Whether looking to purchase new equipment, expand your business, or tackle expenses, securing extra money through a loan can help your business succeed. In order to qualify, your business will need to meet certain criteria.
Follow these step to help qualify for a business loan.
When applying for a business loan, lenders may look at your business and personal credit scores. A business credit score is similar to a personal credit score in that it helps lenders assess the risk of a loan and the likelihood that a business will repay the borrowed money. The number of trade experiences, outstanding balances, payment history, and so on determines a business’ credit score. A business credit ranges between 0 to 100. The closer you are to 100, the better your credit score.
– Check your current business credit score through a soft credit report to find out where you can improve. Make sure to do a soft check so that it does not affect credit.
– Pay bills on time for current debt or credit cards.
– Pay off current balances on credit cards and other debt.
– Ask your credit card provider to increase your business’ credit limit.
– Add positive trade references to your company’s credit file.
– Dispute any errors on your credit report.
Not all lenders have the same requirements for providing a business loan. Some lenders have more strict criteria while others offer more flexibility. Check with a few lenders to find out their requirements so you can become a stronger applicant. Many lenders require applicants to meet minimum criteria for approval. Try to exceed the minimum requirements in order to get the best rate on your business loan.
When applying for a business loan, most lenders will require a minimum monthly revenue in order to qualify. This varies between lender. Lendio, one of the leading marketplaces for business loans, requires a monthly revenue of $8K, although some lenders and services will have much higher requirements of $20K in monthly revenue or higher.
Many online lenders require credit scores of at least 600 to qualify for a business loan. If your credit score could be better, you may want to consider some of the lending marketplaces or services like Lendio and LendingTree that do not have a minimum credit requirement.
In most cases, lending services will require a business to have been in operation for at least 6 months or sometimes even a year. New businesses looking for capital to get started that do not meet those requirements should consider different financing options such as SBA startup loans or microloans.
When applying for a business loan, you will need to provide financial and legal documents. Having these ready in advance will help the process go faster. Lenders may request the following:
– Business and personal income tax returns
– Personal and business bank statements
– Financial statement
– Copy of driver’s license
– Business licenses
– Commercial leases
– Articles of incorporation
– A resume detailing your relevant work experience
– Future financial projections
Developing a strong business plan can help prove to lenders that you can repay them and increase your chances of securing a loan. A business plan should include an executive summary, market analysis, operations plan, marketing strategy, and a SWOT (strengths, weaknesses, opportunities, threats) report. You may also want to prepare spreadsheets, charts, or graphs if necessary.
Collateral refers to an asset pledged to a lender for repayment of a loan in the event of a default. If you cannot repay the loan, the lender will seize the asset and sell it to recover the money from the loan. Not all business loans require collateral, but you can qualify for certain loans if you have an asset such as real estate, equipment, or inventory. For example, SBA Loans require adequate collateral for security on all loans. This could include owner-occupied residential, apartments, commercial buildings and vacation homes, undeveloped land, new and used equipment, accounts receivable, and inventory.
When you feel confident that you can meet the requirements to secure a business loan, you can apply online or make an appointment to begin the application process.
Joe Schwartz | Loans Editor