How do I qualify for a business loan?
If you are considering opening a small business or increasing operations of your existing business, there’s a good chance you will need a loan. You have several funding options available. Whatever you decide, your first step is to get your financial profile in order to ensure you qualify for a small business loan. Learn what the lender’s requirements are and be sure you meet those requirements and have all of your necessary information ready. This will save everybody time and frustration.
Here’s a look at how to prepare.
Bank or Online
If you need a loan quickly, you would probably be better off using an online lender. They usually have a more streamlined process along with less documentation and expedited underwriting. Also, if your credit rating is good and you meet other criteria, online lenders can offer you the same rates as a bank can, maybe even lower rates.
Assets & Collateral
When you approach a lender for a small business loan, you should come armed with a few necessities. To get a loan for a new business or an existing one, banks want you to show them that you are invested in this business just like they are. They want you to have some money in the bank to show that you are serious and responsible enough to accumulate some assets. So before approaching a lender for a small business loan, tighten your belt and save as much as you can to back up your commitment to your business.
Your lender will probably want some collateral from you. Collateral could be anything of value that the lender can take if you stop making payments for any reason. Houses, vehicles, equipment, and real estate are all examples of collateral.
Business Plan
Lenders like to see a business plan. Before you approach a lender, set up a business plan describing, with as many details as possible, how you will use the money. The plan should convince them that you will be able to repay the loan, make a profit, and hopefully increase profits. Include financial details covering projected expenses, payments, vendor commitments, relevant statistical data, marketing and sales strategy, and any other information you think might lead them to believe you would be a good candidate for a loan.
Documentation
Before you contact a lender about getting a small business loan, find out exactly what documents you need so you can be prepared without any unnecessary delay. Lenders usually require several financial and legal documents that can include proper forms of identification, business experience, bank statements, tax returns, income statements, and relevant leases and licenses. Do your homework, and don’t let your loan get held up because you forgot to bring in a certain document.
Credit
One of the most important aspects of your profile as a borrower is your credit rating. Leading up to the time when you are ready to get a small business loan, find out every strategy can on how to boost your credit rating to get the highest score possible. A good personal credit score is a key factor for your lender because it shows the lender that you are responsible and understand the importance of maintaining a good credit rating.
Another reason to have good credit is because a higher credit rating will allow them to charge you a lower interest rate on your loan. And all that money you save on interest is money you can put in your pocket or invest back into your business. Even if you do have a lower credit score, there are still loans out there you can qualify for.
Cash Flow & Debt
lenders like to see that you have a healthy, positive cash flow to show them that you are a low-risk borrower. It shows that you are capable of making your required payments, meeting payroll, and paying bills. In addition to cash flow, lenders don’t like to see a lot of debt. Part of tightening your belt includes lowering your debt as much as possible before applying for a small business loan.
Are you ready? Give us a call and one of our loan specialists can talk more about the process with you. We are here to help.