To get off the ground, every small business requires financing. But sometimes it’s necessary to seek outside financing. Enter business loans.

When or if the time comes, we want you to be prepared with what is needed so that you can keep your cash flow, well, flowing. So here’s what you need to know:

If you need a loan, first ask yourself why? Is it to manage payroll? Day to day expenses? Growing your team? Once you have that question answered, then it’s all about knowing the criteria that banks and lenders look for when looking at loan applications.

Criteria

1. Good business credit history
2. Good personal credit history (lenders typically look for credit scores in the 700 to 800 range)
3. Have a legitimate business purpose for the loan (as silly as it sounds, don’t use the money for things such as gambling). Legitimate purposes include purchasing real estate for your business, new equipment, or investing in software or hardware relevant to your business
4. Debt to income ratio (debt payments should not exceed a third of your monthly income)
5. Previous cash flow reports (the higher your operating margin, the better)

Once you know you fit the criteria, be sure you’ve done enough analysis and research to understand the amount of money you need. Underestimate and you may run out of working capital sooner than you expected. Overestimate and you run the risk of having your application rejected. But the way to get things juuusst right? All it takes is putting together a budget that includes the most relevant financial projections. That way your credibility stays intact and you avoid any issues in obtaining your loan.

Now it’s time to figure out what type of loan is best for you.

Types of Loans

1. Short-term cash flow loan: ideal if your business needs a quick injection of cash to pay the day-to-day expenses
2. Line of credit: this works like a credit card; you borrow a certain amount of money but only repay the money that you actually use. A line of credit is good for covering payroll or if you need a safety net
3. Accounts receivable financing: this is the perfect solution to take care of any unpaid invoices
4. Term loan: your go-to if you are paying off fixed payments (e.g. a piece of equipment)

Have your loan picked out? Now what about your lender?

Types of Lenders

1. Commercial banks: no mystery here – traditional banks for traditional loans
2. Region specific lenders: these are banks and lenders whose goal is to improve the economy in various cities or states or industries
3. Nonbank lenders: faster and higher flexibility, these loans have a fixed rate for small businesses and charge simple interest
4. Alternative options: crowdsourcing or crowdfunding your projects or your business through sites such as IndieGoGo, Kickstarter, and GoFundMe

Once you have all of your ducks in a row, or as I should say, your paperwork in line, the last part of your loan application entails yours and any other business owner’s resumes plus your personal financial information as well as your tax returns over the previous 3 years. And then it’s as simple as sending your application over to your chosen lender and exhibiting a few weeks’ worth of patience. Most applications take up to 4 weeks to review, but if you go through the steps outlined above, you should be on your way to getting the best loan with the best terms possible.