Getting a business loan can be a massive upgrade for your business. Having extra capital can allow you to hire more staff, buy more inventory or invest in exciting opporunities as your business grows.
Craig Veurink, business banking regional executive for U.S. Bank’s Midwest Region, has worked with commercial loans for decades – and predicts that this year will be a big one for small businesses.
“2025 is going to be a good year for loan demand on the small business side,” Veurink said. “We’re seeing business owners have a very positive outlook on the future.”
If you’re looking to get a business loan for your startup, or hoping that a loan will help you grow your existing business, here are some tips to help you get the funding you need.
Have your cash flow statement ready
The single biggest factor lenders look at in business loan applications is their cash flow, Veurink says. How much profit the business is making month to month, how much that profit will grow and the sustainability of that profit all factor into how likely the borrower is going to be to pay back their loan.
“Your ability to have cash flow is the utmost important piece for businesses to demonstrate,” Veurink says. “Banks want to know if they can manage cash appropriately, and have the right amount to come in to support the debt, and that they can maintain that over time. Cash flow is really king.”
Cash flow is more than what you have in the bank. Tracking how much you’re bringing in each month, and if you’re bringing in more than you’re spending overall, is an important part in determining the health and growth capabilities of your business, as well as your eligibility for a business loan. It’s a good idea to track your cash flow regularly, either on a monthly or quarterly basis. This allows you to adjust your spending and business strategy throughout the year, as well as track growth over time. Lenders will typically want to see several months’ worth of cash flow statements, so having the records in place is vital.
If your business is on the newer side, or if you’re looking to start a business and haven’t established a cash flow yet, there can be other ways to establish creditworthiness to business lenders.
Keep your personal credit score up
Lenders don’t just look at cash flow or your business credit score when reviewing your application. You may also have your personal credit score pulled in order to determine if you’re eligible for a business loan.
“Personal credit history is going to have a big impact,” Veurink says. “Having a good personal credit score is the baseline. If you don’t have that, you’re gonna have trouble getting a business loan just like you would have trouble getting a personal loan.”
Your personal credit score can tell lenders how you’ve handled debt in the past. A high credit score can indicate that you’ve made payments on time and keep a low revolving credit balance, while a low credit score may indicate that you’ve missed payments, declared bankruptcy, have fallen delinquent on previous loans, or that you lack credit history.
Be sure to review your credit history and see if your score needs improving before you apply for a business loan, so it can be of help – and not a hindrance – in getting approved.
There are a few ways you can boost your personal credit score, including making your payments on time, getting a credit-builder card or loan and reviewing your credit report for errors.
Have a detailed business plan
Business plans tell lenders how your business is structured, how you plan to make money, future plans for growth and other key factors in how your business operates. With nearly half (48 percent) of all businesses failing within the first year, lenders want to know they’re making a safe bet, and that the borrower has a solid, profitable business plan in place.
“Banks often find that people come in with ideas and haven’t really vetted whether the business can actually make money or not,” Veurink says. “I have found that if an individual doesn’t have the capacity or desire to build out a business plan, then they’re probably not fit to run a business or start a business either.”
Having a detailed business plan not only tells lenders how your business operates, but also how much thought you’ve put into your business idea and its execution. Doing your research and being thorough in your business plan demonstrates that you’re invested in making your business work.
“You could tell if someone just kind of threw numbers together that morning just to make it look good, from the ones that have really grinded through the process and did the research on which vendors they would use, the goods they were going to use, the labor costs, that level of detail,” Veurink said. “It separates them completely from someone that just has guesses.”
A good business plan doesn’t have to be complicated. Generally, it should include:
- A summary of your business and what it does
- An overview of your business model (in other words, how you make money)
- Market, customer base and product research and experience
- Your financials, including cashflow statement and profit and loss statements
- Income projections
- How you plan to pay back the loan
There are free resources available through the Small Business Association (SBA) and other government and non-profit organizations that offer guidance and templates for writing out a business plan.
Show off your expertise
Having experience in the industry that you’re starting a business can give you an edge when applying for a loan. Having that familiarity can be an indicator for running a successful business, as you already have an idea of the competition, the overhead, the general business model and other factors.
“It’s usually not a great idea if someone’s been in finance their whole life to go start a bakery or vice versa,” Veurink says.
You don’t have to run a business before to show off your experience. If, for example, you’re planning to open a bakery, the experience of working at a bakery can help you learn about day-to-day operations, essential equipment, customer expectations and other critical information points for running a bakery business. This demonstrates pre-existing industry knowledge.
Communicating this to lenders in your business plan tells them that you know what you’re getting into with your business, and that you have a solid foundation of industry knowledge that will help you as you operate – without needing to start from scratch.
Consider an SBA loan
Loans guaranteed by the Small Business Administration (SBA) offers generous terms that can help businesses just starting out. Conventional loans typically require a certain amount of cash flow or have higher approval standards. SBA loans, on the other hand, are backed by the government, which can make it easier for new businesses to get approved.
“It really allows us to give solutions to customers that normally maybe couldn’t get that financing,” Veurink says. “An SBA guarantee loan is almost like the next step in line for businesses from a risk model – and after that, they can get a traditional loan with the bank.”
There are several options for SBA loans depending on your business type, the funding needed and other factors. SBA loans tend to have different requirements than conventional loans such as restrictions on what the funding is used for and additional documentation. They also take longer to get approved than conventional loans and have a high denial rate.
However, an SBA loan can be a viable option for business owners who are still in the startup stage, or who are having trouble getting approved for conventional loans.
You can apply for an SBA through a participating lender, which you can find through the SBA’s matching tool.
If at first you don’t succeed, get feedback
Loan approvals don’t always work out. If you’re rejected for a loan, don’t be afraid to ask your lender why – and what you can do to improve your chances next time.
“What we often do is we don’t say no – we say, no, but here’s why. We lay out for them what they need to get to be approvable,” Veurink says. “We’ll demonstrate where their shortfalls are and then show them what they need to correct or change or modify to come back and make themselves credible.”
Lenders generally want to maintain a good relationship with you, especially if they believe your business has potential. Some lenders may direct you to other funding sources, such as an SBA loan, or help connect you to educational resources to help you write out a business plan, improve your credit score or learn more about running a business.
Seeking feedback from your lender can also help you determine how willing they are to work with you on your loan, helping you build a good customer relationship moving forward.
Beware of easy, high-interest loans
If you get rejected for a loan, you may be tempted to hop online and apply for the first low-credit startup loan you see in order to fund your business. This, however, can be a huge pitfall.
“Just because you can get money as a business doesn’t necessarily mean you should take it,” Veurink warns.
Beware of online loans that come with easy approval, or that don’t ask for a business plan or credit score. They can often come with high interest rates and repayments.
Not only can they land you with a high monthly payment, but they can also give you a false sense of security with how viable your business is. Lenders look at how viable your business model is when they approve you for a loan.
Having your application rejected can hurt, but it can also tell you that there’s a flaw in your business model – to the point where lenders feel it’s too risky to let you borrow. Instead, start small and focus on increasing your cash flow and see where you can improve your business plan.
Bonus tip: Start with a side hustle
Side hustles can be a great way to get a business idea off the ground with less risk. Having a guaranteed income makes you less risky to lenders, and you can take the time to experiment and adapt your business plan and establish cash flow without the pressure to make a profit immediately.
“It’s a great way to give a good idea a chance to evolve without taking all the risk,” Verulink says.
Once you’re ready to upgrade your side hustle into a full-time business, you can use the profit history and customer base to make a case to your lender and start off on the right foot with your enterprise.
Read the full article here
