6 Steps to Take Before You Apply for a Small Business Loan
Building a successful service business isn’t just about working hard and developing great relationships with your clients. You also have to have money to fund your growth so that you can reach your full potential.
If you’re like many home service providers, you may not be able to bankroll your company’s expansion on your own. And most traditional loans are difficult to get approved for.
But don’t lose hope. There are other options available to you.
Small business loans and grants are a great way to take your service business to the next level without having to drain your personal resources.
Here are some of the steps you should take before you apply for a small business loan to improve your chances of getting the cash you need to grow your home service business.
Plus, learn about small business grants that you don’t have to pay back at all.
Disclaimer: This content is for informational purposes only. Readers should consult with their legal or financial advisors before making decisions that could affect their business.
Step 1: Decide what you need the small business loan for
Lenders want to know how their money is going to be used and whether they’re likely to see a return on investment. Before you approach a bank or the small business administration (SBA) for a loan, you should know:
- What you need the loan for (be specific)
- How much money you need
- How long it will take you to make it back
Have as many details as possible and back up your request with numbers. For example, if you want a loan to buy an additional vehicle and brand your entire fleet, include numbers for how much it will cost, what your projected growth looks like, and when you expect it to become profitable.
Get quotes for each potential cost, use financial statements demonstrating growth from similar efforts, and calculate your predictions for growth, including best- and worst-case scenarios.
If you aren’t sure what you need or where to find these numbers, work with your accountant or visit your local small business association to get some guidance. Having a clear and realistic goal backed by a strategic plan for growth will increase your chances of getting approved.
Step 2: Review different small business loan lenders
There are a variety of different lenders out there, from commercial banks and credit unions to the SBA and crowdfunding sites. Which one you should approach first depends on what you do and how much you need.
Before choosing a lender, take a look at:
- The types of small business loans that they offer
- What their approval requirements and processes are
- Their interest rates and loan terms
- What they require in return (for example, acceptable collateral)
- Whether there are application fees
- What the restrictions are (like if you can use it to pay off debt or not)
Pay special attention to the application process and requirements. Some lenders will be document-heavy while others will have a more streamlined, digital procedure.
You can also explore grants like Jobber Grants, which don’t have to be repaid at all.
Although grants can be more competitive than loans, the application process tends to be more lenient, which makes it easier for small business owners and home service providers to qualify.
Step 3: Create (or update) your business plan
Regardless of whether your business is new or you’ve been around for a few years, small business loan lenders will likely ask to see your business plan.
A business plan is a document that you use to outline the financial and operational aspects of your business, as well as its viability, including industry competitors and risks. It helps lenders to understand what your business is and how you plan to grow it in the future.
A typical business plan includes the following information:
- Company details, such as the structure (sole proprietorship, partnership. etc.)
- What services you provide and who your target market is
- How much each of your services costs
- What your marketing and advertising strategy is, including budget
- Who your local competitors are
- A SWOT analysis (strengths, weaknesses, opportunities, threats)
- Operational details, like how your business runs day-to-day
- Staff details, like number of workers and whether they’re employees or contractors
- Financial records, like annual expenses, revenue, etc.
The more information you have in your business plan, the easier it is for lenders to understand how you will use a loan to expand and improve your business.
Spend time doing your research for each section so that you’re well-informed and ready to impress lenders.
Step 4: Gather your service business’s financial information
On top of the information you include in your business plan, you may also need more detailed financial material, such as:
- A valuation
- A business credit report
- Year-over-year financial statements and history
- Profit and loss statements
- A business forecast for 1, 3, and 5 years into the future
- Tax returns from previous years
Keep in mind that any projections you make should be based on accurate and realistic estimations.
Use numbers from previous years to inform your predictions and make sure that you understand them well enough to explain why you need a loan and how it will help you to grow.
Step 5: Work with your local SBA
The SBA exists to help small business owners and entrepreneurs to succeed.
Connect with your local SBA branch to talk to experts, mentors, and counselors who can help you to learn about the different types of loans you may qualify for and how to improve your application.
They’ll be able to walk you through the various options available to you, such as the different types of loans and grants you may qualify for, as well as help you to draft or review your application.
Step 6: Apply for a small business loan
Getting a business loan can be hard, but it can take your service business to the next level.
Once you’ve put your paperwork together, chosen a lender, and had your application reviewed by an expert, it’s time to apply.
If you get approved, congratulations! But if not, continue to explore your options through grants, crowdfunding, and other lenders. Remember, there are always other avenues to explore.
Originally published in June 2016. Last updated on April 21, 2021.