 TITLE: How to Get a Business Loan CONTENT: Steps to Getting a Business Loan\n--------------------------------\nTo find the right business financing source for you and get the loan you need, follow these steps.\n1.  **Figure out how much money you need.** When a lender asks, \"How much money do you want to borrow?\" the correct answer is not \"As much as you'll give me!\" Lenders want to see that you've carefully thought through your business goals, know how much you need to achieve them and have a specific plan to use the money wisely. Whether your goal is to open a second location or buy new machinery, run the numbers to see how much it will cost. Also calculate how loan repayments will affect your business budget going forward.\n2.  **Decide what type of loan best fits your needs.** Once you know how much money you need, figure out what kind of loan suits your purpose. The most common kinds of business loans are:\n*   **Bank loans**: These installment loans are repaid in fixed monthly payments. They can be short-term loans (generally six to 24 months) or long-term loans (typically three years and up). Secured loans tend to offer lower interest rates than unsecured loans.\n*   **SBA guaranteed loans**: The SBA, a government agency that helps small businesses, doesn't make loans itself. It partners with selected lenders, including banks, credit unions and nonprofit organizations, to guarantee a portion of the loans they make to small businesses. The guarantees make lenders more willing to take a chance on small businesses.\n*   **Microloans**: Do you need a smaller amount than a bank will lend? Then a microlender, who focuses on small loans, might be your best bet. SBA-guaranteed microlenders offer loans up to $50,000. Other nonprofit organizations offer microloans, often to disadvantaged business owners or businesses with goals that align with the nonprofit's mission.\n*   **Equipment loans**: If you need to buy equipment or machinery, consider an equipment loan. These loans use the equipment itself as collateral (similar to a car loan) and are paid in fixed monthly installments. You can get equipment loans from banks, specialized equipment loan companies or directly from equipment manufacturers.\n*   **Business line of credit**: Similar to a home equity line of credit, a business line of credit lets you borrow up to a set credit limit. As you repay the loan, the funds become available to borrow again. If your customers take a long time to pay you, a business line of credit can help ensure you don't run out of working capital while waiting for the payments to come in.\n*   **Accounts receivable financing**: Also called invoice financing, this type of loan uses your business's receivables as collateral. The lender advances you money based on your outstanding invoices. You get the money right away without waiting for customers to pay you. Once customers do pay, you'll get the remaining percentage of the invoice, minus the financing company's fees and interest.\nWhen weighing your options, find out what criteria the lender uses when evaluating your loan application. For example, if a bank loan requires three years of business tax returns and you've only been in business for six months, you'll need to look elsewhere.\n5.  **Check your credit scores.** There are two types of credit scores: business and personal. A business that's just starting out won't have much of a credit history. If it's a sole proprietorship, lenders might focus on your personal credit score when considering your loan application. Once you've been in business a while, your personal credit score won't matter as much, but it's still a factor in the loan decision. Before you start the loan process, get a business credit report and a free personal credit report and address your trouble spots. Getting your credit scores in tip-top shape before you apply for a business loan will help to boost your chances of success. Even if you have bad credit, don't despair.\n6.  **Put together the required documents.** Once you know where you plan to apply for a loan, check with your lender to find out what documents and information you'll need to provide for the loan application. Banks generally have the most stringent requirements: They may ask for your business's financial statements (income statement, balance sheet and cash flow statement); three to five years' worth of financial projections; business bank statements; business tax returns; leases and business licenses. They'll also expect to see a written business plan. While other lenders may not require as much documentation, you should be prepared with whatever information the lender requests.\n7.  **Assess the value of your collateral.** Putting up collateral will make it easier to get a business loan and help you get better terms. Business collateral includes equipment, vehicles, machinery, real estate, inventory or accounts receivable. If your business has no collateral, you may need to use personal assets as collateral. Personal collateral may include vehicles, valuables such as jewelry or fine art, savings or retirement accounts, and your home. Be very careful about pledging personal collateral; don't risk anything you aren't willing to lose.\n8.  **Shop around for the best business loan terms.** If you're already in business, your business bank is a good place to start—but don't end there. Check out several lenders to compare loan terms. Factors to consider include the annual percentage rate (APR), amount and term of the loan, fees, penalties and how quickly the loan will go through. Consider the total cost of the loan and make sure the monthly payment fits your budget.\n9.  **Apply for a business loan.** Depending on the lender, it can take weeks or even months to get a loan approved, so don't wait until the last minute to complete your application. Find out what documents the lender needs and have them ready. Missing or incomplete information can delay your loan approval, so review your application package to make sure you've included all the necessary information. END