How to Get a Small Business Loan in 3 Steps?

1. Ask yourself, why do I need this loan?

Lenders will ask you this question, and your answer will likely fall into one of these four categories:

    • To start your business.
    • To manage day-to-day expenses.
    • To grow your business.
    • To have a safety cushion.

2. Decide which type of loan is right for you.

Your reasons for needing the loan will dictate the type of small-business loan you get.

If you’re starting a business, it’s virtually impossible to get a loan in your company’s first year. Lenders require cash flow to support repayment of the loan, so startups are typically immediately disqualified from financing.

Instead, you’ll have to rely on business credit cards, borrowing from friends and family, crowdfunding, personal loans or a microloan from a nonprofit lender. Here’s more information on startup business loans.

For businesses with a year or more of history and revenue, you have more financing options, including SBA loans, term loans, business lines of credit and invoice factoring.

Jump to our graphic with easy definitions of different types of financing.

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3. Determine the best type of small-business lender.

You can get small-business loans from several places, including banks, nonprofit microlenders and online lenders. These lenders offer products including term loans, lines of credit and accounts receivable financing.

You should approach small-business-loan shopping just as you would shopping for a car, says Suzanne Darden, a business consultant at the Alabama Small Business Development Center.

Once you determine which type of lender and financing vehicle are right for you, compare two or three similar options based on annual percentage rate (total borrowing cost) and terms. Of the loans you qualify for, choose the one with the lowest APR, as long as you are able to handle the loan’s regular payments.

Use NerdWallet’s business loan calculator to figure out your monthly payment.

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