5 tips to help you land a small business loan

October 05, 2020

There are many reasons to take out a small business loan. The process might seem daunting, but these five steps will help you find the right loan for your business.

 

Whether you’re looking for a loan that’ll help you secure a mortgage or to set aside for unexpected expenses, taking out a loan for your small business can feel like a big undertaking. Having insight into the process before starting out can make it a much simpler process.

As a business banking expert with U.S. Bank who specializes in lending, a central part of Jay Nelson’s job is to help small-business owners determine and then secure the best type of loan for their needs. Below, he shares five strategies for making the process as effective and seamless as possible.

 

1. Ask about lending options

Small businesses, even those that are quite new, have a variety of lending options available to them, Nelson says. This includes applying for a regular business loan, which operates like a consumer loan, but is used for business expenses. It can be a good fit for companies looking to purchase physical assets, such as equipment or office supplies.

For short-term borrowing needs—meaning you have a plan to repay the amount within 12 months or less—Nelson often recommends applying for a line of credit. A major benefit is that it’s open-ended, he says. You can open a line of credit for your business, pay the balance to down to zero, and then reuse the funds again, keeping the cycle going as long as the account remains in the draw period.

Applying for a business credit card can be a good option for making smaller purchases, such as travel and everyday expenses. “Credit cards do serve a purpose even though the interest rates may be higher than those for a loan or a line of credit,” Nelson says. If a business doesn’t have credit history yet, traditional bank financing may be out of reach. In certain cases, Nelson recommends owners apply for personal loans and transitioning to business loans once the company has established itself.

 

2. Have a repayment plan

Choosing the right type of loan for your business depends largely on what you plan to spend the money on, when you anticipate you’ll be able to pay it back, and whether the expense is recurring or a one-time purchase.

Nelson often recommends taking out multiple forms of loans to meet specific needs, such as taking out a long-term real estate loan to rent office space and opening a line of credit to handle recurring expenses.

 

3. Gather the necessary information

To approve a loan, your banker is going to need your business’s tax returns—potentially going a few years back, depending on the size of the request. Your banker will also want to see financial documents that ensure your finances match the returns.

Be prepared to share your personal financial documents, including personal tax returns and financial statements. “The bank will be on the lookout for any debts owners have that could have a bearing on the business loan itself,” Nelson says.

Despite popular belief, securing a loan does not require perfect credit. “There’s a big range,” Nelson says. Yes, good credit is preferable, but “there might be mitigating factors that a bank looks at and says, ‘we still want to get this business the money it needs to grow.’”

 

4. Consider applying before you need the money

Nelson often hears from owners who haven’t considered taking out a loan because things are going well. However, it’s in a business’s best interest to apply for a loan proactively when momentum is trending upwards. Not only will the application process be easier, but it provides a financial buffer should your business hit unforeseen difficulties. Waiting to apply until those circumstances actually occur can make it more difficult to secure a loan when you need one the most. “When things are going well, that’s really the time to apply for a line of credit,” Nelson says.

 

5. Maintain a strong relationship with your banker

Working closely with your banker ensures you have someone who understands your business and its financial situation well. “Think of your banker as a business partner or valued advisor,” Nelson says. “Let them know what is happening on a regular basis.” A good banker will ensure lines of communication remain open. “Make sure you stay in touch with your banker, so that when you are ready to start a loan application there isn’t a lot of catch-up that has to happen,” Nelson says.

At a minimum, Nelson’s clients will hear from him every three months. If they’re going through a transitional period and need more frequent contact, he urges them to let him know. He’s there to help. Bottom line: “Having a good relationship with your banker is going to make it a lot easier to go out there and acquire credit from the bank.”

 

Learn more about getting a small business loan with U.S. Bank.

Learn about U.S. Bank

Related content

Leverage credit wisely to plug business cash flow gaps

Managing the rising costs of payment acceptance with service fees

Tailor Ridge eBill case study

How to use debt to build wealth

4 benefits of independent loan agents

Middle-market direct lending: Obstacles and opportunities

How I did it: Deciding whether to buy an RV

Take the stress out of buying your teen a car

Streamline operations with all-in-one small business financial support

Beyond Mars, AeroVironment’s earthly expansion fueled by U.S. Bank

Credit: Do you understand it?

Personal loans first-timer's guide: 7 questions to ask

The moment I knew I’d made it: The Cheesecakery

How to use credit cards wisely for a vacation budget

How to choose the right rewards credit card for you

Evaluating interest rate risk creating risk management strategy

Opening a business on a budget during COVID-19

How small businesses are growing sales with online ordering

What’s a subordination agreement, and why does it matter?

