Getting a business loan requires you to apply online, and then get approved. Applying for one is quite simple, you can check out our guide on how to get business funding to prepare yourself for the application. The second part – approval; that’s another story. So, before you begin to submit any applications, it helps to know more about the requirements for small business loans and what lenders are likely to consider. Lucky for you, we have the insight on how the approval process works! Keep on reading for the four primary factors that are considered by a lender.
- Personal Credit History
- Your Capacity to repay
- Why you want the money
- The difference between your current debt and income
If you score positively in these four factors, then getting a business loan is easy. Let’s look at each factor more closely to truly understand the if obtaining a business loan is difficult.
Need a small business loan?
Easily apply online and see if you qualify!Apply now!
1. Personal Credit History
With just about any financing for small business operations, lenders will delve into the past credit history of the company. If your business is relatively new and doesn’t have much of a history just yet, your personal credit history could also be the target of some scrutiny.
Lenders take greater risks when they choose to approve business loans. That’s why they want to have some idea of how well you have managed debt obligations in the past. If your credit history indicates that your business obligations are honored on time and without fail, that will go a long way toward being approved.
2. Your Capacity to Repay
Even if you’ve done a wonderful job of paying your debts in the past, the lender will also be interested in your current financial situation. Is there enough income each month to ensure that the loan payments will be made? Many lenders set minimum income requirements before they will even consider a loan application. Make sure you meet that minimum and there is a chance of being approved.
3. Why You Want the Money
How do you plan on using the money from the loan? Is the idea to invest in new furniture for your hotel or bed and breakfast? Maybe you plan on spending the money to install a new heating and cooling system in the facility. When lenders can rest assured that the plan is to make some sort of improvement that has the potential to increase your business volume, they consider your idea to be a good investment.
4. The Relationship Between Your Current Debt and Your Income
Along with verifying the amount of income you take in each month, a lender is also likely to require some details about how you plan on organizing your finances so making the loan payment does not pose a significant hardship. In other words, can you make the payment and still keep up with your other operating expenses and outstanding debts? Even if you have pledged some sort of asset as collateral for a loan, the lender would rather not rely on foreclosure as a way to recover all or part of the loan balance. A better solution is knowing that you have a high probability of always having the funds on hand to make your payments on time.
While different lenders place more priority on certain core factors than others, expect to provide quite a bit of detail about your company’s financial condition. In the best-case scenario, the information you provide will convince the lender that you do present a reasonable risk and approve your loan application quickly. After you have repaid that first loan, getting another one from that same lender will be a lot easier.