Qualifying for a small business loan is a very easy task once you prepare yourself. Here some of the tips to see you through when applying for the cash loan to grow your business.
Whether you want to secure a small business loan via a bank or opt for an online small business loan, you must be familiar with the requirements of various creditors. Having a clue if you meet the criteria before submitting your application will save your frustrations and time.
- Build your personal and business credit scores
You should have a better personal credit score since it will evaluate your capability to pay back your personal debts like credit cards, car loans, and a mortgage. The FICO score, usually used by companies in making lending decisions is based on five main factors. The factors include;
- Repayment history
- The amount owed on credit and debit cards
- The duration of which you have had the credit
- Types of credit in use
- Recent credit inquiries
Small business creditors ask for a personal credit score when applying for a loan because they want to find out if you can manage your debt. Paying your bills on time is also a perfect way to build your credit score. However, even if you do that, credit reports errors might be affecting your credit score.
- Know the creditor’s minimum qualification and requirements
Meeting all the creditor’s minimum requirements and qualifications will make you a strong applicant. Note that some lenders might show some flexibility in case you are underperforming in one area but over-performing in another. However, your best opportunity of getting a loan approval from a lender is meeting or surpassing their entire minimum requirement.
Typically, every borrow must meet minimum criteria linked to credit scores, annual income and the number of years you have been in business.
- Gather financial and legal paperwork
During the loan application process, financial institutions and other traditional lenders will request for a variety of fiscal and legal documents. The documents include:
- Business permits
- Commercial leases
- A photo of your driver’s license
- Article of Incorporation
- A financial projection in case you have a limited operating history
- Personal and business bank statements
- Income statement and balance sheet
- Personal and business income tax returns
All these requirements can make securing a business loan tedious and time-consuming. However, that might not be a problem if you need a long-term business loan to finance a major investment.
- Provide a strong business plan
Creditors will want to find out how you intend to use the funds and they will want to be sure that you have the capability to repay the loan. They might ask for a solid business plan that outlines the purpose of the loan and how you plan to increase your income.
Your business plan must comprise current and projected financials. It should also clearly demonstrate that your business will have adequate cash flow to cater for ongoing business expenses and the new loan repayment. This will give a creditor more confidence in your business enhancing your loan approval chances.