Signing Loan

The Ultimate Guide to Applying for a Business Loan

Learn more about what steps to take to apply for a business loan.

Does your business need an infusion of cash to help it grow? A business loan can provide you with the resources your business needs and offer an affordable payback plan. 

Here’s all you need to know about applying for a business loan: 

1. Check your credit 

Before you apply, check your personal and business credit health. 

Personal credit scores range from 300-850. A score that falls in a range of 580-669 is fair, 670-739 is good, 740-799 is very good and 800-850 is exceptional. 

Business credit scores are measured differently. Experian uses Intelliscore Plus as its credit scoring model, with scores ranging from 1 to 100. Equifax assigns each business a payment index score, which ranges from 0 to 100; a credit risk score ranging from 100 to 992 and a business failure score ranging from 1,000 to 1,880. The D&B score, assigned by the Dun & Bradstreet Corporation ranges from 0 to 100. Finally, the FICO Small Business Scoring Service score ranges from 0 to 300. 

If your personal and/or business credit scores are low, work on improving your credit before applying for a loan. 

2. Update your business plan 

Be sure to have a comprehensive business plan to show a prospective lender. The plan should include details about how the company intends to use the funds, the anticipated increase in revenue and plans for repaying the loan. 

3. Consider arranging supplemental collateral 

Lenders prefer to reduce the risk of a borrower defaulting on a loan by securing collateral for the loan. For business loans, this usually takes the form of the company’s accounts receivable, equipment or other assets. 

When applying for a business loan, you can offer additional collateral to the lender, such as personal assets like real estate. This will make you more likely to qualify for the loan and may bring down the interest rate on your loan. 

4. Organize your personal and business documents 

You’ll need the following documents and identifying paperwork to apply for a business loan: 

∙ Photo ID 

∙ Accurate monthly financial statements from the past two years 

∙ Business license

∙ Any commercial leases 

∙ Business insurance plans 

∙ Payroll records 

∙ Incorporation documents 

∙ Current financial obligations 

∙ 3 months of bank statements 

∙ Personal and business tax returns 

∙ Collateral 

5. Research potential lenders 

It’s best to take some time researching potential lenders before applying for a loan. Learn about each lender’s eligibility criteria and the average interest rates on their loans.  

Consider applying for a business loan through a credit union. A credit union will offer you personalized service and a competitive interest rate. Learn more about Listerhill's business lending opportunities here

6. Submit your application 

You’re ready to apply for a loan! With luck, you’ll soon have the funds you need to take your business to the next level. 

Want to learn more about the products you need for managing and tracking business expenses? Click here

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Frequently Asked Questions

  • What does Interest-Only Mean?

    With an interest-only loan, you are only responsible for paying the interest on the amount you draw from the construction loan each month. 

    Here’s an example. 

    If you draw $15,000 in January, you pay 4.99% on $15,000

    If you draw an additional $25,000 in February, you pay 4.99% on $40,000 ($15K from January + $25K from February)

  • What is a Construction Loan?

    A home construction loan provides you with financing to build your dream home. 

    With terms up to 12 months, this short-term loan covers your costs, including land, contractor labor, building materials, and more, until your home receives an occupancy certificate.  

    Once your home is ready to move in, you will then secure a traditional home mortgage.

  • You might prefer an adjustable-rate mortgage over a fixed-rate mortgage if...

    • You plan to move before the introductory rate expires.
    • You want a lower payment during your initial payment period.
    • You think rates will drop in the future.
    • You are planning on relocating before the rate adjusts
    • You know you will be paying off the loan in a few years
    • You need to move fast and have limited time to secure a down payment
    • You do not qualify for a 30-year fixed-rate mortgage, but want a 30-year payment schedule
    • Your payment could decrease if the index against which your ARM is benchmarked drops
  • A 5/5 adjustable rate-mortgage is right for you if...

    A 30-year ARM with a fixed interest rate for the first five years, then fluctuating every five years. 

    A 5/5 ARM is best if you want to lock in a low rate over a longer period and maintain the same rate over an extended time. 

    With a 5/5 adjustable-rate mortgage, you can go 10 years with only one rate adjustment, whereas with other lenders, you could experience up to six rate changes in the same time period.

  • A 3/3 adjustable-rate mortgage is right for you if...

    A 30-year ARM with a fixed interest rate for the first three years, then fluctuating every three years

    A 3/3 ARM is best if you want to lock in the lowest rate, but over a shorter period and are okay with the rate fluctuating more often.