How to Get a Small Business Loan in 2021
Updated: Jan 10
It’s time for your business to grow, but do you have the capital you need to get started? If you’re considering getting a small business loan, but don’t know where to start, check out this blog post for a rundown of the kinds of loans out there and the process of applying and receiving a loan.
For more information on small business loans, check out our Ultimate Guide to Getting a Small Business Loan in 2021, which has all the details on loans you can imagine!
Getting a small business loan (and growing your business) doesn’t have to be scary
While looking into loans can be a bit intimidating, it’s a natural part of growing your business. With a Honeycomb Credit crowdfunded small business loan, you can be assured that the process of getting a loan will be smooth and will benefit your company beyond just the capital acquired.
To learn more about Honeycomb crowdfunded small business loans, check out www.honeycombcredit.com/grow and fill the form below out for more information!
Decide on the kind (or kinds) of loan you want to pursue
The first step in getting a small business loan is to decide what kind of loan you want to pursue. Different kinds of loans will have different terms, and some may be easier for your business to get than others.
For starters, getting a loan from a bank might be difficult for your small business for a number of reasons. If you’re just starting out, don’t want to put up collateral for a loan, or are in a “risky” business such as restaurants, good luck getting a bank loan.
Some small businesses choose to go all the way with just one kind of loan, while others use a combination of kinds of loans to reach their goals. For example, Western Reserve Distillers raised $100,000 with Honeycomb, and used that in conjunction with an SBA loan to fund their growth.
Here are some of the common kinds of small business loans you can check out and consider:
Probably the most traditional route, a bank loan is a great option for already established businesses who are wanting to raise large amounts of capital. If you’ve got a big project planned, like opening up or building a new location, or maybe dramatically expanding your distribution, a bank loan might be a good option.
To get one of these loans, you can go directly to a bank and work with their loan officers. You can also go through the Small Business Administration (SBA), who can set you up with a bank looking to lend to a business like yours.
However, as we mentioned before, bank loans are becoming increasingly more difficult for small businesses to access. Approval rates from banks have plummeted in recent years, and are virtually impossible to get for businesses that have been around for less than 2 years.
If you’re looking for just a small loan, a microloan might be a good option for you. The SBA defines a microloan as anything smaller than $50,000, and you can find loans as small as $1,000 to $10,000 through organizations like Kiva.
A microloan is great for small businesses just starting out or just needing a small amount of capital, like for a new piece of equipment or for working capital. However, it is a small amount of capital, albeit it is more accessible than a bank loan might be. Plus, if you go for a microloan, you’ll be able to use it as a step to building up credit to take on a loan of a larger amount down the line.
Crowdfunded Small Business Loan
Crowdfunding is a great option to access a small business loan from your greatest resource: your friends, family, and most loyal customers.
Honeycomb offers crowdfunded small business loans from $15,000 to $500,000+ to businesses from landscapers to breweries and food trucks! You might be familiar with crowdfunding if you’ve ever checked out a Kickstarter campaign or contributed to a GoFundMe, but this is different because instead of just receiving a “thank you,” people who invest in your campaign will receive principal plus interest.
These loans have a multitude of perks beyond just raising cash for your business: you can also use it as a growth tool to strengthen your customer relationships, build marketing buzz, and even increase your revenue.
Online Lenders (a.k.a. Merchant Cash Advances)
If you’ve ever input “small business loans” into Google, you may have had lenders like Square Capital, OnDeck, or Kabbage pop up first. These are lenders who offer what’s known as merchant cash advances, and as a small business owner, you need to be very careful with these.
Essentially, merchant cash advances are fast cash for small businesses. They can get money to you in a flash, but they’re attached to extremely high interest rates - sometimes as much as 94% or more!
Others function by taking off a percentage of your credit card sales - like Square Capital. This takes away your control over how to pay back your loan, and it can make you susceptible to fees if your sales don’t meet their quota.
Many small businesses have taken to online lenders like these as a result of the coronavirus pandemic. With economic shutdowns, disrupted supply chains, and so on, these were often the quickest and only option for some small businesses to stay afloat!
However, businesses shouldn’t be wrecked with high-interest debt, which is why Honeycomb refinances online lender and credit card debt through crowdfunding, as a way of giving businesses a bit of breathing room and a chance to pay back debt to their community instead of a big lender.
Have a solid plan for the uses of your small business loan
Just like if you were about to go into a room full of investors, you need to have a solid business plan if you’re seeking out a small business loan.
A business plan for a loan is going to consist of who you are and what your business is, what the current landscape looks like for your business in your area, and a very detailed description of what your plan for the loan is.
The more detail the better! If you want to purchase a food truck, it’s a good idea to have researched the exact truck you want, and what you’re going to need to outfit it for your business’s needs. Or, if you’re building out your retail space, having a mock-up or blueprint of your plans for the space might be helpful to show what you’re envisioning and how much it’s going to cost.
Get your documents in order for a small business loan
On top of your business plan, you’re going to need a few documents for the process. These are for the lender to vet your business and see if you’re in good enough financial standing to qualify for their loan.
Most often, you’re going to need these documents:
Personal background and financial information
Business financial statements
Profit and Loss statements
Your (and your partners’) resumes