What Does It Take To Get A Business Loan?
With so many businesses springing up on the scene, questions start to arise of how easy is it to actually start one yourself? How did they come up with the money? Will it be easy to get a business loan if you really need it? These gray areas seem to never be quite clear from the outside, however, if you are looking to start a business of your own and worried about financing...
Here’s what it really takes to get a business loan:
Know Why You Really Need It
Knowing exactly why your business could use financing is key to deciding what type of loan you need, which lender to go with and figuring out how much it’s going to cost you. Do the math and add up your expenses. This will help you narrow down lenders: Most have minimum and maximum borrowing amounts. It’s generally not a good idea to borrow more than your business needs because you’ll end up paying more in interest.
Have Good Personal/Business Credit
Lenders typically examine your personal credit report when you apply. Lenders often require a personal score of at least 650 from successful loan applicants. If you’re already in business, prepare to submit a credit report for your company as well. It sounds counterintuitive, but some lenders will consider too much personal credit a risk, you could turn to that credit if your business runs out of money.
Find A Loan That You’re Actually Eligible For
To qualify for most online small business loans, you’ll need to be in business for at least a year, however, your typical bank could require you to be in business for at least two years. Lenders often require businesses to bring in annual revenues of $50,000 to $150,000. To be sure that you can meet repayment requirements, some lenders look for a total income that’s at least 1.25 times greater than your total expenses.
Consider A Startup Loan for Businesses Less Than A Year Old
Startup loans can take longer to process than other types of business financing because lenders consider it to be more of a risk. They also aren’t able to rely on the data they might otherwise use to evaluate your business’s creditworthiness like time in business and revenue, which can slow down the time it takes to underwrite your application. Consider lenders that specialize in startup loans for easier qualification processes.
Have Important Documents on Hand
Before you even apply, gather together any documents your lender requests. It doesn’t hurt to anticipate any further requests by having extra documentation on hand. If you’re looking to have an easier or quicker approval, have these documents ready on hand:
Personal and business income tax returns
Balance sheet and income statement
Personal and business bank statements
A photo of your driver’s license
Commercial leases
Business licenses
Articles of incorporation
A resume that shows relevant management or business experience
Financial projections if you have a limited operating history
Create A Strong Business Plan
There are exceptions, but the vast majority of commercial loan applications require a business plan. Nowadays it can be short, which they consider to be a “lean business plan”, but banks still want that standard summary of the below:
Company description
Management team
Industry analysis
Facilities and operations plan
SWOT analysis (strengths, weaknesses, opportunities, threats)
Product and/or service descriptions
Target market
Promotional, marketing and sales strategy
Shop Around For Realistic Terms
There’s a variety of loans out in the market, however you have to do your own due diligence when it comes to terms and conditions that you can actually adhere to. These business loans can come in the form of SBA 7(a) Loans that offer a variety of options for inventory, working capital, equipment, or real estate loans up to $5 million. There are also microloan programs available through the SBA that cater specifically to women, veterans, minorities, and low-income individuals that generally lend up to $50,000.
Also, Term Loans that are common for commercial real estate loans and other installment lending options that can go over $1 million. Small Business Bank Loans are generally seen as some of the most favorable, but also the most challenging to get with its average business loan amounting to around $500,000. The list can go on and on from Equipment and Inventory Financing to Merchant Cash Advances.
