure you do your research. The more you know, the more empowered you’ll be to prepare and make the right decisions moving forward.

additional resources for small business owners include:

  • SBA

  • SBDCs – Small Business Development Centers (approximately 900 locations nationwide; associated with higher education institutions)

Learn more about Business Lending at Bank Mutual