Three Steps to Obtaining a Small Business Loan
June 28, 2017
Starting your own business can be exhilarating, terrifying, and exhausting, but it might just be the most financially and personally rewarding investment you ever make. Whether you’re an existing business owner trying to open a second brick-and-mortar store, or you’re a budding entrepreneur trying to get your first business off the ground, we are here to help guide you through the variety of business loan options. Here are three simple steps to applying for a business loan to help get you started.
Step 1: Understand Why You Need The Money.
What are you trying to accomplish? ”Get more customers” is a good outcome goal, but not a good process goal. It’s important to know the steps you’re going to take to achieve your end goal, and the funds needed to complete each of those steps. A well-researched business plan will help the success of both your project and your loan request. Some common business needs are:
- Hiring more employees
- Moving into a larger space or expanding your existing space
- Purchasing new equipment
- Increasing inventory
- Expanding marketing efforts
If you’re not sure where to start on your business plan, we can help put you in touch with local resources who can assist in the process. Examples are Prospera
, Bear Paw Development
, the Small Business Development Center
, and BEAR
Step 2: Get Help Identifying the Type of Loan You Need: Is it a SBA Loan?
Once you’ve decided on the purpose of the loan, an experienced loan officer will discuss your business plan with you to help you choose what kind of loan is the best fit. This is an opportunity to get your questions answered from someone who has seen the experiences of other businesses first-hand, and has knowledge of the local business environment—important even if your goal is to go worldwide!
Most likely, your loan will be directly with the bank. You may be asked to verify your ability to adequately service the debt, and the loan may be “secured” by collateral to cover the loan if something goes wrong. Loans are available for short-term, intermediate, and long-term funding. Common loan types are: term loans (lump sum paid back over time), lines of credit (a max amount is approved, and you can draw as needed up to that amount), equipment loans (the equipment may be collateral for the loan) or Small Business Administration loans.
A Small-Business Administration (SBA) Loan
is a loan made by a bank that is guaranteed by the federal government. SBA guarantees help reduce the risk to lenders, enabling lenders to provide financing to small businesses that may not otherwise qualify. There are several different options available when considering an SBA Loan:
- 7(a) – This is the most common SBA option. Designed for start-up and existing small businesses, these loans are delivered through commercial lending institutions, and offer specialized options for export, rural, Employee Stock Ownership, and pollution control measures.
- 504 – Used for the purchase of fixed assets; delivered through CDCs.
- Microloans – Applicants can receive up to $35,000 in short-term loan for working capital, supplies, inventory, and equipment. This loan type is delivered through specially designated non-profit lenders.
If the SBA isn’t the right fit, programs through the United States Department of Agriculture (USDA)
, Montana Board of Investments (MBOI)
, or the Montana Community Development Center (MCDC)
may be a good match.
In all cases, rates and approval will depend on evaluation of the borrower’s credit.
Step 3: Apply for the Loan
Now that you’ve decided how you’ll use your loan and which type of loan is right for you, the next step is to apply! Some of the requested documents will include:
- Articles of Incorporation, Bylaws, and/or Operating Agreements.
- The purpose of the loan and the amount requested.
- Business financial statements, including income statements & balance sheets.
- Aging of accounts receivable & accounts payable.
- Personal financial statement/tax returns of owners.
Stay tuned to the First Security Bank Blog in the coming weeks for more information on writing an effective business plan to apply for your small business loan. We’re here to help. Please contact us or visit our business loans page
to get started on applying for funding for your small business venture.
Posted in: business, loans, planning