A business loan can come in handy in times of need. It can also help launch your business to a higher level. You can utilize these funds to purchase new equipment, hire employees, etc. A business loan can help you stay afloat during an unexpected cash flow crisis and repayment helps build up your credit.
There are certain requirements lenders use before granting approval for loans, they vary depending on lenders and financial products.
Know Your Business’s Needs
Draw a blueprint on the positive impact of the loans you are about to take up, before meeting with bankers or researching online. This is important in order to ensure that you are not putting too much financial pressure on your business, as this can wreak havoc in a small business.
Do you have goals that you need funds to achieve? Ensure that you would monetize and grow your business after executing these set goals.
Know Your Lending Options
There are different options that can be used in financing businesses. You can apply for traditional term loans from banks, business credit cards, accounts receivable financing, equipment financing, and merchant cash advances, etc.
Each lending option has different requirements and interest rates. Being aware of all lending options will help you make the right choice in fulfilling your business goals.
A Business Plan
Most lenders require a business plan to be drawn up by business owners. It is a crucial part in the funding process and also it can be a great reference as your business grows.
A business plan encompasses several specific elements, like an income statement, a cash flow statement, and a balance statement. These reports provide a blueprint for your business’s financial health.
Business plans should be dynamic and renewal should be done at least once a quarter, especially when your business is young.
Your Financial Documentation
Either you’re applying for a loan in-person at a bank or online, you should have some documentation about the financial health of your business. Compile bank statements, business tax returns, and a list of your assets. These documents will help a lender assess your eligibility to loans and show how your business has been fairing. Atimes your assets can be used as collateral for a loan. Ensure you have a personal credit report as well.
A Good or Excellent Personal Credit Score
Your personal credit score is a determining factor in getting a business loan, especially if your business is young. Traditional lending institutions such as banks will require an excellent credit score above 800, other lenders will approve your application if your score is above 600. In most cases, like with E funding Experts loans, there will be no hard pull on your credit.
Proof of Your Business’s Age
Your business history is very vital, most lenders who offer large term loans wants you to have at minimum 2 years of business history. Term loan repayment periods can last for decades, therefore, lenders want an assurance that your business will exist for a long period of time. There are other lending products that assist businesses that have been opened for at least 3 months. It can be hard to find loans for startups other funding sources, like personal savings or family, might need to be used.
Consistent Business Revenue
Lenders want to know how consistently you generate revenue from your business venture. Therefore, you will need to show them your bank statement and tax returns. To get business credit, lenders will be satisfied with $50,000 in annual revenue. For smaller loans such as account receivables, a minimum monthly revenue of $4,000 is required.