The first things to ask yourself when applying for a small business loan is why you need the funds and how you plan to repay it. Both traditional banks and online lenders would require your credit history and your future business plans. Having all the necessary documents and data in hand is going to get you prepared. Not all lenders are the same, but the following tips are would be enough to qualify for a small business loan.
- 1. Your business plan in detail: Prepare a detailed business plan with your company objectives. It should highlight the company sustainability, and details of how the borrowed funds will be used. It is advisable to list some references from your industry or trade to prove your creditworthiness.
- 2. Your assets of business capital: Your lender needs collateral to grant you a loan. Some require specific collateral, but nowadays a general lien on your business instead of specified collateral should be enough. What matters is you have a healthy business. It is the first criteria to access borrowed capital even if you lack adequate collateral.
- 3. Your financial statements and cash flow proof: Lenders need to have an idea of the financial condition of your business. They need to know your ability to repay. It helps them to evaluate your qualification for a small business loan. Lenders will calculate the amount of cash flow you have available to service debt by measuring your cash expenditure against your income. It will give them an idea of the status of your business in the market and if you have any outstanding debt. In this case, both past and current financial statements need to be provided.
- 4. Both your personal and business credit profiles: Lenders need to evaluate your creditworthiness. Get a copy of both your personal credit score and your business credit profile. For both personal and business loan, this information is very important. If you want to apply for personal or business loan and want to get it approved having a good credit scores goes without saying. Especially banks and financial institutions are very strict about having a high credit score.
- 5. Provide details of personal income, your tax returns and insurance policies: Be well prepared before you apply for a loan. Get all the details of your personal income, your tax returns and insurance policies to be provided to the lender. Such information helps the lender to get an insight into your financial health.
- 6. Collateral proof: Providing evidence of your collateral such as your house agreement copy could be required when you apply for a loan. It helps the lender to conduct a loan-to-value analysis of your proposed collateral. It gives him an idea if the value of the collateral is high enough to provide the necessary security. The loan-to-value ratio is the relationship between the funds provided by your lender and the value of the collateral. The lender will take into consideration this ratio and the type of collateral provided by you and may approve or decline your loan application accordingly. If you have been a significant investor in your business then the lender might be in your favour for the loan request made.
- 7. You may be asked to provide professional resumes: If you have business partners or part owners in your company, you may be asked to provide professional resumes of all of them. It helps the lender to analyze all the owners’ past business endeavors, past relationship with lenders or referrals and references from other lenders or customers. Lenders are also able to assess the borrower’s position and reputation within the industry.
Once you have the necessary documents and data handy, you will be well prepared to answer any questions lenders might ask you. Having necessary information readily available imply you can answer any queries quickly so that the lender can complete your application. The lender will then review your information and decide on your loan application. For startups and small businesses, if you have been in business for at least a year and generate annual revenues of $100,000 and above, you may stand a good chance to get your business loan approved. It may take from a week to 90 days for your loan to be approved. For all kinds of assistance on loans, contact Lendforall today!