Last Updated: February 16, 2021
At some point, your business needs extra capital to remain stable in the market. This means you have to look at loan options. However, it's important to understand who's lending money and how to get it. Every business owner is different. Some people have cash handy to keep their company afloat, while other business owners have to seek elsewhere. Here are five areas you must consider before qualifying for a business loan.
It’s imperative that your personal and business credit are stellar. This means you have decent scores and not a lot of debt. If you’re still struggling with bills, then it’s best to pay down debts so your score increases. You must understand the difference between personal and business credit. They don’t report the same and have different scores. Personal credit appears on Equifax, Experian, and TransUnion. Find your business credit on Dun & Bradstreet, Equifax, and Experian. Know what your score is before you apply for a business loan.
Every business lender is different. Take the time to research which one’s fits best with your industry. Some may request that you provide six years of tax returns than the standard two. Find out what the entire list of requirements are, and make sure you have all documents available. Never apply for a loan when you know you don’t have backup documentation. The more you know about what the lender requires, it makes the process easier. Here are a few typical documents a business needs to have available.
Make sure you have a bulletproof business plan that answers all questions. This prevents any hiccups in the loan process. You don’t want to go back and forth getting backup documents to prove your plan is legit. Use outside sources to make your business plan strong and presentable. There are experts who have excellent skills in developing business plans and could help you land a decent loan.
Collateral is one of the basic elements a loan application will require. This could be cash, real estate, or something you have of value. Without collateral to back up a loan, you may struggle to get approved. Certain loans such as SBA lenders want to see at least a 20% personal guarantee from the business owner. Other lenders may be less lenient, so do your research.
Spending time on the internet for business loans in your industry is a great way to avoid mistakes. You can waste a lot of time gathering up documents only to find out the lender doesn’t operate with your industry. Check to see if lenders in your line of work consider it risky or not stable. It's not smart to rely on what a friend did for their business loan. You need to be in the same line of work. The more you understand what lenders want for requirements in your industry for loans, the less frustration you’ll experience.
These are five areas to review before looking for a loan. Pull all of your credit reports from all agencies. Clean up negative elements that could turn a lender away. It's possible your credit report may have mistakes. Learn your personal score is a lot different from your business score. Know the requirements independent lenders or your bank want before filling out the application. Pick up the phone and ask a lot of questions. Organize documents and ensure they are the correct ones the lender needs to make a final decision. Develop a business plan they can’t deny. It should cover every aspect of your business from its incorporation up until you needed extra cash flow. Always have collateral when applying for a loan. This gives the lender an asset you own to borrow against. Research is the key to gaining more knowledge about business loans. You may find some lenders have a bad reputation. Read all reviews from past customers. Follow these tips to ensure you get approved for your next loan.