Understanding the true cost of borrowing: What is amortization, and why does it matter?

Parent checklist: Preparing for college

What are conforming loan limits and why are they increasing

Should you get a home equity loan or a home equity line of credit?

Webinar: Approaching international payment strategies in today’s unpredictable markets.

How to establish your business credit score

What is a CLO?

When to consider switching banks for your business

Authenticating cardholder data reduce e-commerce fraud

Increase working capital with Commercial Card Optimization

3 ways to adapt to the new payments landscape

5 reasons why couples may have separate bank accounts

Common unexpected expenses and three ways to pay for them

5 tips to use your credit card wisely and steer clear of debt

Money Moments: How to finance a home addition

How I did it: My house remodel

Is it the right time to refinance your mortgage?

4 questions to ask before you buy an investment property

What is a home equity line of credit (HELOC) and what can it be used for?

Is a home equity line of credit (HELOC) right for you?

10 uses for a home equity loan

How to use your home equity to finance home improvements

What to know when buying a home with your significant other

Webinar: Mortgage basics: What’s the difference between interest rate and annual percentage rate?

Webinar: Mortgage basics: How much house can you afford?

Webinar: Mortgage basics: Buying or renting – What’s right for you?

Webinar: Mortgage basics: What is refinancing, and is it right for you?

Webinar: Mortgage basics: Prequalification or pre-approval – What do I need?

Webinar: Mortgage basics: How does your credit score impact the homebuying experience?

Webinar: Mortgage basics: Finding the right home loan for you

Webinar: Mortgage basics: 3 Key steps in the homebuying process

8 steps to take before you buy a home

These small home improvement projects offer big returns on investment

What is refinancing a mortgage?

How do I prequalify for a mortgage?

6 questions to ask before buying a new home

Student checklist: Preparing for college

Webinar: Uncover the cost: College diploma

The A to Z’s of college loan terms

Co-signing 101: Applying for a loan with co-borrower

Practical money skills and financial tips for college students

How to build credit as a student

How I did it: Paid off student loans

Everything you need to know about consolidating debts

5 steps to selecting your first credit card

7 steps to keep your personal and business finances separate

Dear Money Mentor: How do I begin paying off credit card debt?

Your quick guide to loans and obtaining credit

How to spot a credit repair scam

5 unique ways to take your credit card benefits further

Myth vs. truth: What affects your credit score?

Test your loan savvy

Should you give your child a college credit card?

6 essential credit report terms to know

What applying for store credit card on impulse could mean

How to improve your credit score

Is a home equity loan for college the right choice for your student

How to apply for federal student aid through the FAFSA

Be careful when taking out student loans

Your financial aid guide: What are your options?

5 tips to use your credit card wisely and steer clear of debt

ABL mythbusters: The truth about asset-based lending

Collateral options for ABL: What’s eligible, what’s not?

How jumbo loans can help home buyers and your builder business

Webinar: Cash management strategies for higher education

When small companies buy big: The potential of asset-based lending

How to maximise your infrastructure finance project

Questions to ask before buying a car

What you should know about buying a car

How to choose the best car loan for you

What you need to know before buying a new or used car

Can you take advantage of the dead equity in your home?

How to identify what technology is needed for your small business

How to get started creating your business plan

What is needed to apply for an SBA loan

Planning for restaurant startup costs and when to expect them

How to fund your business without using 401(k) savings

How iPads can help increase efficiency in your salon

Tools that can streamline staffing and employee management

The different types of startup financing

Costs to consider when starting a business

How to expand your business: Does a new location make sense?

How to choose the right business savings account

Using merchant technology manage limited staffing

Business credit card 101

Do I need a credit card for my small business?

How a small business is moving forward during COVID-19

Prioritizing payroll during the COVID-19 pandemic

5 tips to help you land a small business loan

5 questions business owners need to consider before taking out a loan

How to establish your business credit score

How to make the most of your business loan

How to accept credit cards online

Do you need a business equipment loan?

Investing in capital expenditures: What to discuss with key partners

Can ABL options fuel your business — and keep it running?

The surprising truth about corporate cards

Tech lifecycle refresh: A tale of two philosophies

At your service: Outsourcing loan agency work

Maximizing your infrastructure finance project with a full suite trustee and agent

An investor’s guide to marketplace lending

What type of loan is right for your business?

Webinar: A closer look at U.S. Bank AP Optimizer

Tech tools to keep your restaurant operations running smoothly

How to accept credit card payments without transaction fees

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.

U.S. Bank is not responsible for and does not guarantee the products, services or performance of U.S. Bancorp Investments, Inc.