Steps to a Small Business Loan: Collateral, Comparisons, Application

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In part one of this two-part blog series, we went over some basics on the steps involved in obtaining a small business loan. Whether you’re going for an SBA loan or some other type of small business loan, following the right basic plan will ensure you cover all the important details and receive the financing you need without any hassle or additional hurdles. 

At Michigan Certified Development Corporation, we’re proud to offer SBA loans and with the years of experience of our staff, be able to advise on other loan options for small businesses and their owners. What are the further steps you’ll need to follow to ensure you’ve covered all your bases while applying for such a loan? Here are several.

steps small business loan application

Will the Loan Be Collateralized?

Most small business lenders look to collateralize the loans as much as possible. If your business owns assets, such as real estate, equipment, inventory or accounts receivable, you should expect to pledge those assets as collateral for the loan. In some instances, loans will be secured by only one form of collateral, real estate as an example. However, other collateralized loans may file a lien on “all business assets” which includes equipment, inventory and accounts receivable. Are you prepared to put up collateral for your loan?

There are also forms of unsecured loans where no collateral will be necessary. However, if you do put up collateral, you’ll typically have a higher ceiling in terms of the amount you can borrow.

Personal guaranties are expected on any small business loan and a requirement of any 20% or greater owner to receive an SBA loan. Understand most lenders are not willing to lend to a company the owner is not fully vested in, including offering a personal guaranty, most times unsecured but possibly with a pledge of personal assets if some are available.

Compare Lenders

Once you know precisely which form of loan you want, including whether you’ll be utilizing collateral, it’s time to begin comparing small business loan lenders to get the very best option. There are three primary forms of small business lenders, some of which may cross over between one or two, and each of which come with their own sets of pros and cons:

  • Online lenders: By utilizing an online lender, you typically get the quickest turnaround time while getting your loan. However, this can come with some downsides in terms of customer service and other factors. These lenders may have higher Annual Percentage Rates (APRs) than other loan types, as well.
  • Bank lenders: For those with strong credit and a solid, established business history, applying for an SBA or bank loan can be a great option. While it may take longer to receive your loan than with an online lender, the wait will typically be worth it in terms of customer service and other factors you’ll find much more beneficial long-term, including, in the case of an SBA loan, a cap on the interest rate being charged.
  • Microlenders: This term refers to nonprofit organizations that sometimes make short-term loans of up to $50,000 to certain businesses. Some borrowers may even qualify for loans of up to $100,000. However, these usually have shorter repayment periods and higher interest rates than other loan types.

Gather Documents and Apply

And once you’ve determined which sort of lender you’ll be applying with, it’s time to begin gathering documents and preparing your application. If you’re going for an SBA loan, you’ll find a neat checklist on the U.S. Small Business Administration website that can help ensure you have all the necessary paperwork in order before submitting your official application.

And with online lenders and banks, you’ll typically find that the vast majority of documents are already prepared for you. All you may need to do is gather some information, sign certain forms, and submit your application within a given timeframe.

For more on the process of applying for a small business loan, or to learn about any of our SBA loans or other programs, speak to the staff at Michigan Certified Development Corporation today.