Ever feel like the whole world is taking a summer vacation except you?

That’s real: Small business owners can’t always afford to step away from the helm to take those long, glorious vacations you see on social media (maybe beach and Europe photos are already popping up in your feed?).

Whether you do have some breathing room in the next few months, or whether this is your busy time of year, I just want to remind you:

Your work matters.

And as a business owner in Frederick, the opportunity you have to make a difference in the lives of your employees and customers is full of beautiful, astounding potential.

Also — you may want to take a few moments to think back to your quarterly or annual company goals for this year. Now that 2023 is half over, how are things going? Have you met expectations, exceeded them, fallen behind on other goals? What things could you shift this summer to set your business up for success in the latter part of this year? 

If you want to brainstorm and strategize about this together, you know where to find me:
calendly.com/jallencpa

And if getting some more funding for your business happens to be on the list of things you’d like to see this year (there are more of you than you might think), let’s seize the moment by looking at a few options for that. (This is, of course, just the starting point.)

A Step-by-Step Guide to Business Loans
“It is thrifty to prepare today for the wants of tomorrow.” – Aesop

So, you’d like to get some more funding for your business. Or maybe you’re just curious and want to know what your options are.

From evaluating your need for a loan to ticking all the boxes correctly on the final application, securing financing for your small business is a job you want to get right from the start.

Because business loans aren’t a one-size-fits-all type of scenario, let’s look at the steps you must take (and what order to do those in). Next time, we’ll flesh out some other funding options, so you can be fully aware of what your choices are and choose what is best for your business. 

Step 1: Why do you need a loan?

Your business might need money for many reasons. You’re likely thinking of capital improvements, daily operations, starting a new line or a spin-off company… 

But a bank loan isn’t necessarily the answer to all of them — a key point as interest rates are up and borrowing has become costlier for Frederick business owners.

Traditional bank loans, for instance, tend to have higher borrowing limits, making them better for collateral-secured funding best for a large purchase (such as equipment). If you’re looking to cover day-to-day operations with fluctuating but smaller spending needs, a business line of credit might be better as you can tap it as needed. Traditional lenders also often don’t like to lend to startups, so you may need a personal loan or a business credit card if the project in mind doesn’t have enough of a track record. 

(I’ll dig deeper into other types of business funding in my next note. Today is all about traditional business loans.) 

Also — limit your loan search. Applying for too many can ding your credit score. Find out various lenders’ qualification criteria first and then cherry-pick a few best options. Ask lenders about their credit-check policies, too, since the deeper they probe the more likely they are to affect your credit score.

Step 2: Do you qualify?

Before starting your applications, take a hard look at some of your company’s financials. 

• Business history: Traditional lenders like to see at least a couple of years of operations. 
• Credit score: Your personal and business credit score looms large in the eyes of prospective lenders, who generally will want to see at least a 700, though it varies. (You can get your credit report for free from each of the three major credit bureaus: Equifax, Experian, and TransUnion.) If your credit score doesn’t measure up, you may need a co-signer or need to consider nonbank lenders (again, I’ll discuss this next time). 
• Financial situation: One of your first questions for prospective lenders — and from them to you — will involve your company’s annual revenue (well into the six figures is a good bet). They will probably also want to know about your collateral and if you have the assets to personally guarantee the loan. 

Here you’ll need to consider your cash flow and your ability to make your loan payments. (This calculator can help.) 

Step 3: Compare lenders

Traditional bank options include term loans, lines of credit, and commercial real estate loans. The U.S. Small Business Administration also guarantees certain small-business loans through banks in its 7(a) program. Additionally, the SBA has a 504 loan program for fixed assets such as land, buildings, or equipment. 

Weigh all options for funding before applying, with an eye to the best terms versus convenience — and the possibility of actually getting the loan. Again, banks can be among the strictest lenders for conditions and can take the longest for approval and access to the money. Credit unions may be almost as good as banks for loans but may have membership requirements. 

Find out as much about the terms as possible — interest and repayment schedule, for starters, as well as possibilities for early repayment (there can be a penalty for this). Compare lenders of similar types and sizes. 

Step 4: Assemble your paperwork

You’ll need business plans, a year’s personal and business bank statements, personal and business tax returns for at least a couple of years, and details about any previous and current business loans. 

Also gather your business licenses and legal documents, articles of incorporation, owners’ details, P&Ls and financials, and other documents pertaining to your business such as leases or deeds. 

A detailed proposal on how you plan to use the loan will help, too. You can never have too much paperwork on hand right before applying.

Then check with the lender to make sure you left nothing out. (As I’m sure you’ve noticed by now, different lenders might have different requirements.) 

Step 5: Apply

You may be able to do this online. For significant business loans, many lenders want the application done in person or at least over the phone. This will vary depending on which lender you go with.

Before submitting your application, have a knowledgeable third party give it a once over. You may find such a person in your business network or from the local chamber of commerce. And of course, we’re always happy to lend a hand. 

You may very well find that a business loan is the way to go for your company. If you want to look into that, we’re here to walk through the steps with you. Next time, I’ll draw your attention to alternative types of business funding and examine why you might consider them over a loan.

Rooting for you and your business,

Jennifer Allen