Copyright CNBC
This article was paid for by Intuit QuickBooks. There’s nothing simple about running a small business. Staying on top of daily administrative tasks like payroll and invoicing is complicated enough. But if you’ve ever had to apply for a business loan — or pursue a second loan opportunity after being turned down — you know it adds a whole new layer of difficulty. When you’re considering where to apply, think small: Small banks give at least partial approval to 82% of business loan applications, according to the Federal Reserve’s 2023 Report on Employer Firms, compared to 76% of finance companies and 71% of online lenders. Large banks approved just 68% of business loans, researchers found, and credit unions a mere 65%. (Large banks were also the most conservative, taking on just 45% of medium-to-high risk borrowers.) Every lender has different risk tolerance and eligibility requirements, so getting a “yes” may have more to do with the institution than your business. That doesn't mean you can’t improve your chances — here are three strategies to help small business owners get approved for a business loan. QuickBooks On Intuit's site Cost Costs may vary depending on the plan, but you can take advantage of a limited-time offer: 50% off for 3 months Standout features Tracks your business expenses as they happen, as well as your income. Users can use app to do invoicing, accept payments, manage their cash flow, maximize tax deductions, track travel miles, run reports, send estimates, manage bills and 1099 contractors, plus pay employees Categorizes your expenses Yes Links to accounts Yes, bank and credit cards, plus third-party apps like PayPal and Square Availability Accessible from any web browser and offered in both the App Store (for iOS) and on Google Play (for Android) Security features Verisign scanning, password-protected login, firewall-protected servers, and the same encryption technology (128-bit SSL) used by the world's top banks. QuickBooks also offers multiple permission levels that you can set for additional users' access Terms apply. 1. Strengthen your financial profile Before issuing you a loan, a reputable lender will want some indication of how well your business is performing. This may include: Revenue and profitability: Is your income consistent? Are you profitable enough to make your loan payments? Debt Service Coverage Ratio (DSCR): This ratio indicates if your business can cover its debt obligations with its earnings. It’s calculated by dividing your net operating income by your total annual principal and interest payments. Lenders often require a DSCR of 1.25 or higher. Financial statements: Current profit and loss statements, balance sheets and cash flow projections. To put your business in the best possible position before applying: Have at least two years of organized financial records ready to share. If there are errors on your credit report, get them corrected. Follow up on any outstanding receivables. If you see a weak spot in your business forecast, fix it or account for the vulnerability. Many lenders require businesses to be at least two years old to be approved. If your company hasn’t reached that benchmark, there are online banks and alternative lenders that only require six months in business. You can also look for startup loan programs or equipment loans, which have more flexible requirements. Once you’ve found a lender that fits your needs, the next step is to complete the application. They’ll want your business name, industry and financial information, as well as some personal details. If you’re looking online, you may be asked several questions to assess which loan option is right for you. From there, a business specialist will reach out to learn more about your company and loan needs. You may also be given an email or phone number to contact them at your convenience. At this point, your job is simply to be prepared. The more organized you are, the better your chances of getting a positive response. 2. Explore different types of loans There’s no one-size-fits-all loan for every small business. Here’s a quick summary of options to consider based on your needs: Traditional loans Business term loans: Providing a lump sum for a fixed period with regular, scheduled payments, term loans are good for large, one-time expenses, including new equipment or business expansions. Business lines of credit: A flexible source of funds for ongoing expenses or unexpected needs. Unlike a term loan, you only pay interest on the amount you’ve used. Specialized loans Equipment financing: Specifically for purchasing or leasing new or used equipment, which usually serves as collateral. Real estate loans: Used to finance the purchase or renovation of business property. As with equipment financing, the property is used as collateral for the loan. Microloans: Microloans generally involve less than $50,000 and require a personal guarantee. Government-backed loans SBA loans: Because they’re backed by the Small Business Administration (SBA), these loans present a smaller risk to lenders and typically have lower interest rates and more favorable repayment terms than other forms of financing. The SBA offers 7(a) loans of up to $5 million. One of the most important details to consider when looking at your loan options is the payment terms. Loan type Term length Short-term loan3 to 18 monthsBusiness term loans3 to 10 yearsBusiness line of creditSeveral months to 5 yearsEquipment loans2 to 10 yearsSBA loansUp to 10 years for working capital/equipment, up to 25 years for real estate It’s also critical to look for any hidden fees or penalties and to carefully read the disclosures. Lenders will want collateral, typically in the form of accounts receivable, inventory or equipment. If there’s something in the disclosures that makes you uncomfortable, your local Small Business Development Center (SBDC) or Chamber of Commerce should have free resources and expert consultants who can answer your specific concerns. 3. Don’t overlook your vendors Banks and credit unions might be the most common source of financing, but they’re not the only avenue. E-commerce sites, software companies and website platforms often provide loans, as well. And if you’re already a customer, they may be able to develop a loan agreement using the data they already have. For example, Intuit QuickBooks offers QuickBooks Term Loans from $1,500 to $200,000 with terms ranging from 6 to 24 months. Because Intuit QuickBooks already has its customers’ financials, results are available in minutes and funding can be provided in as few as one or two business days. There are no origination fees or prepayment penalties and you don’t have to provide collateral — the overall health of your business and your personal guarantee are considered, instead. Since your banking details are already with QuickBooks, managing the loan and making payments are easier, too. The bottom line It’s understandable if you feel overwhelmed by taking out a small business loan, especially if you’re a first-time borrower. But if you work with a reputable lender — whether it’s a bank, credit union, the Small Business Administration or a vendor you already know and trust — it doesn’t have to be difficult. Take it one step at a time and don’t be afraid to ask questions. A good lender will be happy to talk through your concerns. Catch up on CNBC Select's in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.
