Regardless of geography, industry, or financing needs, the process of applying for a small business loan can turn out to be an intimidating process. Most business owners have this feeling that they are opening doors for prospective lenders to critique and analyze each aspect of their business. The truth is that if a small does not have enough credit in business to assess the risk, the potential lenders will not show their attention to the personal information of finance of the owner. However, it does not have to be as intimidating as it may seem.
Qualifying for small business loans is quite easier when you prepare yourself. As you read on below, the to-do list will help and equip you to get all the cash you need in order to grow your business. Regardless of whether you plan to apply for an SBA loan via a bank, or choose an online small-business loan, you have to be familiar with each requirement of the lender. Having enough information on whether you meet their criteria before you apply will help to save you frustration and time.
Here are the five steps that will help you to qualify for a small business loan.
1. Build Your Credit Score
Note that your personal credit score should range from about 300 to 850, in this case, the higher it is, the better. Also, evaluate your ability to repay all our personal debts, like car loans, credit cards, and mortgage. You should know the FICO score in the US, used commonly in lending decisions is set on five factors. These include:
- All your payment history (takes up about 35% of your score)
- The total amounts owed on credit cards and all other debt (about 30% of your score)
- The time period you have had the credit (about 15% of your score)
- The types of credit you have in use (about 10%)
- Recent inquiries you made about credit (about 10%)
All small business loan lenders require your personal credit score for the applications of loans because they want to see exactly how you manage your debt.
2. Know the Minimum Requirements and Qualifications for the Lender
If you meet the minimum requirements and qualifications of a lender, this will make you a stronger applicant. When you go to some lenders such as Aurumfi, they may offer some flexibility, especially if you are underperforming in one area but overperforming in the other, with your best chance of getting approval exceeding or meeting all other minimums.
Typically, borrowers have to meet a minimum criterion that is related to annual revenue, credit scores and the years in the business. Generally, lenders also frown upon past delinquencies and recent bankruptcies.
If you are looking for specific loans the U.S Small Business Administration backs, you will have to meet some other additional requirements of SBA loan. Note that your business has to meet the standard size of SBA’s because these are just for small businesses. Typically, as borrowers, you will need to have strong business revenue and personal credit and be current on all the loans with no defaults in past.
If you are late on government-backed mortgage, or late on a federal student loan, you will not qualify.
3. Organize or Gather All Legal and Financial Documents
Usually, banks, as well as other traditional lenders, ask for some legal and financial documents during the process of application. Some documents you will have to provide include:
- Income statement and balance sheet
- Business and personal income tax returns
- Your driver’s license photo
- Business and personal income statement
- Business licenses
- Leases (commercial)
- Financial projections, especially for a limited operating history
- Your resume, showing relevant business experience and management skills
All these requirements could make it time-consuming for you to get a bank loan. However, it may not be a problem if you are in the market to make a long-term business loan or want to finance a major investment.
4. Have a Strong Business Plan
Before a lender offers you the money, they would want to know exactly how you wish to use the money and whether you have strong repayment ability. They would also require you to have a strong business plan, listing all the reasons you need the loan and whether you expect your business to increase profits or not. The business plan has to include projected and current financials, and demonstrate clearly that your business needs to have enough cash flow in order to cover the ongoing expenses of the business, increasing all your chances for approval of the loan. The business plan should have:
- Management team
- Description of the company
- Industry analysis
- Service or product description
- Marketing, promotional and sales strategy
- Operations and facilities plan
- A complete SWOT analysis
If you need money faster, then choosing online lenders will be a better fit for you, since they can provide streamlined application processes online with some fewer requirements, documents, and faster underwriting. In addition, if your credit score is a strong one, some of the lenders online will also offer you the best rates, comparable to bank loans.
