Whether you want to open a bespoke clothing shop, start a pool-cleaning business or tour the country in a food truck, it takes money to make money. But for many aspiring entrepreneurs, finding the funds to establish or expand a business can seem like an insurmountable hurdle.

Asking friends and family to become angel investors isn’t always practical; if your venture goes south it can leave more than just financial damage in its wake. Access to venture capital may be getting easier, but giving away equity — and therefore control — is less than ideal for many small-business owners. But there’s one type of funding widely available to anyone with a good idea and solid financials: small-business loans. 

Debt in America is usually considered a four-letter word. Student loans, credit cards and auto loans continue to rise, according to the most recent federal data, squeezing budgets and making many people gun-shy about taking on more debt. But when done correctly, borrowing cash to nurture a business isn’t just another monthly payment; it’s an investment with economic upside and a measurable return.

“It’s a weapon,” said David Haber, founder and CEO at Bond Street, an online small-business lender. “You can use it for good or you can use it for bad.”

Successful small-business growth is good for both entrepreneurs and the country as a whole. Nearly half of U.S. economic growth comes from small businesses, which employ 48 percent of the national workforce. When it comes to business lending for these companies, small is a relative term. The Small Business Administration (SBA) works with companies of all sizes, issuing loans that can be as much as $5 million. The average SBA loan amount is $375,000, with an interest rate of 6 percent. 

Despite outstanding small-business loans of approximately $600 billion in the U.S., many entrepreneurs still aren’t sure how to secure one. The following five steps will make the application process less painful and more productive.

1. Know why you need the money. Typically, small-business owners apply for a loan because they have a specific goal that cannot be paid for solely out of company profits, such as increasing inventory or buying a new piece of equipment. Before approaching a lender, it helps to clarify what you’re trying to accomplish and how much you think it’s going to cost you. Most importantly, you need to know how much profit you expect to earn as a result of taking on a loan.

“The best investments for loans are those that generate additional revenue,” Haber said. “Lenders are going to forecast how much profit you can make throughout the life of the loan.” The more potential for profit, the more likely you are to get approved.   

For example, a floral business may benefit from buying a truck to make deliveries. Taking a loan to finance that purchase will inevitably lead to greater profit, allowing the business to repay the loan and then some. In that case, everybody wins. But if that same floral business wants to borrow cash to paint a truck it already owns, taking a loan to cover the cost isn’t likely to increase revenue. Loan officers aren’t going to look kindly on those sorts of goals.

2. Calculate, realistically, what you need. Taking on a loan is not just about covering the cost of whatever investment you have planned. Projecting a realistic range of anticipated profit can help prioritize the budget and determine whether the cost of an investment will pay off. If a new truck will cost double the amount of your anticipated profit, it's not a worthwhile move. 

“It comes down to need. How much money are we going to make? Then you can start honing in on how much money you’re going to need,” said Ann Marie Mehlum, associate administrator for the SBA’s Office of Capital Access.

Forecasting various outcomes is important as well. Asking yourself what would happen if you changed the pricing, or lost sales to a competitor, can help create a more well-rounded estimate of the return on the loan. “I always advocate that people set up models and play the 'what if' game so you can band the probability of what your performance is going to be,” Mehlum added.

3. Give yourself plenty of time. From start to finish, securing a small-business loan can take up to two months, or even longer for less qualified borrowers. Getting started well before you actually need the money is a smart move so your business can operate seamlessly if inventory demands increase or a new piece of equipment is required.

“Always go before you’re desperate,” Mehlum said. “It’s kind of crazy, but it’s true. When a company doesn’t need money, it is easier to get a loan.” Beginning the process when you already have plenty of money in the bank may seem counterintuitive, but your chances of securing financing will be much better. Most lenders feel more comfortable when there's time to get to know the entrepreneur and understand the business before approving a loan.

If you need money sooner rather than later, turning to an online lender can help expedite the process. But not all lenders are transparent and trustworthy. “Make sure you know what you’re getting into," Mehlum said. "If you’re working with an FDIC-insured bank or credit union, they have certain requirements to make interest rates clear. Some online lenders aren’t required to do that."

4. Gather the necessary documents. For new businesses, the most important factor in whether a loan is approved is usually the entrepreneur's personal credit score. But Haber warns that that can paint a very narrow view of a business. Two entrepreneurs with the same credit score could qualify for the same loan, even if one has a profitable business and the other does not.

Compiling supporting documents like profit and loss statements, tax forms and account balances can help underscore the viability of your business, especially if your credit score is not as high as you'd like. The key is to assemble enough information so a lender can understand your business and evaluate the financial health and risk associated with your company.

“The credit score is important but becomes less important if the business is really strong,” Mehlum said. Before heading to the bank, use this checklist from the SBA to help prepare your application. 

5. Take advantage of continuing support. Whether it’s your local loan officer or an online lender like Bond Street, entrepreneurs should look for a partner that is actively invested in the success of the business. Preventing defaults and continuing to increase profits is good for everyone involved. As a result, many resources exist to support business owners beyond just the repayment of the loan amount. The SBA has in-person counseling centers across the country, and many online tools and educational programs are available as well.

“When you are starting a business, you’re making a lot of decisions, not just financing. There are a lot of things that require due diligence,” Mehlum said. “It’s important to have a lender you feel like you can talk to, who is there to help you succeed.”