4 Easy steps for securing a business loan

Shop OwnerWhether you’re thinking about starting a business or have been running one for years, you’ll inevitably need to figure out how to fund it. 

While getting a business loan may seem like the most obvious solution, the actual process of doing so can be intimidating. But rest assured — there are many lending options for small business owners and securing funding may not be as difficult as you think. To get started, follow these four easy steps for how to get a business loan. 

1.   Nail down the “why” 

Almost any business would benefit from an influx of capital, but it helps to have an idea how you plan to use it. In fact, your lender will need to know the purpose of the loan you’re requesting, so determining that is your first step in the process. Here are some of the most common reasons to get a business loan: 

  • Startup costs 
  • Equipment financing 
  • Emergency spending 
  • Cash flow problems 
  • Refinancing debt 
  • Covering day-to-day expenses 
  • Planning for growth or expansion, including purchasing an existing business 

If you have a business plan, you may have already determined some of these reasons. Here are some tips for creating a business plan. 

2.   Determine how big a loan you can afford to take on 

While you might be tempted to ask for as much funding as you can get, it’s a bad idea. By taking on too large a loan, your business could end up drowning in debt. To figure out how much you can afford to borrow and make sure you have enough revenue coming in to cover your anticipated monthly payment, consider: 

  • Using a calculator to crunch the numbers 
  • Calculating your debt service coverage ratio (DCSR) by dividing your average monthly net income by your anticipated monthly loan payment (it should at least be greater than one) 
  • Doing a free loan performance analysis online 

3.   Figure out which type of business loan is right for you

Your local bank is a good place to start, whether you’re looking to refinance debt, purchase equipment and inventory, purchase commercial real estate, grow your business or cover daily expenses. Other options include applying for a term loan or business line of credit. Some banks also offer special rates for low- to moderate-income business owners through community lending programs. You can also use invoice financing if you’re having a cash flow problem or apply for a merchant cash advance, but these two options can be expensive. 

4.   Take the time to prepare before you apply 

Depending on how many years you’ve been in business, your personal credit score and/or your business credit score, your loan options might be limited. You may need to bring those scores up before you can apply for a loan. You should also keep an average balance of at least $5,000 in your business checking account. Lenders will also require some, or all, of the following documentation: 

  • Income statement 
  • Balance sheet 
  • Annual revenue 
  • Personal tax returns 
  • Business tax returns 

Now that you’ve figured out which business loan is right for you and have your paperwork in order, you’re ready to go! Stick to applying to no more than two loans at a time, otherwise, it can hurt your credit score. And don’t be afraid to compare loans to find the best option. Once your application is approved, you’ll need to be patient—the underwriting process can take a while. Lastly, before you sign your loan agreement, be sure to review it for hidden or unexpected fees.

Commercial Lending
achieve your business goals

Commercial Lending

Need help choosing the right commercial lending solution? Our experienced lending team takes a hands-on approach to helping you determine the best options for growing your business.

You may also be interested in

SBA Lending
hidden text to fill headerone of the top SBA lenders in the Country

SBA Lending

Our Business Development Officers will help you find an SBA loan tailored for your specific business needs.

Business Credit Card
hidden text to fill headerbig things for your business

Business Credit Card

The Valley Visa Business Credit Card gives you the buying power to manage the day-to-day expenses of your growing business.

Healthcare Financial Services
hidden text to fill headerSolutions for the healthcare industry

Healthcare Financial Services

Our financing options are customized for doctors, dentists, veterinarians, chiropractors, and other healthcare providers.

Take your business to the next level

Our experts have the insight and experience to help you be successful.

Our experts have the insight and experience to help you be successful.