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Taking out a loan for your business has many advantages. Whether it allows you to secure a mortgage, have credit on hand or simply cover unexpected expenses, it can really make things run smoothly. The process can be simple, too—particularly if you’re getting started with these helpful tips.

As a business banking expert with U.S. Bank who specializes in lending, a central part of Jay Nelson’s job is to help small business owners determine and secure the best type of loan for their needs.

Below, he shares five strategies for making the process as effective and seamless as possible. 

1. Ask your bank about lending options.

Small businesses (even the newer ones) have a variety of lending options available to them, Nelson says. They might choose to apply for a regular business loan, which operates like a consumer loan, but for business expenses. This option can be a good fit for a business looking to purchase physical assets, such as equipment or office supplies. An SBA loan is a great option to consider if your business has been up and running for less than two years and you don’t have sufficient credit history.

For short-term borrowing needs – meaning you have a plan to repay the amount within 12 months or less – Nelson often recommends applying for a line of credit. A major benefit is that it’s open-ended, he says. You can open a line of credit for your business, pay it off, and then open it again, keeping the cycle going “as long as you need to during the draw period.” 

Applying for a business credit card often makes sense for smaller purchases, such as travel and everyday expenses. “Credit cards do serve a purpose, even though the interest rates may be higher than those for a loan or a line of credit,” Nelson says. 

For new businesses without credit history, traditional bank financing may not be an option. In certain cases, Nelson recommends owners apply for personal loans, transitioning them over to business loans once their company has established itself. 

2. Be clear about how you’ll spend the money and repay it.

Choosing the right loan will depend on a few different factors. Consider what you plan to spend the money on, when you anticipate you’ll be able to pay it back, and whether the expense is recurring or a one-time purchase. Nelson often recommends taking out multiple forms of loans to meet specific needs, such as taking out a long-term real estate loan to rent office space in addition to opening a line of credit to handle recurring expenses.

3. Gather all necessary financial information.

Your business’ financial information will be necessary for your banker to approve a loan. This includes tax returns – potentially going a few years back, depending on the size of the request. Your banker will also want to see internally prepared financial documents to make sure the information aligns with what’s stated on the tax returns. 

Be prepared to share your personal financial documents as well, including personal tax returns and financial statements. The bank will be on the lookout for “any debts owners have that could have a bearing on the business loan itself,” Nelson says. 

It’s a myth that securing a business loan requires perfect credit. “There’s a big range,” Nelson says. Good credit is preferable of course, but “there might be mitigating factors that a bank looks at and says, ‘we still want to get this business the money it needs to grow.’” Check out these tips to establish your business’s credit score.

4. Consider applying when things are going well.

Nelson often hears from owners who haven’t considered taking out a loan because things are going well, when there’s actually an opportunity to be had. “There’s another way to look at it,” he says. 

It’s often a good idea to apply for a loan proactively when things are steady and business is growing. Not only will the application process be easier, but it provides a financial buffer in the event that any unexpected challenges arise. To make sure things go smoothly, make sure you’re informed about these loan requirements. Waiting to apply until that actually happens can make it more difficult to secure a loan when you need one the most. “When things are going well, that’s really the time to apply for a line of credit,” Nelson says.

5. Maintain a strong relationship with your banker.

Nelson views his job as understanding clients’ stories and communicating them to the underwriter. “Think of your banker as a business partner or valued advisor,” he says. “Let them know what is happening on a regular basis.” A good banker will ensure lines of communication remain open. “Make sure you stay in touch with your banker, so that when you are ready to start a loan application there isn’t a lot of catch-up that has to happen,” Nelson says. 

Nelson likes to tell his customers that, at minimum, they’ll hear from him every three months. If they’re going through a transitional period and need more frequent contact, he urges them to let him know. He’s there to help. Bottom line: “Having a good relationship with your banker is going to make it a lot easier to go out there and acquire credit from the bank.”

Still deciding if taking out a loan is right for your business?  Answer these questions to help you decide.


Editor’s note: This article was written by our partners at U.S. Bank.

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

Credit products are offered by U.S. Bank National Association. Equal Housing Lender. Deposit products are offered by U.S. Bank National Association. Member FDIC.

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