Skip to main content

Business Loans: What You Need to Know to Get the Right One

business loans
How to make sure you’re getting the best loan for your business.

If you’re an entrepreneur looking for a business loan to start or grow your business, you have your work cut out for you. While personal loans may be readily available and easily obtained, the same is not always true with business loans. There is a lot more that lenders have to take into consideration when assessing whether they think they’ll be repaid or not. They’re going to look to see if you or your business has a solid credit history, whether the bank can manage the risk, if you as a business owner are qualified and responsible to be running your business, and, ultimately, whether or not the loan makes good business sense.

Before you get started applying for a business loan, here are some things you should know.

Building a Foundation

One of the most frustrating aspects of applying for a business loan is that, if your business doesn’t have much of a credit history, your personal finances will factor into the lender’s decision making. Before issuing a loan, banks want to be sure that they are going to be repaid, so they’re going to want to see a history of successful borrowing. Even if you organize your business as a corporation or LLC, lenders will consider you to be personally responsible for any loan they give out. That way, even if the business fails, you’ll still be responsible for paying back the loan.

If you have a high personal credit score or a solid history of paying back your loans, then that will signal to the bank that you’re going to be able to handle a business loan successfully. However, if you have bad credit, lenders may be more hesitant to give your business funds. If you personally haven’t had to borrow money and therefore don’t have much of a credit history, you might not get approved immediately, but there are things you can do to build your credit so that you can prove your dependability to lenders.

One way you might be able to get approved for a loan even if you have a thin or poor credit history is if you are able to pledge collateral for the loan. Depending on your business and the lender, you may be able to pledge assets such as a vehicle, equipment, or your home as collateral, should your business go under or you’re not able to pay the loan back.

SEE ALSO: Small Business Checklist: How to Assess Your Financial Wellness

What is Good Business Sense?

When it comes to awarding loans, lenders want to be sure that the money is actually going to help you grow your business in the ways you say that it will. Even though you may be sure the money will help, you need to be able to articulate and prove to lenders that it really will. To do so, you will want to present an airtight case that validates your reasonings and shows the lenders exactly how the money they are giving you will lead to a more successful business. Lenders want to see that you are creating more revenue that can be used to guarantee they’ll be paid back.

At the crux of it, your business plan is what will convince lenders you are worth lending to. So if you don’t have a plan yet, now is the time to lay one out. This is helpful in making a case to lenders, but a business with a thoughtful and detailed plan has a better chance of succeeding in the long run, too. Back up your big-picture goals with smaller strategies using specific numbers and detailed plans. You’ll need to include how you plan on making money, how much money you plan on making, and how you plan on spending that money to help your business continue growing. Also, you’ll want to explain all of the major players in your business, such as your marketing and sales strategy, the roles of management, and any other factors that will help bring in new business and growth potential. Lastly, you’ll want to include basic financial statements, information about your personal resources, and any Pro-forma statements you may have.

All of these things will help show potential lenders how you plan to earn revenue to pay back your debts.

See Also: How Can Entrepreneurs and Executives Prioritize Their Financial Objectives

How to Choose a Lender

Once you’ve done the work of organizing and establishing a business plan, it’s time to begin reaching out to lenders. There are a plethora of options to research when it comes to borrowing, and each option comes with pros and cons depending on your personal situation and business goals. You don’t want to simply fill out forms and accept the first “yes” you receive. Instead, talk to multiple lenders, get a gist of their requirements and options when it comes to taking out a loan from them, and see which is best suited for your business. Here are four options that may work for you:

  1. Banks and Credit Unions. Banks and credit unions are traditional sources used for small business loans and are a solid place to start, especially if the institution is on the smaller side and you can meet with someone personally who will be able to walk you through the loan process. If you want to improve your chances of getting approved, inquire about SBA loans, which reduce the risk that the bank takes on and feature interest rate caps that protect you. Keep in mind that the loan process for banks and credit unions can be quite lengthy, so plan for a long process and thorough review of your personal and business situation.
  2. Microlenders. If you meet particular criteria, microlenders could be the best option for your business. Microlenders don’t always have the amount of resources afforded to them that big banks do, so they tend to give out smaller loans. However, they tend to be more concerned with development rather than profit. This means that, if they believe the business has promising potential, they may be more willing to invest even if you’re just starting out. Further, because they want to see businesses grow and stabilize, some lenders in this space may bundle their loans with coaching and training to help you put your business on firm financial ground.Microlenders are known to prefer providing loans to businesses in underserved communities or loans for low-income individuals, as their goal is to make up for the void left by traditional banks and credit unions. Their loans often come with low fees and interest rates. However, this means that if you have a substantial income, they may be less willing to make a loan to your business.
  3. Online Business Lenders. This is a somewhat new option available to business owners and could be a good idea for you because they often provide more choices than you can find at the local level. They tend to be a better option than banks or credit unions in that they move faster and can be more willing to approve your loan request because they’re more interested in funding loans and growing than traditional banks or credit unions are. Keep in mind, however, that easier and quicker access to money can come with drawbacks like higher rates, so make sure to pay attention.
  4. Personal Loans. If you can’t find anyone to approve your business loan, personal loans can be a great option. Though it’s ideal to get a loan in the name of your business if you’re having trouble convincing a lender to approve your request, trying for a personal loan can be a solid last resort. Personal loans are easier to secure, but the amounts tend to be smaller and the terms of the loan might be less appealing.

Final Thoughts

Owning a small business can be an exciting way to participate in your community and do what you love. However, it can also be incredibly expensive. Luckily, there are plenty of resources out there to assist. Before going out and obtaining a loan, make sure that you organize your finances, lay out a solid business plan, and do your research. As with anything, the best choices are the ones that are made from an informed position

Here at Paces Ferry, we want your business and financial life to flourish. We are happy to help you get your ducks in a row and go over all of the options available to you so that you can find the best choice for your business. Please reach out to us today if you have any questions, or if you would like to start a conversation about your business’ growth.


Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”).  This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.



Zachary Morris

Zachary Morris, CFP®

Having traveled to over 35 countries, Zach is a believer in Ralph Waldo Emerson’s statement that Life is about the journey, not the destination. Being a CERTIFIED FINANCIAL PLANNER™ provides Zach the opportunity to help clients define and realize their journey, and co-founding Paces Ferry Wealth Advisors, an independent firm, allows the freedom to define the client experience along the way.