Business loans, or at least the availability of business loans, are an essential part of running a successful business.
But getting the loan is not as simple as just presenting your business and requesting an amount. Because there is a qualification process to get approval. Review these pointers before you apply.
Go over your personal and business credit and fix any bad marks
Unless your business itself has a good track record of business loans and its actual Tax ID has an established credit, your personal credit is vital to get approved from traditional institutions like banks and commercial lenders. If you have any current outstanding balances or unpaid debt, it is best advised to settle off the debts before seeking out a loan for your business, because otherwise the lender will then perceive you, as the business owner, as a bad borrower.
If your business does have a good history of business loans, review its Tax ID standing and make sure there is no small outstanding loans or liens, so there are no surprises when the lender reviews your business’s credit.
Cleaning up your personal credit will allow you to apply for a short term personal loan in case the business loan does not get approved. Guidelines for small private loans are easier than business loans, and many are unsecured.
No. 2: Have a clean and organized business presentation
Consider this your sales pitch. A well organized, concrete set of financial statements to show your business profit and loss, at least a year of tax returns, a balance sheet, as well as cash flow projections. Many banks will ask if your business has any collateral, such as your inventory, to help secure the loan. A detailed business outline that includes the owner(s) information and experience will further help getting approval from your business lender.
Evaluate your objectives and compare your options
Before completing the application process, ask yourself some of these questions: what is the purpose of this loan? What will I do with this loan? How long will I need the loan for?
Every lender can give you a different loan type based on your objectives and each one has its positives and negatives to get approved. A traditional bank will lend to you with the intention of establishing a relationship, but the approval process has stricter guidelines. Also, traditional banks typically lend to established businesses and focus on large loan amounts.
An SBA loan and SBA micro loan, can be more flexible in the type of industry or timeline of your business, but the approval process may take longer and require more document verification than a standard bank loan.
A small private business lender has an easier approval process and faster funding, but their focus is on lending, so loan interest rates are typically higher than banks and SBA loans.
Once deciding on what kind of loan you believe is best suited for your business, compare each lender in that source.
Have realistic expectations
If you might not be able to best meet some of these approval standards before, your business might not be able to qualify. But there are some options to consider to still get financing.
If your business has outstanding account receivables, specialized business lenders will fund you based on your invoices, or if you have personal property such as real estate or vehicle, using it as collateral could allow you to obtain the approval for your business financing. The best route is to speak to these specialized lenders and discuss with them how they can help you move forward with your financing needs.