If you’ve been through the process of applying for a small business loan, you know first-hand how stressful it can be.

It’s  an exciting moment for your business, but doing it right takes time, effort, and careful thought. And if you aren’t prepared to apply for a business loan, you might find yourself lost in the details and drowning in paperwork.

Sounds messy, I know. But it doesn’t have to be if you know what lenders are asking, and you’re prepared with the answers.

The seemingly huge task of applying for a business loan isn’t so daunting when you boil it down to a simple process.

Here are the 3 essential steps you need to take to apply for a business loan.

Step 1: Do your research

It’s easy to overlook this first step when you need a small business loan. Especially when you need a loan fast or you don’t want to waste valuable working hours researching the details of each financing product out there.

But if you want to apply for a business loan the right way, your first step should always be to research your business loan options. Researching all the financing options available will do a couple things for you.

First off, it’ll give you a sense of what you need from your financing. These days, traditional term loans and lines of credit aren’t a small business owner’s only options. Thanks to innovative alternative lenders, you can get short-term loans, startup loans, invoice factoring, inventory financing, and so on. And if you know the ins and outs of all these products, you’re more likely to find a solution that meets your exact financing need.

On top of that, if you do your research, you’ll know which small business loans are realistic options for you. Knowing the qualification standards and minimum requirements for each type of small business loan and lender can save you time and effort in the long run.

Step 2: Get your documents in order

Every lender will require at least some documentation on your loan application. And to make sure the loan application process is a smooth as possible, you should prepare your paperwork before you apply. That way, when you find the right lender, it’s easy to upload the documents they need and hit “submit”.

Now, every small business lender will look at different information. But in general, lenders are asking two big questions:

“What kind of business do you own?” And, “Will you pay me back?”

And in a way, your business loan application just comes down to answering those questions with information about your business and documentation to prove it.

To gauge the type of business you run, lenders might ask for the following information:

• Business plan, time in business, industry type, outstanding AR, loan purpose 

  While not a comprehensive list, this information and documentation helps lenders determine how your business is structured, who you do business with, and how you’ll use your loan to grow. On top of your business experience and history, you’ll also need to prove your business’s financial strength and ability to take on debt.

To prove that lending to your business is a smart move financially, you might need to show any of the following information:

• Personal and business credit score, bank statements, average bank balance, balance sheet, profit & loss statements, business and personal tax returns, cash flow forecast, business debt schedule 

  Depending on the lenders you apply to, the list of financial information you’ll need to provide can be exhaustive. But in general, it all comes down to whether or not you can cover your business’s regular expenses and successfully repay a loan. Lenders will want to be confident that they’ll get their money back—even if your business hits a rough patch.

Step 3: Shop your options

Once you have all your documentation together, you’re ready to apply for a small business loan.

But where should you apply? And which offer should you take?

Answer these questions can be the hardest part of the business loan application process. You’ll want to be careful that you’re working with a lender that has your best interest in mind. Working with the wrong lender could cost you thousands in the long run.

Also, don’t just take the first offer that comes your way. To make sure you’re getting the best deal for your small business, shop around multiple offers. If you don’t shop your offers, you’ll never know if you could’ve gotten a lower rate with a different lender.

This article has been edited and condensed.


Meredith Wood is the Head of Content and Editor-in-Chief at Fundera, an online marketplace for small business loans. Prior to Fundera, Meredith was the CCO at Funding Gates. Meredith manages financing columns on Inc, Entrepreneur, HuffPo and more, and her advice can be seen on Yahoo!, Daily Worth, Fox Business, Amex OPEN, Intuit, the SBA and many more. Connect with @mere_wood on Twitter.

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