It is an extremely competitive lending market out there, and as a Small Business Owner, it is good advice to be well prepared BEFORE you apply for a business loan.
Of course, there are many different types of lenders out there, and every lender may require a different set of documents, depending on your business needs, the amount of funding you are looking for, your particular industry, and on and on.
With this in mind, as a starting point, I put together a list of some helpful tips to improve your chances of qualifying for a business loan with any type of lender.
Understand Your Need for Business Funding:
Before applying for a business loan, be clear as to why your business needs the money. Needing money to start a business is much different than needing money to buy equipment or to cover daily expenses. By being clear as to your need for funding, will help you to choose the right type of lender.
Self-Qualify:
Regardless of which lender type you choose, you will most likely be exposed to an Underwriting Process and it’s best that you have some idea of what this means.
Lenders have specific requirements and it is up to the Underwriter to investigate and assume the risk of the Borrower. Here are some common factors that the Underwriter may consider:
- Credit Score: A good personal credit score and a good business credit score is crucial. If you have not been in business for too long, then it is critical that you have a high personal credit score to qualify for the best business loan terms. Though you may qualify for a business loan with a low credit score and a short time in business, you can expect to pay higher rates.
- Time in Business: Most alternative lenders require a minimum of 4 to 6 months time in business, while traditional lenders require 2 years to 3 years, or more, time in business. Start Ups are much different, and may require a solid history of experience from the Primary Owner, and may require significant collateral.
- Daily, Weekly, Monthly, Annual Revenue: Depending on the Type of Lender that you will be approaching, will determine the kind of ‘proof of revenue’ that your business will have to present.
- Business Checking Account: Not only do you need a Business Checking Account, but a Business Checking Account that is in the Name of the Business. By having a Business Checking Account in the Business Name, you can reflect business stability and the sense that you intend to be around for a while.
- Prepare Essential Documents: Financial statements, tax returns, and a business plan. These documents not only reveal your creditworthiness and your ability to repay a loan, but a business plan reflects your business strategy and your seriousness about your intent to grow your business.
Research Lenders: Different lenders fulfill different needs. Traditional banks may offer affordable financing and long payback terms, but also have very strict requirements that you must meet. Alternative Lenders may be more expensive, but the requirements are minimal and you can get the funding that you need in as little as 3 working days.
Pre-Qualify When Possible: Some lenders are going to want to take a look at your credit score, so look for lenders that do a Soft Pull on your credit score. In this way you you can shop around for the best lender without sacrificing your credit score.
Evaluate Repayment Terms: DO NOT allow your NEED FOR FUNDING cloud your ABILITY TO REPAY. No one knows your business as well as you do, and you should make an honest evaluation of whether your business can handle the repayment of any loan, regardless of TYPE OF FUNDING.
Look Out for Fees: Fees are part and parcel of most any loan, but this does not mean that you should accept whatever fees are tossed your way. Always remember that YOU have the right to negotiate, and also, to accept or reject any loan agreement.
Be Responsive: This is critical. Many business loans wither away because the Borrower does not communicate in a timely manner with the lender, or refuses, or cannot provide additional documentation. This goes back to the beginning… Understand Your Need for Business Funding.
You applied for business funding for a reason.
If your business circumstances have changed and you are no longer in the market for funding, it is best to communicate this to the lender, or if applicable, communicate the reason as to why there is a delay on your part, if any.
Lenders are in the business of lending money to Small Business Owners, so that Small Business Owners can grow their business.
This is your opportunity, as a Small Business Owner, to PARTNER with your lender, and if they happen to be the right lender for you, then the lender should be more than willing to help you, and to guide you, with your funding needs.
RevitUp Capital has partnered with the top lenders in the industry and we can help you find the funding that your business needs.
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