How to get a small business loan.
Phase One: Prepare.
- Start assessing your small business financing needs by answering the questions below. From there, you’ll have a sense of 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?
- How quickly do you anticipate seeing a return on your investment?
Know what your business can afford.
It’s important to estimate the additional revenue you think will result from your planned investment. Or, if you need funding to cover a cash flow gap, estimate when you expect to receive payment on delayed receivables or when your business revenue will return to previous levels. Don’t forget to consider seasonal ups and downs, as well as other expenses that might come up during your payment term. From your cash flow projections, you should get a sense for how much you can afford for repayment. As you move forward, keep this amount as a touchpoint. Beware of financing more capital than you can ultimately afford.
Prepare basic business information.
No matter what type of small business financing you decide to pursue, all require some basic business and personal information in order 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, as well as provide your Social Security number.
Phase Two: Research.
Get to know your financing options.
If you’re not sure what’s available beyond credit cards and traditional business loans, start with this overview. It covers popular financing options from fixed term loans to crowdfunding, and the pros and cons of each.
Tip: For fast, simple, and competitively priced business loans, explore PayPal Business Loan and PayPal Working Capital.1
- Determine if your business meets basic eligibility requirements.
Many financing companies will use what they call a “soft pull” on your personal credit score to help determine your eligibility. A soft pull allows a business lender to look at your credit score without hitting it with a “hard inquiry.” A hard inquiry is the type of inquiry that may impact your credit score or show up on your personal credit report. While most loan providers are interested in your personal credit score, there are other options. Because PayPal Working Capital is based on your PayPal account history, it doesn’t require a personal credit check. You need to have a free PayPal Business account and a 90-day sales history meeting certain revenue thresholds to apply.2
Phase Three: Submit your application for review.
Know what lenders are evaluating.
- Capacity: a measure of your business’s ability to continue operations and support cash flow while paying down its debts.
- Character: a measure of 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: a measure of your industry, geographic location, 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”).
While business credit reports do exist, many providers of small business loans rely on your personal credit score as an indicator of credit worthiness, and they use your Social Security number to access your personal credit history. Look for small business loans that also take other factors like revenue and business history into account when determining your financing offer.
Phase Four: Understand how the loan works.
Review the structure of the loan.
- 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?
- Will the loan help my business credit?
- Total cost: What is the total amount I need to pay back?
- Fees: Are there origination fees? Late fees? Early repayment fees?
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 loan provider, 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 getting a business loan overwhelm you. The same persistence you use to pursue your business every day is useful when navigating how to get a small business loan.
The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
1The lender for PayPal Business Loan and PayPal Working Capital is WebBank, Member FDIC.
2 To apply for PayPal Working Capital, your business must have a PayPal Business or Premier account for at least 90 days and process a minimum of $15,000 (or for Premier accounts $20,000) within those 90 days or within any time period less than or equal to 12 months. PayPal sales include processing on PayPal Express Checkout, PayPal Payments Standard, PayPal Payments Pro, PayPal Here, and invoices paid online with PayPal online invoicing.
3In addition to the fixed fee (Total Interest Charge) for the PayPal Business Loan, the only other cost is a $20 Returned Item Fee that is only assessed if a payment is returned.