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9.1 Overall Score
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Do you dream of becoming your own boss? Or perhaps you’re already your own boss and want to expand your company. Those daring enough to take the plunge and apply for a business loan will find it can sometimes be a complicated process. To find a loan that fits your company, consider all the factors you’ll encounter when applying. Here are a few helpful things for you to know when looking into business loan providers:
Finding the right loan for your business is a daunting task. There are a plethora of business loans, each with unique aspects and requirements, such as loan amounts, minimum credit score, and repayment terms. Keep in mind all the factors that could affect your loan such as personal and business credit history, sufficient collateral, profitability, and cash flow. However, don’t let this discourage you. Don’t be afraid to ask questions and look around until you find the right lender and loan. Make sure to ask your lender what financing options they offer and what types of loans will best help your business. The most important thing is to find a loan that will best benefit you and your company’s needs.
Lenders will want to know everything about your business. Take the time to tell them about your business, clients, and industry. You can also share how you plan to spend the loan money and where you want to be in the next 5-10 years. Additionally, be sure to bring any documents that can speak to the credibility of your business, including business and personal credit histories, business plans, proof of collateral, bank statements, tax returns, and any other legal paperwork.
You filled out your business loan application a few months ago and are waiting to hear back about the decision. However, the lender calls to inform you that your business loan was rejected. This news would bring anyone down and feel discouraged. In fact, this is the case for many people attempting to get a business loan. Some people never even figure out why their application was rejected. Before hanging up the phone ask what it was that influenced their decision. Sometimes it can be that your business involves too much risk or there wasn’t a clear business plan. Most of the time it is something that can be changed and fixed. Before you submit another application make sure to revisit all aspects of your business proposal to make sure they meet the requirements.
Traditional bank loans are probably the most common when starting to apply for loans. However, just because they are one of the most common financing options doesn’t mean that it is the best fit for you and your company. Finding the right business loan company takes time and patience, so be prepared to shop around. Focus on lending options and companies that are best suited to your current needs.
Be aware of the following items that a lender will look for in your business loan application:
Personal credit score: Your personal credit score plays a key role in whether a lender decides to grant you a business loan. Lenders want to try to guarantee that you’ll make your monthly payments and pay back the entire loan. A personal credit score allows lenders to make a judgement call about whether they’ll approve the loan. Generally, most lenders prefer a credit score of 700+, but there are exceptions.
Amount of time in the business industry: Lenders will consider how long your company has been operating. Most lenders require that your company be in business for 1-2 years before they’ll consider you for a loan.
Collateral: Before giving you the loan, lenders will want to know that if something goes wrong they’ll have something tangible to sell. Collateral can be a car, real estate, work equipment, cash, accounts receivable, or other assets. Lenders tend to undervalue collateral as it lessens the risk they have to take. Undervaluing the collateral requires a borrower to provide more assets to secure the loan.
Depending on the company and industry you’re in, there are various types of loans. Each loan lender will specialize in different kinds of loans, and not all of them will be right for your company. Some loans are customized for startup companies, seasonal companies, companies that need equipment, companies that want to increase their working capital and more. Reading business loan reviews and talking to these companies personally will help you determine which loan options are best for you.
While loans can be risky, they can also benefit your company. You can get a business loan for a variety of reasons:
Many small business owners choose to take out smaller, short-term loans. Consistently making on-time payments will build your business’s credit score and credibility, making it more likely for you to qualify for larger loans in the future. You can always talk to lenders to decide if taking on smaller, short-term loans would be better for you or if it would benefit you more to take out larger, long-term loans.
This can depend on a number of factors, but don’t expect to walk out of your lender's office with a handful of money on day one. Assuming all documents are correct and present, it can still take weeks or months for business lending to be accepted. Research each lender’s application and approval process before taking out the loan, just in case it takes longer than you thought.
A business credit score is based on various factors, including your payment history, bankruptcies, liens, etc. A bad credit score shows that you have failed to make your scheduled payments, otherwise known as payment defaults. Whereas, a thin credit score means you don’t have a sufficient amount of business credit history, making it hard for lenders to determine creditworthiness. In both cases, it can negatively affect whether you get the loan.
Fixing your credit score will take some time, but there are several steps you can take to improve your credit. Be aware that it could be a while before you see any drastic results.
First, pay all your bills on time or, even better, pay them early. A late payment will lower your score, and it only gets worse the longer you leave it. Second, be on good terms with your vendors. Your suppliers can make a big difference in your credit score. Some vendors will report your on-time payments or early payments to credit bureaus, which will raise your credit score. Another tactic to fix your credit score is to open more than one credit line. Or, you may want to try getting a secured credit card. Secured credit cards allow you to set up a security deposit that acts as collateral. If you put down a $500 security deposit, your card limit is $500. Making regular, consistent payments to this card will positively affect your credit report. Last, keep your personal finances and business finances separate. A simple way to do this is to open two separate accounts, one for business and one for personal.
First, identify what your company needs. If your company is looking to expand and needs business financing, don’t apply to a loan company that focuses on equipment financing. The best thing small business owners can do is take the time to find the right lender. Reading business loan reviews, calling and asking questions, and reaching out to those who started their own businesses will help you find the best lending option for you. All business loan lenders will have different requirements and qualifications so taking the time to conduct your own research is key to finding the right business loan company.