Getting a small business loan can be a big hurdle for startups due to strict lending standards by lenders. Since lenders don’t have any proof of your capability to run a company, turn a profit and pay back the debt, they usually don’t prefer to lend a loan to newly-set up businesses.
Don’t worry, below are a few tried-and-tested tips that can help you get a small business loan quickly.
Analyze the startup cost you will be covering
There are a number of obstacles that may come across your way when starting a company from scratch. The one major hurdle is startup cost. The list of expenses can be different for every company, some common expenses include.
- Equipment purchases such as machines and vehicles
- Technology purchases such as printers and computers
- Inventory purchase
- Licenses and permits
Before you look for the loan option you must have an idea what initial and ongoing cost you will have to cover.
Improve your credit score
A good personal credit score is quite important for startups as it is the first thing a lender will have a look at. It ranges between 300-850. The higher is better, make sure it is at least 680+.
To improve your score, you should focus on the following actions.
-Pay your bills on time.
-Pay off debt and keep balances low on credit.
-Do not apply for too many new credits, resulting in multiple inquiries.
You can get your credit score report free from credit bureaus like TransUnion, Experian, and Equifax.
Find out if you qualify for the loan
Along with credit score, there are plenty of other requirements to qualify for a small business loan. For example, lenders may consider:
- How long your business has been running?
- Does your business make enough profit?
- Are you capable of making payments?
Choose the right startup loan
Once you know how to get a small business loan, it is time to begin your startup loan search. You may get small business loans from several platforms such as banks, online lenders, and microlenders.
These lenders offer products such as Business lines of credit, term loans, accounts receivable financing, etc. Once you have decided which type of lender and financing option is right for you, try to compare 2 or 3 similar options.
Gather your documents
Most traditional lenders are hesitant to finance startups as they have no business history and proven revenue. However, if you do some preparation before you start your search for a loan you can have a better shot at securing the loan. Some documents that every lender will require are:
- Bank statements
- Personal tax returns
- Income statements
- Legal documents such as a commercial lease, articles of incorporation, franchise agreement, etc.
So gather them all before applying for a loan.
You should approach small business loan shopping just as you would shopping for a vehicle. If you don’t know how to get started, take help of a financial firm that help startups get easy loans.