The Four Steps of Small Business Loan Processing

Small business owners questions asked and answered.


Editor’s note: This is a second in a series of common questions gathered from small business owners and respective answers by a finance expert. 

Small business growth and expansion requires capital.  Part one: Small Business Financial Q&A’s by Financial Loan Expert  covers questions one and two.

Question 3 . How do I start the process of applying for financing for my business and how long does the application process take?

Here are the four steps to begin the process:

Step 1. Obtain your personal FICO score from one of the three credit bureaus.

Step 2. Do your research to determine the best lenders that have the capacity to meet your funding requirements.

Step 3. Assemble the required documents.

Step 4.Start the Loan Application Process


Step 1. Your Personal Credit Score

Know the FICO credit scores of all the individuals owning 20% or more of a company before you commence the loan application.

You can obtain this information from any one of the three FICO agencies; Equifax, Transunion or Experian. Many lenders, particularly banks, will only consider borrowers with FICO credit scores of 680. (The lower your credit score, the higher the loan interest rate.).

There are other credit issues such as foreclosures, bankruptcies and loan modifications that will come under consideration during the loan approval process.

Step 2.  Your Research

Call local bankers who you know or who have been referred by trusted sources.

A great deal of information can also be obtained via the web. Some lenders favor certain industries or certain markets, i.e. wholesale vs. retail sales, importing vs. exporting.

Some lenders have loan size limitations; with both lower and upper limits. Many lenders, particularly banks, make personal credit scores their first priority. The research and the screening of the lenders who can meet your funding needs will serve as a time saver in the loan application process.

Banks want to lend to companies that have been in business for more than two years. The only start-up business venture that a bank will consider financing is an SBA approved franchise.

Some banks will also consider financing specific start-up professions such as doctors, accountants, attorneys and engineers.

Prior to seeking financing you should determine the use of the loan proceeds.

This will assist you in determining whether you should apply for a line of credit or a term loan and whether you should seek conventional financing or an SBA guaranteed loan.  Lines of credit are available when a company can show adequate historical revenue and profitability.

Lines of credit are not based on cash flow projections. There are exceptions to this standard lending policy on a case to case basis.

Most new businesses seeking capital will have to work with alternative lenders whose rates will be slightly higher. There are local lenders and on-line lenders that provide services to meet the needs of start-up ventures. Pay day lenders with double digit interest rates should be avoided.

Always try to clarify whether you are working with a lending source or a broker representing the lender.

If a broker is willing to expedite the process and will be compensated for a successful placement, this option should be investigated. The credentials of an unknown resource should be verified before releasing any confidential information.

Next page- Steps 3 and 4

Marj Weber
Marj Weber
Marjorie Weber has been educating entrepreneurs and guiding them in their search for capital for the past 20 years: combining financial literacy workshops with one-on-one mentoring. Marj is currently President of Primed 2 Grow Inc. a company that provides access to capital for both existing and start up enterprises. She has provided term loans and working capital to hundreds of small business in South Florida. She was Chair of SCORE Miami Dade from 2010 to 2014 and served as a financial advisor for SBDC/FIU from 2014 to 2017. She also served as an advisor to the Goldman Sachs 10,000 Small Business Program and the SBA Emerging Leaders Program and provides training for Veterans seeking an entrepreneurial path upon retirement from the service. She has facilitated workshops under the auspices of Miami Bayside Foundation, Little Haiti Cultural Center and several local banks. She commenced her career as a real estate investment banker in New York.

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