A business loan can provide the funds you need to expand operations, cover day-to-day expenses and purchase equipment, mortgages, or inventory. If you’ve never applied for a business loan, you might be unsure about where to begin or which documents are required.
Here’s a simple guide that walks you through the process of evaluating your options and preparing your business loan application in some easy steps.
Although business loan requirements vary, here are four things lenders are likely to consider when reviewing your small business loan application:
Credit score. When you apply for a business loan, a lender will review your personal and business credit scores. They help the lender assess the likelihood you’ll repay your loan. In general, the higher your credit score, the greater your chances of loan approval and receiving a low interest rate.
Collateral and/or personal guarantee. Some lenders require you to pledge collateral—something of value, such as equipment or inventory—it can seize if you default on the loan. Some lenders may also require a personal guarantee, meaning you have to secure the loan with personal assets, such as your savings, home or other valuable possessions.
Time in business. A traditional bank typically requires a business to have been in operation for at least two years, while an online lender usually requires only one year. If you’ve been operating your business for less than one year, don’t get discouraged. Some online lenders will approve qualified applicants who have only been in business for six months.
Annual revenue. Your total annual sales are also a relevant factor. Before applying, ask a lender what the requirements are and review your business finances to see if you meet them.