 Starting or growing a business often requires more money than you have available in your bank account.
Maybe you need equipment. Maybe you're opening a storefront, purchasing inventory, hiring employees, or simply need working capital to keep your business moving forward. Whatever the reason, a business loan can provide the capital you need to start, operate, or grow your business, but getting a business loan isn't as simple as filling out an application and waiting for a check. Lenders want to understand your business, how much money you need, what you plan to do with it, and most importantly, how you will repay it. The good news is that you don't have to figure it all out on your own. Whether you're a new entrepreneur in Rochester or an established small-business owner in the Finger Lakes region, preparing before you approach a lender can make the process much easier. Continue reading to see what you should know before applying for a business loan. 1. Determine Why You Need the Money Before you start looking for a lender, be specific about why you need financing. Are you using the money to:
Knowing exactly what you need the money for will help you determine what type of financing may be appropriate. It can also help you determine how much you actually need to borrow. Asking for too little could leave you without enough money to complete your project, while borrowing more than you need could increase your costs and repayment burden. The U.S. Small Business Administration (SBA) recommends knowing both the amount of capital you need and how you plan to use the funds before approaching lenders. 2. Figure Out How Much You Need Once you know what you want to accomplish, put a number on it. Start by creating a detailed list of the costs associated with your project or business need. If you're purchasing equipment, for example, include the equipment, installation, delivery, and any other related expenses. If you're starting a business, revisit your startup-cost calculations and financial projections. You should also think about how the loan will affect your monthly cash flow. A lender will want to see that your business can reasonably afford the loan payments. The goal isn't simply to determine how much money you can borrow. It's to determine how much financing your business actually needs and can realistically repay. 3. Understand Your Financing Options There isn't one business loan that works for every business. The right type of financing depends on what you need the money for, how much you need, how quickly you need it, and your business's financial situation. Here are some of the financing options you may encounter: 1. Traditional Bank Loans A traditional business loan from a bank or credit union provides a lump sum of money that you repay over a set period of time, usually with interest. These loans can be useful for larger, planned expenses such as purchasing equipment, expanding your business, renovating a location, or making other long-term investments. Banks and credit unions may consider your business's financial health, credit history, cash flow, collateral, and ability to repay the loan when evaluating your application. Requirements and terms can vary between lenders, so it can be worthwhile to compare your options. 2. Business Lines of Credit A business line of credit gives you access to a set amount of money that you can draw from as needed, rather than receiving the entire amount as a lump sum. For example, if you're approved for a $25,000 line of credit, you could use $5,000 to cover an immediate business expense while keeping the remaining credit available for future needs. With a revolving line of credit, repaying what you've borrowed generally makes those funds available to use again, subject to the terms of the agreement. Lines of credit can be useful for managing short-term cash-flow needs, seasonal expenses, inventory purchases, or unexpected costs. Unlike a term loan, you generally pay interest on the amount you actually use rather than the entire credit limit. Keep in mind that a line of credit is still debt. Before opening one, make sure you understand the interest rate, fees, repayment requirements, and whether the rate can change. 3. Equipment Financing If you need to purchase equipment for your business, equipment financing may be an option. This type of financing is designed specifically for purchasing business-related equipment, such as machinery, vehicles, computers, commercial kitchen equipment, or other necessary assets. Equipment financing is different from a general-purpose business loan because the financing is tied to a specific purchase. In many cases, the equipment itself serves as collateral for the loan. This can provide the lender with additional security if the business is unable to repay the financing. Equipment financing may be worth considering when you know exactly what you need to purchase and can demonstrate how that equipment will contribute to your business. 4. SBA loans The SBA's 7(a) loan program is its primary business loan program. It can be used for a variety of purposes, including working capital, purchasing equipment, acquiring or improving real estate, purchasing inventory, starting a business, and certain debt refinancing. The maximum 7(a) loan amount is $5 million[1]. The SBA also offers the 504 loan program, which provides long-term, fixed-rate financing for major fixed assets such as buildings, land, and equipment. The maximum 504 loan amount is $5.5 million[2]. For smaller financing needs, the SBA Microloan program provides loans of up to $50,000 through approved intermediary lenders. Microloans can be used for expenses such as working capital, inventory, supplies, furniture, fixtures, machinery, and equipment[3]. The right financing option depends on your circumstances. A traditional loan may make sense for a large, planned investment, while a line of credit may be better suited to ongoing or short-term cash-flow needs. Equipment financing may make sense when you're purchasing a specific piece of equipment. You don't have to determine the right option by yourself. An SBDC advisor can help you understand the differences between financing options and prepare you to have an informed conversation with potential lenders. 