Key takeaways:

1. There are many business loan options. It can be helpful to choose the right lender to guide you.
2. The best type of loan for your business needs depends on what you’re trying to do.
3. When you apply for a business loan, it’s important to be organized and focus on making a good case as to why the lender should grant you the funding.

To take your company to the next level, your business will need funding.

The process of getting a business loan can look complicated because you have so many options. You can apply for loans from credit unions, traditional banks, online lenders, and even government agencies. This funding could help you pay for everything from short-term cash needs to new equipment or even big building projects. You can secure your business loan with cash, inventory, equipment, securities, or real estate. Or, if your business is established, you may qualify for an unsecured business loan.

Types of business financing

Here are some of the most common types of business financing:

• Business and commercial loans: These long-term financing loans are designed for business growth. Both secured and unsecured loans may be available. Business loans are usually up to $250,000 and commercial loans are for amounts over $250,000.
• Lines of credit: These are flexible, revolving credit lines designed for short-term or seasonal cash needs. Lines of credit can be either secured or unsecured.
• Small Business Administration (SBA) loans: The SBA guarantees a portion of these loans, which reduces risk for the lender and gives you more flexible terms and conditions.
• USDA loans: Since rural businesses have unique needs, a USDA business loan has higher limits and longer terms than a typical business loan.

Wondering what type of loan is best for your company? Here are some important considerations:

What are you trying to finance?

Because there are many types of business loans, what you’re trying to do determines the type of funding that makes the most sense.

Here are a few examples:

• If you need money to buy inventory, secured term loans may make sense.
• If you need to buy a durable item like equipment or vehicles, this loan has associated collateral, secured by the item you’re purchasing. 
• If you need access to money seasonally (to cover salaries or business expenses during a busy time), money for day-to-day expenses, or funding to cover a cash flow gap due to outstanding invoice payments, a line of credit may be a good option. You can borrow, repay, and reborrow the funds over time.

Loan amounts and terms and conditions vary, according to things like collateral and your qualifications.

Consider what you might qualify for

Lenders set their own business loan requirements, but they typically will ask these questions:

What’s your credit score?

A lender will want personal credit reports from you and each of the other business owners. Higher scores usually give you lower interest rates and a better chance of loan approval. It’s important to check your credit report before you apply for a loan, so that you can identify areas that need correction or improvement.

Sometimes, the lender will also want a business credit score. You may want to establish business credit so that you can eventually secure financing when you need it. Set up your business as an independent entity, like a corporation or an LLC, and open a separate business account at a credit union or bank.

Can you afford the monthly payments?

Some experts suggest that your income be 25 to 50 percent higher than your expenses. This means that if your expenses are $10,000 per month, you should have a monthly revenue of $12,500 to $15,000.

Will you be collateralizing the loan?

Secured loans use business assets for collateral, typically equipment, vehicles, or inventory. The lender may ask that you list personal assets as collateral—your home, for example. A secured loan usually has lower costs to you as a borrower, but know that if you cannot make the payments, your lender could take ownership of your collateral.

Applying for business financing

Most lenders will want to see these documents, going back multiple years in many cases:

• Business license and tax ID
• Legal documents, such as your articles of incorporation or formation documents
• Tax returns, both business and personal
• Bank statements, both business and personal
• Insurance policy information
• Business plan
• Current and projected business financial statements, including profit and loss history, cash flow projections, and other documents

The lender will evaluate everything, including your balance sheet, your debt-to-equity ratio, and other benchmarks. Be aware that business loans typically take longer to process than personal loans, and often involve some back and forth when the lender needs additional information.

Final thoughts

If your company needs funding to grow, make sure you can make a good case in terms of why you need the money, how it will be used, and why the lender should grant you the loan.

Global business and commercial loan officers can help you find a loan option that works for you and your business—a loan at a competitive rate and with a payment schedule that fits your needs. You can even set up automatic loan payments from your business checking or savings accounts. In many cases, we can give you a decision on a business loan in just a few weeks.

Running a business is complicated. Make things a bit easier by funding your growth with the right type of business loan.