Everything you need to know about getting a small business loan

Whether you’re launching a business or expanding one, having a strategy for getting financing when you need it is extremely important. Your business is your baby. The right kind of financing can reduce struggle and contribute to growth.

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Benefits of business loans

There are many ways to fund your business, from credit cards, savings accounts, and personal loans to venture capital and crowdfunding. However, a tried-and-true source of funding is a business loan from your local bank. Here are a few of the advantages of bank business loans:


Business loans generally offer more affordable financing options, especially when compared to credit cards or higher-interest venture capital. 


You can use bank term loans and lines of credit for any business-related expense.  Other types of financing, such as venture capital, may come with rules for how you can spend the money.


Community banks, like Fremont Bank, are particularly useful because of their local knowledge and expertise. They know your neighborhood because chances are they live there. They value the relationships they have with their clients and can tailor a loan to your business goals and qualifications. 


With a bank loan, you remain in control of your business. That is not necessarily the case with other types of financing. For example, in exchange for providing funding, a venture capitalist generally requires a percentage of the equity in a company. 

Which business loan is right for you?

Business loans are not one size fits all. Banks design each type of loan to meet specific needs and business challenges. Are you trying to get your business off the ground? Want to purchase a franchise? Ready to remodel or upgrade your equipment? There are loans to match your requirements at any stage of business development. The following are a few of the options.


Best for: Small business owners who want predictable monthly payments

With a business term loan, you borrow a lump sum and pay it back in installments over a set term. It’s a great solution if you need a higher loan amount and like the predictability of consistent monthly payments.

When it comes to interest rates, term loans are typically some of the most affordable types of business loans. You can use term loans for a variety of reasons, from purchasing inventory and equipment to debt refinancing. 


Best for: Small business owners who want to borrow from a revolving line of credit

A business line of credit is a very flexible financing solution. Think of it as a financial safety net delivered through a predetermined revolving line of credit. Unlike borrowing a lump sum, you can tap into your accessible funds if and when you need them. You’ll pay interest only on the money you use. 

A business line of credit can improve cash flow and close short-term gaps in your cash cycle. It’s a popular choice for businesses that have seasonal working capital or inventory management needs. 


Best for: First-time business borrowers

SBA loans are bank loans that are partially guaranteed by the Small Business Association. Because these loans are considered less risky for the bank, they have easier loan qualifications and lower down payment requirements than traditional term loans. They also feature competitive interest rates and flexible terms. 

You can use an SBA loan to start or expand a business, for working capital, to purchase inventory and equipment, real estate, and for a variety of other business purposes. 


Best for: Business owners who want to expand, relocate, or refinance debt 

Want to buy a new facility? Relocate your business? Leverage equity to renovate your existing property? A real estate loan can help you purchase, build, or refinance a commercial property, such as an office building, warehouse, or industrial or retail space.

Commercial real estate loans are available with fixed and variable rate options and flexible terms. 

How to get a business loan: Step-by-step

Applying for a business loan doesn’t have to be daunting. Being prepared is the best way to minimize roadblocks and improve your chances of getting approved quickly. Take time to understand the types of loans available, the eligibility requirements, and what is involved in the loan application process. Here are the steps to take when applying for a business loan. 

  1. Determine how much money you need. What is your goal? Crunch the numbers and figure out how much you’ll need to borrow. 
  2. Learn how banks determine creditworthiness. Banks want to be confident you will be able to repay your loan. They will typically look at your credit score, cash flow, collateral, and debts. Banks have stringent requirements. Carefully review the loan qualification criteria.
  3. Evaluate the different business loan options and select the one that best fits your needs. Do you need a term loan, or is a line of credit a better choice? Do you think you may qualify for an SBA loan?
  4. Compare business loan terms, rates, and lenders. If you’re ready to take the next step, start shopping around to find the potential lender you’d like to work with. You can begin with your bank, but don’t rule out other lenders. Factors to consider when comparing lenders and loans include the loan term, interest rate, fees, penalties, time to close, and how the loan payments will fit your overall budget. 
  5. Gather your required paperwork and documentation. Lenders will ask you for quite a few financial and legal documents during the loan application process. Gathering paperwork is never much fun, but having the documents before starting your application can make it easier. We’ve listed some of what you’ll need below.
  6. Apply for a business loan. Many lenders have online applications or, if you are applying for a business loan at a local bank, you can visit a branch and speak with someone in person. 

How to know if you qualify for a business loan

While each type of business loan has specific qualification criteria, most loans will require the following: 

  • Strong personal and business credit scores
  • Strong business financials
  • Solid business plan
  • Ample collateral (i.e., equipment, real estate, inventory, or accounts receivable)

What documents do you need to apply for a business loan?

The documents required for your business loan may vary depending on the lender and the type of loan, but typically include:

  • Bank statements
  • Business credit report
  • Tax returns
  • Proof of business registration
  • Accounts receivable and accounts payable aging reports
  • Proof of collateral
  • Business plan 
  • Information regarding your legal structure
  • Required business licenses and permits

More about Fremont Bank’s lending offerings

Even with the most promising ideas, it takes money to establish and build a successful business. But don’t let lack of capital stand between you and your dream. Fremont Bank is here to help. We have over 50 years of lending experience as the Bay Area’s only independent, locally owned full-service bank. Our comprehensive business loan options feature competitive rates and are designed to support your short- and long-term growth.