Business owners looking to improve their cash flow often see business loans as a way to get the capital they need to cover expenses or grow their business.
But each lender has different business loan requirements for different types of business loans, and the application process can be simple or complex, depending on the lender and the type of loan. Here’s what you need to get approved for small business loans for your business.
First, meet the players
You not only have a wide range of financing options to choose from. You also have dozens of different lenders to consider.
The Small Business Administration (SBA) in the United States is not a lender but guarantees loans at low interest rates. You can apply for SBA loans from traditional banks and online lenders. Banks also offer low interest loans and lines of credit to businesses.
If you don’t have good credit, you can also consider online lenders that offer solutions like short term loans and cash advances to merchants as the eligibility requirements may be less stringent than offered. by traditional banks.
Now let’s take a look at what you need to get a business loan.
Let’s look at the credit scores
For most traditional lenders, your personal and / or business credit scores play an important role in determining whether or not to approve financing. The higher your business and personal credit score, the better the interest rate and repayment terms.
If you are not aware of your credit history and scores, you can get your credit reports from the credit bureaus. Look for your scores, especially your FICO score, as this is what many lenders and financial institutions are looking for.
If you are applying for an SBA loan, you will likely need a FICO SBSS score of at least 160, or even higher.
Do you need a guarantee?
Some bank loans, especially those for larger amounts (think $ 300,000), may require collateral. This is an asset, like real estate or equipment, that the bank can use to cover what you owe in case you are unable to repay your loan.
Read the fine print before applying for a loan to see if it requires collateral, and if so, think about which assets you have of appropriate value.
What about time in business?
Startups and new businesses may find it difficult to get a loan from a traditional bank, as most want you to be in business for at least two years. Why? They want to see that you have a reputation for being financially stable and for paying off your debts. This guarantees the lender the likelihood that you can repay a loan that they approve.
If you haven’t been in business for that long, there are start-up loans that take into account other factors besides your time in business.
Let’s look at the income
Some lenders want proof of your annual income because it assures them that you have enough money in the bank to pay your monthly payments. A lender may ask to see your company’s bank statements, income tax returns, or financial statements, such as the balance sheet or income statement. Therefore, if you are planning to apply for a loan, it may be a good idea to prepare them.
Other things you might need
Each lender has the option of charging anything they think will help them determine the risk involved in lending you.
Some may require borrowers to provide a business plan or describe how they will use the funds. Others may require proof of certain business licenses that you must have.
You will also need to provide your bank details so that when you are approved, the lender can deposit your funds electronically.
The application process
Depending on the depth of the application, small business owners may only spend a few minutes filling out the application before knowing if they are approved or not ….
Traditional lenders like banks tend to have more in-depth business loan applications and may require you to provide supporting documents such as financial statements or tax returns. You can go back and forth with an underwriter even before your request is accepted.
On the flip side, online lenders may just ask for a few details about your business and industry, how long it has been in existence, and your employer ID number. You will also be asked for details about your personal income and Social Security number, as you as the owner will provide a personal guarantee if your business cannot repay the loan.
Some lenders give you instant response as to whether you are approved or not. Once the loan is approved, review the loan terms and sign the loan agreement. Some lenders can deposit funds into your business checking account in just one business day.
Options if you have bad credit
If your credit is bad, you may be more limited in your financing options. Look for online lenders who offer merchant cash advances or short term loans to find working capital, but be prepared to pay more to get it.
If you can’t qualify for an unsecured loan or business credit card, you may be able to get a secured loan or credit card, which means you will make a down payment or deposit as security for the financing.
If you can afford to wait awhile to get financing, keep an eye on your credit report and work to improve your credit by paying off existing debt and making your payments on time. Before you know it, you might meet the eligibility criteria of more lenders for cheaper financing.
Things to consider
Before applying for a loan, think about what kind of financing your business needs. Term loans are great if you need a lump sum all at once, such as buying expensive equipment. Other times, you may prefer to have access to financing when you need it. In this case, a business line of credit might be better suited.
If you just need to be able to make purchases for your business when you need it, a business credit card might be a good idea. If you want equipment for your business, you can also explore equipment rental.
Before applying, gather all the required documents that you will need. Consider what the lender needs and put it together before you sit down with a lender.
Be prepared to provide personal collateral with some loans, especially larger ones.
Be aware that even if you are eligible to borrow a larger loan amount, you should only borrow what you can afford to repay.
The final word on business loans
A business loan or line of credit allows you to take your business to the next level, whether it’s hiring people to better serve your customers or buying equipment that makes you more productive.
Whatever your business needs, find the small business financing that’s right for you.
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