One great piece of advice that applies to small business owners is to “work with what you’ve got.” Having new goals and ambitions is important for any business, but working within limits is the sensible way to grow.
Of course, sometimes that’s not possible. For example, if you wait to save up money before you go and buy a home, you may be waiting for many years to come before you become a homeowner. For this reason, loans exist to help—in reasonable, financially structured fashion—to bridge the gap between what you don’t have and what is feasible for you to own and pay back debt on.
If you’re a small business owner, you will often be in a situation where you need to invest money to grow. You know exactly how much, when and, where you will spend it. But, your current cash flow is not enough to support the investment. There’s no shame or failure in this situation, and it’s often quite normal for the next step in a business to be slightly beyond the current means, which is why business loans are options.
But now comes the critical question: Do you qualify for a business loan if you need one? What business loan qualification do you need in order to apply successfully?
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1. Have Your Ducks in a Row
The amounts involved in a business loan are a lot higher than those for personal loans and, as a result, the requirements are stricter too. Where personal loans usually involve amounts in the thousands, for smaller things such as a home renovation, business loan amounts, even for a small business, can run into a financial range similar to a mortgage.
Because of the amount of cash involved, unsurprisingly, in order to qualify for a business loan, you will need to inspire a lot of confidence in a financial institution, usually your bank of choice. Of course, there are other alternatives to a bank for a business loan, such as a merchant cash advance, but if you’ve got your heart set on getting approval from a bank, you’ll need to make sure you meet a lot of different requirements. Regardless of what type of business loan you’re looking for, you’ll likely need to open a business bank account.
2. Do You Have a Business Plan?
A lender will want to know that you are not just running on instinct and have a definite plan of action for what you will do with a business loan. They need to see how you will go about applying it. Being able to provide a business plan can sometimes be a vital business loan qualification.
It is also something that you should have for your own benefit, as well as that of your company. Business plans give everyone milestones to reach for and objectives to accomplish. Without a clear business plan, how you spend and how you work can hurt you when you apply for a loan.
3. What Are Your Assets?
Sometimes a lender will want you to have some sort of collateral that you can put up as part of a business loan qualification. Other times, however, you may simply need to be aware of—and prepared to disclose—your capital business assets to give a lender a better idea of your business’s worth. Sometimes a general accounting of your capital business assets is enough to use as a general lien on your business, rather than specific collateral.
4. Do You Know Your Credit Score?
Your personal credit card transactions, as well as your business transactions, are both on record. Your credit history is one of the things that lenders require if you’re going to a bank. Make sure that your scores are in good shape before you apply for a loan.
While a credit score of 650 is generally considered good, if you want to be very safe, sitting around 700 is a much favourable position for business loan qualification. Conversely, having very low scores may be problematic enough that it can hurt your chances of application significantly.
TIP:Learn how Thinking Capital leverages a business grade over a credit score to provide your business with financing for your supplier payments.
5. Talk to the Experts
Business loan qualification is demanding and thorough. You’ll need to provide a lot of evidence that your business is in good health and ready to grow, whether this is in the form of your tax returns or company financial statements. There will be a lot of requirements you’ll need to meet. If you want to make entirely sure you know what you’re getting into and prepare everything to maximize your odds of qualifying for a loan, talk to an experienced financial expert or advisor.