How To Qualify For Small Business Loans
Updated: Apr 3, 2020
The following is an article “How To Qualify For Small Business Loans” by Marc Primo.
When you’re planning to launch a small business but don’t have enough cash to meet the entailing costs, applying for a business loan may be the only way to go. Of course, there are many things you have to consider first when applying for an SBA or bank loan, and you also need to make some preparations on your end to qualify. By simply learning how small business loans work, from application to having cash on hand, you can save yourself a great deal of time and effort.
Make good on your credit scores. In any loan process, the higher your credit score, the better. Credit scores are important because they help determine your paying capacity for borrowed money in the form of credit cards, debts, car loans, mortgage, and the like. Today’s acceptable credit score range is from 300 to 850 and is evaluated via information on your payment history, amounts borrowed, length of borrowing, and what kind of credit type you use, among others. This process is necessary to determine if you manage your finances and debt well, and counts for a lot in making you qualified for a small business loan.
Ask for the lender’s requirements. If you know what the lender needs from you early on, then applying for a small business loan would be easier. Ask if the lender can be flexible with their requirements or how you can work on aspects that need improvement. Make sure you meet the minimum requirement set of the lender for optimizing your chances of approval. Try to avoid bankruptcies and previous records of delinquency as most financial institutions consider these red flags.
Sort your legal and financial documents. Most banks and lending companies will ask you for legal and financial records to streamline their application process. These can sometimes be in the form of income tax returns, balance sheets, business permits and licenses, articles of incorporation and more. Others with good credit scores can also opt for online lenders who can make quicker approvals with fewer requirements.
Strengthen your business plan. Applying for a small business loan means that you have to be prepared when asked what strengths your business possess and how you will initially use the money you borrowed. You’ll certainly make a good impression by developing a good presentation on your business plan that shows how it can increase profits and survive for the long term. Include your financials, your current cash flow, and loan payment schedules to earn the lender’s trust and confidence. Make sure that your business plan also includes an overview of your company, the nature of the products or services you offer, your management team, industry assessments, business strategies, and your SWOT analysis (strengths, weaknesses, opportunities, and threats).
Present your assets. Sometimes, you have to present some form of collateral if you want to qualify for a small business loan. Defined, collateral is simply an asset that can be used by the lender by selling or seizing as replacements for your due payments. Usually, these are in the form of equipment, property, or inventory. Lenders can be very strict about which companies they choose to approve business loans to because they are trying to avoid bad investments as well. Most SBA loans will ask for “adequate” collateral along with a guarantee of at least 20% of the business per owner. A personal guarantee can place your credit score and assets in a tight spot. On the other hand, having some form of collateral to back up your business plan gives you a greater chance of securing that loan for your business.