Small BusinessOperationsFunding

How to get a small business loan

PayPal Editorial Staff

PayPal Editorial Staff

July 28, 2022

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As a small business owner, you most likely encounter situations where it’s helpful to have additional cash on hand to manage the ups and downs of your business. However, to get access to the funding your business needs, you’ll need to understand how to apply for a business loan.

This guide helps walk you through the five phases of how to apply for a small business loan, so you have a better idea of what to expect.

Phase One: Prepare

Start assessing your small business financing needs by answering the questions below. Your answers can help you understand which types of small business loans make the most sense for your situation.

  • What do you need funding for?
  • How much business funding do you need?
  • How fast do you need it?
  • How long do you want to be making payments?

Know what your business can afford

It’s important to estimate the additional revenue you think may result from your planned expenditures. Or, if you need funding to help cover a cash flow gap, estimate when you expect to receive payment on delayed receivables or when your business revenue may return to previous levels. Don’t forget to consider seasonal ups and downs, as well as other expenses that might come up during your loan repayment term. For your cash flow projections, you should try to get a sense of how much you can afford for repayment. As you move forward, keep this amount as a reference point. Beware of financing more capital than you can ultimately afford to repayment.

Tip: Beware of brokers who work on commission and act as an intermediary between borrowers and lenders. Because they’re paid based on the amount of funding they may secure, they have an incentive to get you the most funding possible – even if you can’t afford it.

Prepare basic business information.

No matter what type of small business financing you decide to pursue, all require some basic business and personal information to determine if your business is eligible and for what amount. You should be prepared to provide your contact information, answer basic questions about your business structure and revenue, and provide your Social Security number.

Many small business lenders require recent bank statements and other relevant financial documents, so you may want to keep these on hand. Often, the more money you’re looking to finance, the more documentation you’ll need to provide. Also, if you’re applying for a traditional business loan, many require more extensive documentation as part of the application process. Be prepared that gathering and submitting paperwork can take a significant amount of time and effort.

Phase Two: Research

Better understand your financing options.

Make sure you have a basic understanding of the different types of small business financing options available and know which ones make the most sense for your specific situation.

Tip: For fast, simple, and competitively priced business loans, consider PayPal Business Loan and PayPal Working Capital.1, 2

Determine if your business meets basic eligibility requirements.

Loan eligibility requirements may differ across lenders, but many consider business revenue, years in business, location, and the industry your business is in as a start to determine your business’s eligibility. You can usually find minimum eligibility criteria on the product website.

FAQ: What is a soft pull?

Many financing companies do a “soft pull” of your personal credit to help determine eligibility. A soft pull allows a business loan lender to review your credit score without impacting it. A “hard pull” may impact your credit score and is usually done if you decide to complete the loan application process.

Tip: Because PayPal Working Capital is based on your PayPal account history, it doesn’t require a personal credit check.2

Phase Three: Submit your application for review

Understand what lenders are evaluating.

Once you’ve submitted the requested information and documentation, your loan application will be reviewed. Depending on the type of business loan, this could take hours, days, weeks, or even months. Lenders look at a wide variety of criteria and may consider some of the factors below:

  • Capacity: your business’s ability to continue operations and support cash flow while paying down its debts.
  • Character: both business and consumer credit indicating whether you’ve been a responsible borrower in the past and how likely you are to be responsible in the future.
  • Conditions: your industry, time in business, and the economy at large.
  • Capital: a business’s ability to support the amount of financing it applies for presented as a total dollar amount of cash over time.
  • Collateral: the tangible assets that can be liquidated in the event of default. Some lenders don’t require borrowers to offer assets as secured collateral (which is called “unsecured financing”).

FAQ: Why are they asking for my Social Security number for a business loan?

While business credit bureaus and reports do exist, many providers of small business loans rely on your personal credit score as an indicator of credit worthiness, and they may use your Social Security number to review your personal credit history should you apply. Look for small business loans that may consider other factors such as revenue and business history when determining your offer.

Phase Four: Understand how the business loan works

Review the structure of the loan.

  • If you receive a business loan offer, make sure that you understand the basic structure of the loan.
  • If approved, how and when will I receive funds?
  • How long will I be making payments for?
  • How and when do I make payments? Can I choose the day of the week?
  • Can the loan help my business credit?

Compare Costs

Small business financing solutions have a wide range of cost structures. A good rule of thumb is you should be able to calculate the cost of your loan with simple math. Make sure you fully understand your business funding costs:

  • Total cost: What is the total amount I need to pay back?
  • Fees: Are there origination fees? Late fees? Early repayment fees?

Tip: Both the PayPal Business Loan and PayPal Working Capital have one, fixed fee that’s easy to calculate. No hidden fees, no surprises.3

Phase Five: Choose the best loan option for your business

Choosing a business loan is an important decision that you shouldn’t make solely on cost. Also consider the reputation of the lender, the complexity of the application process, the time it takes to get funded, and the ability to customize the loan to meet your business’s priorities and goals.

Don’t let the process of applying for a business loan overwhelm you. The same persistence you use to pursue your business is useful when navigating how to apply for a business loan.

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