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Getting a Business Loan

One of the hardest things to do in small business is getting that first loan. Due to recent ups and downs with both Wall Street and Main Street, lenders can be skittish when it comes to lending capital to businesses for the first time.

While it’s easy to demonize banks, small businesses and the financial world have a rather symbiotic relationship. Most of us don’t have a stacked savings account or a wealthy aunt ready to drop a few grand to help make our dreams reality. We need that influx of capital to cover day-to-day expenses, including payroll and inventory.

Business owners will get the doors open and customers interested, but to take that next step toward making real money, it’s the same old scenario of “you have to spend money to make money.” What you need is a plan of attack because the more prepared you are, the better you look in the eyes of the lender. So what can you do to get your pitch into shape?

Know Your Credit Score

First things first, do you know your credit score? If you’ve got good credit, you’re more likely to get a better loan with a lower APR because lenders won’t see you as a risk. If your credit is hovering somewhere barely above 500, you might want to work on repairing your credit before approaching any lenders. You can check your credit score from places like Equifax, Experian, and TransUnion.

Determine Why You Need the Money

Think about what your long term plans are with this cash. How will this loan help your business? Lenders have this all down to a science and based on your answer they’ll likely organize your need into these categories:

  • Starting a business
  • Managing day-to-day expenses
  • Growing the business
  • It’s a safety cushion

It’s important to be clear and upfront with your plans. A lender will want to know what their money is intended for and what the possible risks could be.

Know the Type of Loan You’ll Need

By doing your homework and understanding the types of business loans out there, you’ve got a leg up on the person who comes into the bank unprepared. By arming yourself with knowledge, it’ll be an impactful choice because you already know what to expect by the time you shake the lender’s hand at hello.

Some Hard Truths

In traditional lending, a bank isn’t going to give you any money without showing profitability. This disqualifies startups because when an idea is just an idea, there’s no capital involved. If you’re trying to launch a startup, you’re going to need to find angel investors to help you raise a seed round or get business credit cards. There’s also family and friends, Kickstarter, etc.

If your business has been open longer than a year and you’re turning a profit, you’ve got financing options, including SBA loans, term loans, and lines of business credit.

Find Your Small Business Lending Soulmate

There are a few options for getting a loan:

  • Nonprofit microlenders
  • Banks
  • Online Lenders

Typically, these lenders will offer lines of credit, accounts receivable financing, and long-term loans.

PRO TIP: Look for the loan with the lowest APR because interest is going to be critical over time. Think of looking for a loan like buying a car. You must consider the monthly payment, the interest, but also how long are you going to be on the hook for paying that amount back?

What’s the difference between the three lending options? A loan is a loan, right? Absolutely not. There are varying degrees of what’s expected and what the lender is going to expect from you.

When it comes to working with a bank, their rules and regulations are pretty standard:

  • You need a good credit score
  • They want collateral
  • You don’t need cash immediately

Banks have a lot of pull and can help you acquire pretty much anything – from term loans to commercial mortgages to lines of credit. They can help a small business secure a loan from as low as $5K to $5M thanks to the U.S. Small Business Administration, a governmental agency dedicated to helping small businesses.

Working with a bank is traditionally harder, but will enable you to get a lower APR.


If you’re running a small company that’s not going to turn a ton of immediate profit, the banks probably aren’t going to work with you, but that’s where micro-lenders step in.

If you need less than $35K, a microlender can step in to help. The APR will be higher than what the bank will offer and because of the non-traditional businesses a lot of microlenders deal with, there’s typically a lot of paperwork involved. Be aware that you’ll need things like a detailed business plan and financial statements, as well as a description around the loan’s purpose.

And Then There Are the Online Lenders…

If you need money fast and don’t have a lot to offer concerning collateral, this might be the best route for your business. These lenders can get you anywhere from $500 to $500K in cash, but be warned that the APR will be sky-high. The APR amount will be based on many factors: business type, loan size, length, and repayment terms, etc. While the money can be in your account in a matter of days, it’s going to be at a cost. Just something to keep in mind.

Other Things to Keep In Mind

Any lender will want to know how long you’ve been in business and most want to see your financial statements for at least a year. They’ll want to see what your profitability looks like, as well as your P&L statements.

Once You Get the Loan

You’ve got the money in the bank, now you need to make concrete plans on how to repay that loan while also growing your business. If you’re smart, you do more than repaying on-time. You surpass the loan expectations so next time you need access to capital, you may be able to get more cash and with a much better rate.

Make Sure You Can Pay the Loan Back

Make sure you can afford to repay your loans by taking a look at your financial statements and paying close attention to your cash flow. Sometimes, lenders want more than one payment per month, especially if you’re working with an online lender or are considered “high risk.” Otherwise, you run the risk of never getting a loan again should you regularly default.

If you’re on the up and up with your repayments, it’s always a smart move to just set up an automatic withdrawal from your business bank account.

Think About Prepayments, but Know Where Your Lenders Are Coming From

If you want to double down on your loan repayments, make significant lump sum deposits, or pay off the loan before the end date, check your paperwork to make sure it’s ok. Some loans will hit you with a penalty for prepaying because the lender will lose out on the long-term interest.

If you can pay down the principle, you could knock a lot of money off the interest while building your credit. But, check the fine print first because you don’t want to pay the penalty for paying down the principal faster.

Once you’ve secured the funds, it’s up to you to make sure you use them to make your company better than ever. Using a company like Arena will give you more visibility into your finances while also providing key insights to drive important decisions, like how to allocate your new funds to grow your business. Give us a call today to see how we can help.

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