5 Steps Toward Getting Your Small-Business Loan

NEW YORK ( TheStreet) -- Banks are starting to loosen the spigots and lend to small businesses again.

Perhaps it's a sign of an emerging economy or a response to the growth of crowdfunding, which presents a direct threat to banks, with $1 billion raised by just a single crowdfunding firm, Kickstarter.com.)

Whatever the reason, the U.S. Small Business Administration says small-business lending is increasingly robust.

"Borrowing conditions for small businesses have been gradually improving," the SBA says in a recent report. "Commercial banks have eased their lending conditions and terms, though it's still relatively tight compared to pre-recession conditions."

In total, small-business borrowing amounted to approximately $1 trillion last year -- $585 million in business loans outstanding, $422 billion in credit from finance companies "and the rest from a mix of sources," the SBA says.

If you're a small-business owner looking for bank lending capital, how do you get in on the action?

Aim for a smaller bank. Small banks and credit unions are generally more amenable to lending money to local businesses than one of the big bank behemoths. Plus, you'll have a better chance to make your case face to face and can build a strong relationship with a smaller bank based on an ongoing relationships.

Get informed before applying. Before you actually apply for a business loan, talk to a loan officer at a local bank. Find out what steps are needed to get a loan approved -- ask about proper documentation, what bank looks for in a business plan (make sure to have one ready to go before you apply) and what separates the winners from the losers in the business loan application process.

Make sure your credit is squeaky clean. The margin for error on a commercial bank loan is thin. Just one mistake can lead to a "rejected" stamp on your loan application. So priority one is establishing that your company is a good credit risk. (The SBA says that banks view credit as an asset, and assets are high on the list of loan approval criteria.) Check your credit before you apply for a loan, and be quick to clean up any errors or discrepancies.

Build a case for yourself. What do banks look for in a good small-business loan deal? Ideally, they want you to prove your ability to pay back the loan. That means having suitable financial assets, decent collateral, steady cash flow and a demonstrated track record of profitability. You'll need to document all that and be ready to hand it over to bank lenders when they ask.