4. Know What Lenders Will Look At When you apply for financing, the lender is trying to answer a basic question: Can this business repay the money it borrows? To make that determination, a lender may look at factors such as your personal and business credit history, revenue, cash flow, financial statements, business experience, existing debt, collateral, and business plan. The SBA's Lender Match guidance specifically recommends that prospective borrowers be prepared with a business plan, a clear understanding of the amount and use of funds, credit history, financial projections, and information about collateral[4]. If you're a new business without a long operating history, your personal financial history and the strength of your business plan may be particularly important. That's why it's worth preparing before you apply. 5. Prepare Your Business Plan and Financials Your business plan isn't just something you write when you're starting a business. It can also be an important part of a financing application. A lender needs to understand what your business does, who your customers are, how you make money, what your competition looks like, and how the loan will help your business. You'll also want to have realistic financial projections that show your expected revenue, expenses, cash flow, and ability to repay the loan. The more clearly you can explain your business and your numbers, the easier it is for a lender to evaluate your request. 6. Gather Your Documents Loan applications can require a significant amount of documentation. Depending on the lender and the type and size of loan you're requesting, you may need documents such as:
Every lender is different, so ask what documents you'll need before you begin the application. Getting your paperwork organized ahead of time can help prevent unnecessary delays. 7. Find the Right Lender Once you're prepared, it's time to find a lender. You don't necessarily have to start with the first bank you see. Different lenders may have different products, requirements, rates, fees, and appetites for different types of businesses. Consider talking with banks, credit unions, community lenders, and other financing organizations to find out what options may be available. If you're interested in SBA financing, the SBA's Lender Match tool can help connect businesses with participating lenders. 8. Explore New York State Financing Options A traditional bank loan isn't your only option. New York State's Empire State Development (ESD) offers several capital access programs designed to help small businesses access financing. For example, the Small Business Revolving Loan Fund provides loan capital to participating Community Development Financial Institutions (CDFIs), which then lend to eligible small businesses. The program is designed to help businesses that may have difficulty accessing traditional credit[5]. New York State also offers a Capital Access Program (CAP), which works with participating lenders to expand financing opportunities for eligible small businesses. Current ESD materials describe CAP as a program intended to help small businesses that have had difficulty securing financing for working capital, expansion, or upgrades[6]. Programs and eligibility requirements can change, so check the current information directly through Empire State Development before making a financing decision. 9. Apply for the Loan Once you've identified a lender and financing option, you'll submit your application and supporting documents. Be prepared to answer questions about your business, your finances, your credit history, the amount you're requesting, and how you plan to use the money. Remember that applying for a loan doesn't guarantee approval. The lender will evaluate your application based on its own requirements as well as the requirements of the particular loan program. 10. Compare the Terms If you receive multiple financing offers, don't automatically choose the one with the lowest advertised interest rate. Look at the entire cost of the loan. Consider:
The SBA recommends asking lenders about interest rates, minimum credit scores, cash flow requirements, prepayment penalties, grace periods, and other qualifying factors. A loan with a slightly lower interest rate isn't necessarily the best option if it has other terms that don't work well for your business. Make sure you understand the agreement before you sign it. 11. What If You Don't Qualify? Being turned down for a loan doesn't necessarily mean you can't get financing in the future. A lender may be able to tell you what prevented approval. Perhaps your credit needs improvement, your business doesn't have enough operating history, your cash flow isn't strong enough yet, or you need to provide more documentation. That information can help you identify what to work on before applying again. There may also be alternative financing options worth exploring, including SBA microloans, community-based lenders, and New York State financing programs. The important thing is not to assume that one "no" means there are no options. You Don't Have to Navigate the Process Alone Get stuck on any of these steps? That's where the Finger Lakes SBDC comes in. Our advisors can help you understand your financing options, prepare your financials, strengthen your business plan, and get ready to meet with a lender. We have many financial partners willing to meet with you and discuss their role on your business team. Best of all, SBDC advising is free. Visit our website to schedule a free advising appointment today: https://www.sbdcbrockport.org/ [1] https://www.sba.gov/loans/7a-loans/ [2] https://www.sba.gov/loans/504-loans/ [3] https://www.sba.gov/loans/microloans/ [4] https://www.sba.gov/loans/lender-match/ [5] https://esd.ny.gov/sites/default/files/media/document/Small-Business-Revolving-Loan-Fund-Flyer-11-13-23.pdf [6] https://esd.ny.gov/sites/default/files/media/document/2025-MWBE-Forum-Connections-Guidebook.pdf
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The Small Business Development Center at SUNY Brockport is part of a partnership program with the U.S Small Business Administration and administered by the State University of New York. Funded in part through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, conclusions or recommendations expressed are those of the author(s) and do not necessarily reflect the views of the U.S. Small Business Administration. All U.S. Small Business Administration funded programs are extended to the public on a nondiscriminatory basis.
