The Small Business Association and other lenders set loan requirements to protect themselves from default. If you are looking for a business loan so you can start a new business, expand your current business, build credit or help with your cash flow, be prepared! Loan requirements are in place to protect the lender. That means that as the borrower, you must PROVE yourself to be a trustworthy entity. Get organized, do your homework, show that you’re loan-worthy by representing your business in the best possible light.
1. Strong Business Plan
Do you have a business plan? A strong business plan is the key to securing a business loan. You must show a complete and thorough plan of action for how you run your business and what you intend to do with the loan. Where will the money go? Be detailed. Be specific. A good business plan includes a road map for how your company will succeed, projecting several years out and showing how you will grow your revenue over time.
2. Good Credit
If you are looking for a startup loan, you will need to provide proof of good personal credit for both you AND other business partners that are responsible for repayment of the loan. Lenders don’t want to see late payments and unpaid balances. If you have a one-time, bad mark on your credit report, you must be able to provide detail about how that specific issue was resolved. Oftentimes a low credit score = no loan.
3. Comprehensive Financial Statements
A lender must be able to follow your paper trail. They want to know where your money came from and where it is going. Do this by providing balance sheets, income statements, cash flow sheets, and tax forms.
A borrower must have proof of collateral for the loan in question. The way to do this is to show your business and personal assets. Examples of assets that would qualify as collateral are vehicles, machinery and equipment, and even intellectual property.
5. Good Character
Lenders often look for professional references before deciding to grant a loan. They may even do a background check to verify your trustworthiness. You are the face of your business, so it makes sense that a lender would want to see proof that your good personal financial practices carry over to your business. If you have expertise in a specific industry or knowledge in starting and running other successful businesses, this can also serve as proof that you can offer a good rate of return on investment (ROI).
Now that you know what you need to qualify for a business loan, find out what questions you should ask before signing on the dotted line.
To learn more about business loans, check out our Buyer’s Guide and fill out our form to get in touch with reputable loan providers in your area.
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