Does Your Business Qualify for Small Business loan in 2020?
Operating a business is not an easy task – it takes a vision of success, the right team, and a continuous thirst for growth. However, all companies require funding to shape these dreams into reality. Knowing if you qualify for small business loan before you begin the application process can be quite helpful.
Your credit score ranges from 300 to 850 (the higher, the better). It evaluates your ability to repay your debts, such as credit cards, car loans, and mortgage. Small business lenders need a personal credit score for loan applications. It signifies if you can manage the debts. Paying your bills on time is vital for building your business credit score. But even if you pay your bills like clockwork, credit report errors could damage your business credit score.
Since, one in 4 consumers identified damaging credit report errors, according to a 2012 study by the Federal Trade Commission. The study found that 4 out of 5 consumers who filed a dispute form got their credit report modified. A follow-up study by the FTC found that 20% of those consumers saw a jump in their credit score after resolving errors.
You will also require an excellent business credit score and good personal credit score to qualify for an SBA (Small Business Administration) loan or traditional loan from a bank. However, it will depend on the individual lender and business factors, such as your revenue, cash flow, and time in business.
Get to know the lender’s minimum qualifications and requirements
Getting to know a lender’s minimum qualifications and requirements will undoubtedly make you a stronger applicant. Some lenders may offer flexibility if you are underperforming in one area but overperforming in some other. Still, your best chance of getting approved is meeting all their minimum requirements.
Borrowers need to meet minimum criteria related to annual revenue, credit scores, and years in business. Additionally, lenders generally frown upon recent bankruptcies and other past delinquencies.
Borrowers standardly need to have strong personal credit and business revenue. They must be current on all government loans with no past defaults. Suppose you are late on a federal student loan or a government-backed mortgage; the employees there can disqualify you. Also, your business must operate as a for-profit company.
Qualifying for online lenders can be more manageable. However, online lenders typically underwrite loans based on traditional factors such as credit scores, annual revenue, and cash flow.
Develop a Robust Business Plan
Lenders will want to know how you plan to use the money and see that you have a strong ability to repay. They may require a solid business plan that details the loan’s purpose and how you expect it to increase profits.
Your business plan should include current and projected financials. It should also demonstrate that your business will have enough cash flow to cover ongoing business expenses and new small business loan payments. However, it can give the lender more confidence in your business, increasing your loan approval chances. Your business plan should include:
Banks and other traditional lenders typically ask for many financial and legal documents during the application process. They can include:
Balance sheet and income statement
Personal and business income tax returns
A photo of your driver’s license
Personal and business bank statements
Articles of incorporation
A resume that shows relevant business or management experience
These requirements can make getting a bank loan time-consuming. That may not be an issue if you are in the market for a long-term business loan to finance a significant investment.
To qualify for a small business loan, you would have to provide collateral for backing the loan. Collateral is an asset, such as equipment, real estate, or inventory, that can be seized and sold by the lender if you cannot make your payments. In this way, lenders can recover their money if your business fails.
SBA loans require “adequate” collateral for security on all loans, plus a personal guarantee from every 20% owner or more of the business and a personal guarantee puts your credit score and your assets on the hook.
Suppose you do not have collateral to get a loan or do not want to take on the risk of losing personal or business assets. In that case, an unsecured small business loan can be a better option.
Now that you know the criterions to check if your business qualify for small business loan, Funderama has come up with the right kind of merchant cash advance or SBA loan to meet your requirements and goals. We gauged lender trustworthiness and user experience, among other factors, and arranged lenders by categories that include your revenue and how long you have been in business.