If you’ve ever had to apply for a loan from a bank, you know how time-consuming, and complicated the entire process can be. Many entrepreneurs don’t know how to get approved for a small business loan and struggle with growing their business because of it.
Preparation is a big part of whether or not your application is accepted. In this article, we will walk you through every step you need to know to get your loans faster and with a greater chance of approval.
Step 1: Know What Type of Loan You Need
The first step involves having a clear picture of why you require funding. Think about your business model and consider what business needs warrant the loan. This step is crucial because your purpose often determines the best loan type. Try these exercises to get clarity:
- Review your cash flow statements – Identify months where expenses exceeded income. What caused the gap?
- Create a “needs vs. wants” list – Write down what’s essential to keep the business running versus what would help you grow.
- Project future expenses – Look at your upcoming quarter or year and forecast large expenses such as equipment, seasonal inventory, or hiring.
- Map expenses to timelines – Is this a one-time cost, a recurring need, or something unpredictable?
Once you’ve done this, match your needs to the right type of funding:
- Term Loan: This is the traditional type of loan. You receive a lump sum that you repay over a fixed period. The repayment timelines and interest rates for term loans tend to vary greatly depending on the lender.
- Working Capital Loan: These are loans that help you cover daily operations and help in maintaining good cash flow.
- Line of Credit: In this funding model, you receive a borrowing limit, for example $100,000. You can then draw on this at any time and only pay interest on the amount you borrow. This option is great for covering needs such as payroll and similar expenses.
- Merchant Cash Advance (MCA): This is a short-term funding model, particularly if your business accepts debit or credit card payments. You receive a lump sum, which you then repay via a percentage of your card sales. The key benefit of MCAs is that approval is easy. Many small businesses use MCAs for operational purposes such as restocking inventory, covering payroll, paying rent or utilities, purchasing equipment, or funding marketing campaigns.
Consider the pros and cons of each loan type and ensure you pick the best model for your current situation.
Step 2: Get Your Financial Documents in Order
With your specific loan type in mind, it’s time to get your paperwork in order. You will want to research the requirements of the lender you are applying to, but here are the basics:
- Bank statements – Typically 3–6 months of business bank statements to show cash flow and account activity.
- Income statements / Profit & Loss statements – Usually the last 6–12 months to demonstrate revenue and profitability.
- Balance sheet – Current balance sheet showing assets, liabilities, and equity.
- Tax returns – Most lenders require the past 2–3 years of business and/or personal tax returns.
Before submitting, review each document to ensure all information is accurate, complete, and up-to-date. Having these ready in advance can speed up the application process and increase your chances of approval.
Tip: Find a third-party accountant to double-check the accuracy and completion of your records. When you’ve got the go-ahead, ensure that your documents are prepped to be easily processed in one single, organized folder.
Step 3: Understand What Lenders Are Looking For
As an entrepreneur, it’s easy to get stuck looking at things from the perspective of a small business owner. To increase your approval odds, try viewing your application from the lender’s perspective. Here are some angles to consider:
- Revenue consistency and cash flow: Every lender will want to know if your business has the ability to generate enough revenue to cover repayment.
- Time in business: Lenders are often worried about scams and fraud. Being able to prove that your business has been operating for several months, preferably a year or more, makes approval easier.
- Debt-to-income ratio and credit score: When your debt (both personal and business) exceeds your income, it reflects poorly on your business decisions and credibility.
- Business purpose and ability to repay: Some traditional lenders want to see detailed reports of what the money will be used for.
Note: It’s important to remember that not all the strict requirements are common with traditional banks. Alternative lenders like Fast Business Financial will often have broader criteria and specialize in working with small businesses.
Step 4: Strengthen Your Application Where You Can
If you have a little time, it doesn’t hurt to make a small tweak to better optimize your application to make it more appealing to lenders. Here are some business loan application tips:
- Pay down existing debt or improve credit, if possible: Even a small reduction has the chance to improve your debt-to-income ratio, which is worth aiming for.
- Consider co-signers or offering collateral: This reduces the risk to the lender and might improve your chances of loan approval.
- Clarify your loan purpose: In addition to having fund usage plans on paper, be ready to verbally explain how you will use the funds and the impact you expect them to have on your business.
- Show contracts, pipeline revenue, or growth plans: This is going to be particularly important if you’re a newer business. It shows the lender that income potential very much exists, meaning repayment won’t be a problem.
Step 5: Choose the Right Lender
While there are many lenders that will offer you loans, it’s important to understand early on that not all of them will match your needs.
Traditional Banks: These are your typical banks. They tend to offer lower interest rates, but also have strict approval requirements and take their time in paying out. If you are able to wait weeks for funding and are a well-established business with several years of financial history, good credit, and revenue, traditional lenders may work for you.
SBA-Backed Lenders: These are lenders who provide loans backed by the Small Business Administration (SBA). The terms tend to be favorable, but you’re often competing against several other businesses, and the application process can be lengthy. If your business doesn’t meet the strict standards for traditional banks, SBA-backed lenders might be worth approaching, but the application process can be lengthy and your application still may be rejected.
Alternative Lenders: These include online lenders like Fast Business Financial that offer faster approval and flexible terms. These are ideal if you’re a business without much financial history and need funding quickly. They offer a host of financing options like working capital loans, lines of credit, and small business loans.
Remember That Preparation Leads to Approval
Many small businesses are unsure of how to get approved for a small business loan. However, if you prepare by understanding your needs, preparing your documents, and selecting the right lender , you can increase your approval odds. .
Reach Out to Fast Business Financial for a Small Business Loan Today
Ready to apply for a small business loan? Fast Business Financial helps you move forward with flexible funding and fast approvals. We offer several different types of loans and financing options for small businesses. Apply now and get funded as fast as within 24 hours.