Getting a loan to finance your new business can be a challenge due to the criteria banks use to determine if you are eligible. If you are thinking about starting a new business, or have already started and are looking for more capital to help you grow, here are some things you should consider.

What Can Prevent You from Getting a Loan

First and foremost is your credit history. Just like any other loan, a bank is going to look at your credit history to make sure that you don’t have any discrepancies and that you have previously proven to be a responsible borrower. If for some reason you do have poor credit, you may want to consider alternative financing options such as online lending or finding venture capitalists.

If you have great credit, then you should make sure that your business is producing enough cash flow to pay back the loan. Moreover, if you have not been in business for a year yet, this may deter banks from giving you a loan. Other things you should do before you apply is nail down your business plan, have all necessary documentation on hand, and seek professional advice to help you prepare. All of these things will increase your chances of getting a loan and will also make sure you don’t bite off more than you can chew.

Different Types of Loans

Once you have qualified for a loan, you will need to figure out which loan will be best for your business. Here are some options:

Small Business Line of Credit: greater flexibility to access funds and allows you to have a little cushion to handle any unexpected expenses.

SBA Small Business Loan: low interest rate loans that are backed by the U.S. Small Business Administration.

Equipment Loans: Typically requires a down payment of 20% of the cost of the equipment you need.

Working Capital Loans: Used to finance the daily operations of a business. Great if your industry is seasonal that way you can make it through the periods of time when business is slow.

Determining what loan is right for you starts with identifying your business needs. Figure out why you need the loan and how it will contribute to your business. After you have selected the loan you are going to apply for, your next step is to get the necessary documentation together. If you are unsure what documents you will need, refer to this list constructed by the Small Business Administration.