9 Entrepreneurial Skills Every Business Owner Should Have - How to Get a Small Business Loan: A Guide for The New Startup Entrepreneur

Wondering how to get a small business loan? Not every financial challenge that small businesses and startups face needs to be solved with a huge injection of cash. Sometimes, all it takes is a small business loan or even a microloan to get a small- or medium-sized enterprise (SME) or startup on its feet. 

Smaller loans can be especially beneficial for entrepreneurs considering starting a new business, as they provide access to financing without the stringent requirements or steep financial obligations of traditional bank loans.

If you can understand how to use and maximize the benefits of a small business loan, you may be able to effectively fuel your startup’s growth at a manageable pace and increase your overall chances of success. Here’s a guide on how a fledgling startup entrepreneur like you can make the best out of a smaller loan:  

How to Get a Small Business Loan

1. Do Your Research on Financial Institutions Offering Smaller Loans

Before applying for a smaller loan, it’s crucial for you to research and identify reputable financial institutions or alternative lenders that offer loans specifically tailored to small businesses and startup entrepreneurs.

Look for lenders with transparent lending practices, fair interest rates, and a track record of supporting startups and small businesses. 

The Philippines’ Maya Business, for instance, features a loan calculator specifically designed for its Flexi Loan program for businesses. Using this calculator prior to signing up for the said loan will give borrowers a better understanding of what the loan entails and allows them to carefully assess how the repayment process can impact their startup’s finances. 

2. Understand the Loan’s Terms and Conditions

The next step in learning how to get a small business loan, is to carefully review the terms and conditions of the loan. That includes the interest rate, repayment schedule, and any fees or penalties associated with it.

Some financial institutions may offer flexible repayment terms or grace periods for loan repayment, while others may require regular, fixed payments.

No matter how much money you intend to borrow, even if it’s a small amount, make sure you understand your obligations as a borrower and the total cost of borrowing before committing to the loan. 

3. Determine Your Financing Needs

You must also evaluate your startup’s financing needs and determine how much capital you require to launch or take your business to its next stage of growth. Consider factors such as start-up costs, operating expenses, inventory purchases, and marketing expenses when determining the loan amount needed. 

If you’re launching a retail startup business, for instance, you may need the loan funds to purchase inventory and secure a storefront.

A tech startup, on the other hand, may require investment in research and development. Money borrowed and allotted for the right purpose will likely bring the best returns. 

Also read: How to Launch a Clothing Brand: 7 Tips to Make It a Success

4. Develop a Business Plan That Includes Your Small Business Loan Obligations

Create a comprehensive business plan that outlines your business concept, target market, competitive analysis, marketing strategy, and financial projections, and include the particulars of your loan.

Let’s say that you’re seeking a small loan to launch a food truck business. In that case, your business plan should detail your menu offerings, pricing strategy, and target locations for operating, and you should have an idea of how much of your loan funds will go into each. 

If your loan program requires a detailed application, a well-developed business plan will help you secure financing and also serve as a continuing blueprint for your startup’s growth.  

5. Use the Loan for the Most Productive Purposes

The small business loan you’ve been approved for should be ideally used to fund essential expenses that will directly contribute to the growth and success of your business.

Invest in necessary resources such as equipment, inventory, marketing materials, or technology infrastructure that will help your startup operate more efficiently and effectively.

It’s important for you to put funds into endeavors that enhance the quality of your work and attract more clients.

6. Actively Monitor Your Cash Flow

If you want to know how to get a small business loan, it’s imperative to keep track of your business’s cash flow and expenses to ensure that you can meet your loan repayment obligations.

Even a small loan can balloon into a huge expense if you fail to meet your obligations and get penalized for it. 

To this end, you should implement sound financial management practices for even a small operating budget and monitor your business’s financial performance regularly. Make it your goal to identify any potential cash flow challenges and address them proactively.

You can use accounting software, for example, to track income and expenses, create cash flow forecasts to anticipate future financial needs, and adjust your spending and revenue generation strategies accordingly.

7. Build a Strong Credit History

Timely loan repayments are a requirement to build a positive credit history and strengthen your relationship with your lender. It makes sense, then, to set up automatic payments to ensure that you never miss a loan repayment deadline. 

You should also communicate proactively with the lender if you encounter any challenges or difficulties in making payments.

A strong credit history built on financial discipline will increase your credibility as a borrower and improve your chances of accessing additional financing in the future as your startup grows. 

8. Seek Support and Guidance

Take advantage of any support and guidance offered by the financial institution or alternative lender on how to manage your funds.

You can do this by attending workshops or seminars offered by the institution to learn about business management, marketing strategies, and financial planning for startups and SMEs, for example.

Business training programs, mentoring, or networking opportunities may also help you enhance your business skills as well as expand your professional network. 

9. Evaluate the Impact of Your Small Business Loan

Lastly, regularly evaluate the impact of the loan on your startup’s performance. Monitor key performance indicators (KPIs) such as your revenue growth, profitability, customer satisfaction, and market share after taking out the loan to assess its effectiveness in helping you achieve your business objectives.

Then, use this information to make better financial decisions and adjustments to your business strategy to maximize the impact of the loan on your business’s success.

While a small loan may seem less consequential and easier to manage than the loan products offered by traditional banks, they can be powerful tools for sparking growth when the money’s in the hands of startup entrepreneurs. Use the capital you get from your small business loan to launch or grow your ventures, invest in necessary resources, and build a strong foundation for a prosperous future.

Now you know how to get a small business loan. Ready to make the move?