When you’re well-prepared, it is easier to qualify for a small business loan. Here is your to-do list that will help you qualify for a loan and get the cash you need for your business.
1. Build your personal as well as business credit scores:
Your personal credit score defines your ability to repay debts. This score ranges between 300 to 850 and is based on factors like your payment history, how long you have had credit, etc.
Most lenders check this score before accepting your loan application – purpose is to see how you manage debt. To keep your credit score up, pay your bills on time.
Business credit scores, on the other hand, ranges from 0 to 100. To keep it good, keep your business information up-to-date with consumer reporting companies like Experian, Dun & Bradstreet and Equifax.
2. Check with lender’s qualification and requirements:
To become a strong applicant, you must fulfill the lender’s requirements and applications. Meet the minimum criteria related to credit scores, years in business and annual revenue.
If you want to apply for loans backed by the SBA (Small business administration), you will need to meet additional requirements of SBA
3. Carry all your legal and financial documents:
Banks and other traditional lenders may ask for a wide range of financial and legal documents, including:
-Personal and business income tax status report
-Personal and business bank statements
-Business license & commercial lease
-A resume that shows the relevant business experience
-Financial projects if you have a limited operating history
4. Create a strong business plan:
Your business plan must include how will you use the loan amount for the growth of your business. Make sure you create a solid business plan the clearly describe how you will repay the loan amount. It will improve your chances at loan approval. A good business plan must include:
- Company description
- Product and service description
- Marketing and sales strategy
- Information about the management team
5. Provide Collateral
To back your loan, sometimes, you may have to provide collateral. Collateral can be assets like equipment, inventory or real estate that can be seized by the lender if you fail to make your payment. Basically, it is the way lenders can recover their money if you don’t make your payment.
There are some online lenders that don’t require collateral but may require a personal guarantee. Each lender has its own rules and requirements, so don’t hesitate to ask questions if you are not sure.
6. Personal and business tax returns
You will also need to provide both your business and personal tax returns. It is just another step in the process that lenders will take to ensure you will be able to repay the loan you apply for. So to be safe-side prepare them before you dive into the application process.
Understanding what a lender can review when applying for a loan helps you improve your chances of a small business loan. A reputable financing firm can help you understand the requirements of a lender. So, seek assistance if you need to.