How to Access Loans & Alternative Business Funding in 5 Steps

January 2022

Are you a small business owner surfing through the current economic tsunami or just need that working capital to expand operations, equipment purchases, or finance inventory? Have you considered a small business loan or financing but are too confused to make the first move?

We completely understand your uncertainty. In fact, you may have countless doubts about how small business loans and financing works. Therefore, we decided to take some time to dig into some requirements that you’ll need to consider when looking for loans and alternative funding options. Check them out and get moving, your business is waiting on you!

How to Apply for Business Funding in 5 Steps:

1. Check what type of small business funding is right for your business.

As a business owner and entrepreneur, getting the right business funding for a startup and old businesses is a serious concern. We’ll explore some common types of funding that business owners use to access to working capital.

Short-Term Business Loans (or installment loans).

These traditionally structured bank or credit union loans provide a specific amount of money at a fixed or variable interest rate for a set period. They typically come with favorable conditions, but their requirements are strict.

The Small Business Administration (SBA) 7 (a) Loan Guarantee Program.

The Small Business Administration (SBA) guarantees types of 7(a) loans, paying up to 85% of the loan if you default. These work through SBA-approved intermediary lenders, possibly a bank or credit union. For most programs, a strong personal credit score is required. They also have a lengthy application process, and funding can take several months.

Lines of credit.

People with a strong credit history may qualify for an unsecured line of credit. Secured lines of credit are also available, but you will likely need to put down collateral that’s worth at least as much as the loan you hope to secure.

Personal loans.

A personal loan, as its name implies is a personal transaction against your very name, completely irrelevant to your business. Getting a personal loan means you won’t need to submit a detailed business plan. Also, this typically means that you won’t be able to get as much money as you would if you applied for a business loan or other alternative funding options. And if you can’t pay the loan back by the agreed terms, your credit score will be damaged. You have the option of acquiring it through a bank, a credit union, or an online lender.

What are the alternative sources of funding for a business?

Alternative business funding sources are fast and reliable when it comes to access to working capital. Alternative funders offer products specifically designed to meet even the smallest business’ needs. Business owners don’t need perfect credit scores to qualify for this type of funding. Instead, funders will look at their business potential for growth.

An option in this type of flexible funding option is a merchant cash advance. Merchant cash advances adapt to how much revenue a business makes. In other words, an MCA is an advance against a business’s expected future revenue. Learn more about how it works and the minimum qualification requirements!

2. Develop a strong business plan for you and your funders.

Most funders will want to know how you plan to use the money and make sure that you have a strong ability to repay. Building a strong business plan will give funders more confidence in your business.

Also, if you determine how to invest in your business growth effectively, you will be able to decide how much you need and most importantly, how much you can afford to borrow. Your plan should include the most current and projected financials to clearly demonstrate that your business will have enough cash flow to cover ongoing expenses and payments.

We recommend that your plan includes: a brief description of your company, service, and product; a market or industry analysis; facilities and operations plan; marketing and sales strategy. Last, but not least a SWOT (strengths, weaknesses, opportunities, threats) analysis could also shed some light on where you are right now and how you'll get there. Get more insight about business financial planning!

Learn more about "6 Ways to Kickstart Your Business This 2022"!

3. Determine your chances of getting approved.

Before you apply for funding, it’s important to understand how funders will evaluate your application. They might look at your personal credit score and history, cash flow, time in business, collateral, industry, and loyalty.

Filter your initial applications and only apply to those where you are most likely to find success. SBA loans, for example, ask for you to be current on all government loans with no past defaults. This means that if you’ve ever been late on a federal student loan or a government-backed mortgage, you’ll be disqualified. Both the SBA and bank loan qualification process will require a hard inquiry on your credit report. So, save your visit to the bank if your credit score is less than 700 and forget about SBA loans if your personal credit score is below 640.

4. Prepare your documents.

Depending on the type of small business funding you’re applying for, paperwork requirements vary. At the bare minimum, you will be required to show the lender that you have the means to pay back.

When dealing with bank or union credit, you should expect to provide balance sheets, profit and loss statements, both personal and business credit reports and income tax returns, bank statements, business licenses, franchise agreements, and in some cases, quotes from contractors and vendors.

Banks typically want to see three to five years of your personal income tax returns, and potentially your business returns as well. You’ll need to create (or, much better, have your accountant create) monthly or quarterly financial projections for the next year, then quarterly and/or yearly projections for the term of the loan. And you’ll need to provide your personal and business bank statements for the past 12 months.

The bank may want to see your business licenses and registration, insurance, leases, articles of incorporation, third-party contracts (with suppliers, or customers), franchise agreements, and similar information.

You will also need to bring proof of collateral, showing that you own the assets you will pledge as security for repaying the loan. Documentation could include titles, contracts, deeds, and receipts. The bank may also ask for valuation proof, such as insurance coverage.

Alternative funding options like Merchant Cash Advances typically ask for fewer requirements. If you opt for one of One Park Financials’ funding programs you can complete the whole process online. Also, they’ll work with businesses that have been open for three months or more and that generate $7,500 in revenue.

5. Apply

Congrats! You’ve taken the time to get Business Loans & Alternative Funding Options straight. Now you’re finally ready to begin the application process. Depending on the lender and the type of loan you’ve selected, you may have to visit a financial institution or call the lender.

Access Small Business Funding Faster

Another excellent option for small business funding is alternative funders, which tend to be more focused on the future revenue potentials of your business as opposed to your past credit history. Alternative funding sources provide working capital and other forms of financing for small and medium-sized businesses whose owners need to access funds quickly and/or don’t qualify for more traditional business loans from a bank. Business owners don’t need to have perfect credit scores to be approved for funding.

An example of an alternative funding source is merchant cash advances- designed to meet the needs of smaller businesses. Once approved – you often can access the funding faster – in days rather than the month or more that it takes to access funds from a traditional bank loan. One Park Financial understands the challenges associated with traditional funding and small business owners’ needs for working capital. Check if you pre-qualify in only minutes and connect with a funding expert to discover the options that make sense for you and your business.