Are you considering applying for a small business loan? Well, you’re in luck! There are some important steps you can take to increase your chances of approval. According to Forbes Advisor, the key is to be well-prepared and meet the lender’s requirements. So, let’s dive into the process and get you ready to secure that loan!
Should You Apply for a Business Loan?
Colin Beresford, spokesperson with Forbes Advisor, believes that a business loan can be beneficial for many reasons. It can help you buy assets that will add long-term value to your company or expand your business when additional funds are needed. Surprisingly, even thriving businesses can benefit from a loan. For example, a restaurant owner may have too many customers and not enough space, so a loan could provide the funds needed to expand or open a new location.
However, it’s important to note that taking out a business loan should never be done if you have concerns about repaying it. Before applying, Beresford recommends using a business loan calculator to ensure that your business can handle the debt. If the repayments seem manageable, then a loan might be a good option. But if there are doubts, it’s best to explore other alternatives.
What Can a Business Loan Cover?
There are various types of business loans, each with its own unique features. For instance, a working capital loan can cover business operating expenses like payroll. Generally speaking, a business loan can be used to purchase essential equipment, stock up on inventory, hire employees, or even refinance existing debt. The specific needs of your business will determine the type of loan that suits you best.
Factors That Impact Your Approval Chances
When applying for a business loan, both personal and business credit scores are taken into consideration. Lenders prefer higher credit scores, with most requiring a personal score of at least 680. However, some lenders will accept scores as low as 580 to 600. Additionally, the length of time your business has been operating plays a role. Traditional banks typically require two years of operation, but online lenders may accept businesses that have been operating for as little as six months to one year.
Another important factor is your annual revenue. Lenders want to see that you have the ability to repay the loan, so higher revenue is better. Typically, lenders require businesses to have at least 0,000 to 0,000 in annual revenue.
Comparing Lending Options
If you’re new to the world of business loans, there are a few ways to compare your options. One method is to prequalify for a loan, which some lenders offer. This involves a soft credit inquiry that won’t harm your credit score. By providing basic information about your business, you can receive an interest rate estimate if you’re eligible.
Additionally, you can compare lending options based on your specific needs and requirements. Consider what you need the funds for, when you need them, and how likely you are to meet strict lender requirements. Traditional banks tend to have stricter requirements, but they also offer lower interest rates. On the other hand, online lenders provide quicker funding but have higher interest rates. Choose the option that aligns best with your business goals.
Preparing the Required Documentation
When applying for a business loan, you’ll need to gather several documents. It’s important to have them all in one place and make copies to prevent any delays in the application process. The necessary documents typically include at least 12 months of personal and business bank statements, personal and business tax returns for the past two years, and details about current and past business loans.
In addition, you may be asked to provide copies of business licenses and legal documents, articles of incorporation, profit and loss statements, financial statements, and a building lease. If your business is new and lacks some of these documents, there are “no-doc” loan options available.
Now that you’re armed with this information, you can confidently apply for a small business loan. Remember to be well-prepared, compare your options, and gather all the necessary documentation. Good luck!
