Does your business need extra cash? Whether you need money to buy new equipment, grow your business or purchase a plot of land, you may need a loan for your business to fund the transaction.
Small businesses borrowed $614 billion in 2016, according to a survey by the Small Business Administration. Loans under $100,000 saw the largest growth over the previous year. No matter how much money you need, you can find what you need for a business loan as you consider applying.
Where to get a business loan
While some business owners turn to traditional brick-and-mortar banks for loans, a growing number are using online lenders. Twenty-four percent of businesses sought money from online lenders in 2017, which means those institutions are now competing with traditional banks. Forty-seven percent of business owners applied at small banks, and 49 percent applied at large banks, according to the Federal Reserve.
If you’re wondering how to get a business loan, start by researching different lenders, and remember to include online lenders in your search.
Decide which type of loan you need
Before applying for a loan, understand the different options available. Two of the more common options are term loans and lines of credit.
- Term loan: The most traditional and well-known option, the term loan offers businesses a set amount of money that must be paid back — with interest — over a certain period of time or term.
- Line of credit: A line of credit gives businesses the ability to borrow money as they need it, up to a pre-determined limit. The money is always accessible, and you only pay interest on the money you borrow.
If your business needs money to facilitate a real estate deal, there are commercial loans available for this purpose. These include:
- Bridge loan: Bridge loans give businesses instant access to cash while long-term financing is considered. This type of loan essentially “bridges time” until more substantial funds are available.
- Permanent loan: Similar to a mortgage, a permanent loan gives businesses the capital to buy property and finance it for a lengthier period of time, such as a typical home mortgage length of 30 years.
- Mini permanent loan: A mini permanent loan offers short-term financing to handle construction costs and is usually paid back within a few years.
You can learn more about commercial loans at Nationwide’s Business Solution Center.
How to apply for a business loan
When you’re ready to act, here are some important things to know about applying for a loan:
- Know what banks are looking for: Lenders may be more apt to grant loans to businesses with solid cash flow and good credit history. They may also be more likely to lend to companies with financial reserves and collateral to offer for security.
- Know what you want: When you apply for a loan, you need to know how much you want, how you plan to use the money and how you plan to repay the loan. Be able to explain why you’re a good candidate for a loan.
- Prepare a loan proposal: A loan requires more than a chat with a loan officer at your local bank. You may need to provide a loan proposal. This is a comprehensive overview of your business that explains what your business does, examines its history, looks at current activity, highlights the company’s leaders and provides pertinent financial statements that show the current and future economic state of your business. Review these tips to prepare an effective loan proposal to learn more.
- Wait for a response: Applying for a loan takes time. Even after you’ve prepared the paperwork and presented it to a lender, you still have to wait for a response. The approval timeframe varies and depends on the lender, the amount you ask for and what kind of loan you want. You might wait 60 to 90 days for a response.
A loan can drastically change the course of your business, but it takes time to find the right lender, understand the different types of loans and gather the paperwork necessary for a loan proposal. With time, you can prepare accordingly and present a strong application to any lender.
As you’re reviewing the status of various elements of your company in preparation for a loan, it’s also a good time to review your insurance policy. A Nationwide agent can help you learn more about business insurance to make sure you have the level of protection you need.