Starting a small business can be a daunting journey. Even more overwhelming is the process for applying for a small business loan. Lenders look at several areas before deciding you are a good fit for a loan. They will look into your history and your business’s history and goals. Be prepared for these conversations by having your documentation ready and knowing the requirements beforehand. Continue reading below for the requirements any small business owner needs before requesting a loan.
Know The Lenders
The first thing that small business owners should do before jumping into a loan, is knowing the possible lenders. Each lender has different requirements and qualifications. Some lenders cater more to specific businesses. There are several types of loans. Bank loans, SBA loans, quick business loans, short-term and long-term online business loans are just a few to name. Regardless of the type, usually what is required is information about you personally, as well as your business. Understanding who the lender caters to, as well as the specific requirements for each one, will help you get started in choosing the right loan for your business.
Credit History And Bank Statements
As mentioned previously, lenders will look into some of your personal history as well as your business’s history. Your personal credit score will be one of the first things the lender will look at. This shows your reliability to pay back the loan, and to show the lender that they can trust you. Lenders will also ask to look at the past twelve months in your personal bank statements. Some people are shocked by how much personal information lenders require, but as a small business owner, your history is linked to your business’s history. Make sure your personal credit score and bank statements are up to par before applying for a business loan.
Business Financial Reports
Of course, business financial reports are the most vital parts of gaining credibility in order to receive a business loan. A balance sheet is a report that lenders will definitely ask for. This is because a balance sheet shows your business’s assets and shows where your business is spending money. Lenders are known to scrutinize this document before deciding whether or not you should qualify for their loan. Making sure you have the proper documentation for your business’s incoming and outgoing money is crucial, because it is where lenders spend the most time analyzing your business. Remember to have at least two year’s worth of any business spending documentation. As a small business owner, be prepared to know the current and past financial reports of your business, and to talk about that with your potential lenders.
Equally as important as financial records is your business plan. Lenders like to know what they are investing in, before they do so. They want to make sure you have a strong vision of where your business is going and the steps you will take to make that happen. Essentially, they want to make sure they are investing in something that is worthwhile. You know your business best, so go above and beyond in making your business plan great. Aside from just talking about the company and products or service you offer, plan on offering strategies and reports. This is one of the benefits between a business or franchise. Have an analysis ready about what your business is doing well, as well as what it can do to improve. As a small business owner, you should know your business like the back of your hand, and you want to prove that to your potential lender as well.
To back up your loan, oftentimes lenders will require you to provide collateral. If you cannot pay back the lender, you will have to surrender what collateral you have provided. This is mainly to secure the lender, because they will be making an investment in you. If the conversation with your lender comes to this topic, you should be open to asking questions. Not all lenders ask for collateral, but many do at the recommendation of a certified risk analyst. You should be prepared to talk and ask questions about what the lender may be looking for in this case. As a small business owner, you should be open with your lender to make sure both sides know what they are getting into.
When you are looking for funding for your small business, there are several options for lenders. After doing your research, many lenders will require you to provide statements and information about you and your business. Following the above requirements will help secure you when applying for a business loan.