Before applying for a loan for a business, you should follow some steps to succeed. The application process is significant for your company's growth.
While you might be considering getting financing, knowing the factors that lenders consider when approving business loans is essential to making your application process smooth and successful.
This process is straightforward when you have all the knowledge you need for your application. This article will cover everything you must do to it.
What Do You Need to Apply for a Business Loan?
Lenders consider various factors when deciding whether to approve a business loan application.
Below are some things to consider before taking a loan
to increase your chances of approval
Improve Your Credit Scores
Your personal and business credit scores reflect your creditworthiness, one of the primary factors influencing a lender's decision to approve your business loan application.
Though some lenders are willing to work around a bad credit score, most lenders will have credit at the top of their list of considerations.
Improving and maintaining a healthy credit score is vital to increase your chance of loan approval.
Lenders will assess your company's creditworthiness and credit score to determine whether you are financially responsible and likely to repay your loan.
Loans will look at personal credit scores to gather information on how you manage debt and whether you are wise with your financial decisions.
Improving personal credit is often trickier than improving your business credit. To improve your credit:
- Ensure you pay your debts fully and on schedule as often as possible
- If you are behind on payments, do your best to begin paying off your debt.
- Monitor your credit card account for inaccuracies in your credit report, such as fraudulent, repeat, or false charges.
A business credit score is also essential for lenders to determine your organization's credibility.
A healthy business credit score shows lenders that your company is worth its investment.
Your score depicts whether your organization pays its bills promptly and shows lenders your accrued debt from open business credit lines, if any.
Improving it is possible by paying company bills on time and establishing positive relationships with suppliers.
If you have a business credit card, limit your credit utilization ratio.
While business credit cards are fantastic ways to build your company's creditworthiness, you must use them responsibly to maintain a consistent credit history.
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Have Your Business Plans Ready
Applying for business loans is pointless if you don't have a business plan to describe how you will use loaned money to benefit your organization in essential aspects.
While every other part of your business loan application might seem perfect, you will struggle to get approved without a concrete plan.
Lenders want to know how you will use their funding to benefit your business to ascertain whether your company is sustainable and likely to succeed financially.
Your business plan should include revenue projections, sales forecasts, and insights into where your business will be in the upcoming years.
Prepare to share with lenders what your organization offers and why your small business is a viable investment.
Gather Financial Documentation
Financial documents and statements are among the various documents you should prepare before applying for a loan for a business.
Various other financial statements are relevant to a small business loan application.
For instance, it is essential to gather the following financial documents before applying for a business loan.
- Personal and business tax returns
- Schedule for repaying debt
- Business licenses
- Cash flow statement and predictions
- Income statement
- Bank account statements
- Balance sheet
- Profit and loss statement
Obtaining small business loans may require you to offer collateral for lenders if you default on payments.
Secured business loans require collateral before you can obtain funding, and unsecured business loans do not require collateral.
If a lender requests assets as security for the loan, such as real estate property or business equipment, be prepared with an offer.
Lenders might ask that you explain the type and worth of the collateral you offer.
Online lenders are a potential source of funding if you are uncomfortable with putting up collateral to obtain a business loan.
Though you might find some online lenders asking that you put up collateral, many online lenders are lenient with requirements for collateral and credit scores.
Know the Type of Loan You Need
There are numerous options for small businesses to access funding
, and as you begin your application process, you'll find that there is no shortage of loan types to consider for your business.
While government-backed loans from the Small Business Administration (SBA) are helpful for small organizations, meeting the numerous requirements and qualifications is challenging for many business owners.
The lengthy application process is another reason some small business owners look elsewhere for funding.
Rather than a government-backed small business loan application, consider some alternative types of loans
listed below to get your small business off to a positive start.
- Business lines of credit
- Invoice factoring
- Equipment loans
- Merchant cash advance
- Inventory financing loan
- Business term loans
- Business credit card
- Personal loans
- Startup loans
- Working capital loans
- Commercial real estate loans
Discover the current business loan interest rates
Organize Your Documents
Along with the financial documents mentioned above, there are other essential documents to gather and organize as you prepare your commercial loan application.
Lenders will want as much documentation about your organization as possible before investing, especially if they do not require collateral business assets.
Before beginning your application, prepare resumes for your management team and any relevant information about your business experience.
Provide comprehensive documents detailing your company's accounts payable and receivable.
Also, double-check that you have all legal documents before applying for a loan. Legal documents you will need for most business loan applications include:
- Commercial leases
- Business articles of incorporation
- Business licenses and registrations
- Contracts with suppliers
- Partnership and franchising agreements
- Corporate bylaws
- Government-issued ID
- Employer Identification Numbers (EIN)
- Social security numbers (SSN)
Common Requirements in Business Loan Applications
Even if you have all of the necessary information and documents prepared for your application, you could run into a situation where you go to apply only to realize that you do not qualify for the loan.
Not knowing the standard requirements in business loan
applications can lead to you wasting significant time on loans that won't help your business.
Traditional loans typically require an annual business income of $100,000+.
Additional business funding will require you to make more annual revenue. For instance, many business term loans require an annual revenue of $200,000+, while revenue requirements for lines of credit fall around $180,000+.
Though merchant cash advances typically require a lower annual income–around $50,000.
Before applying for a loan, guarantee that you select loans that service your industry.
Many lenders won't move forward with the commercial lending process if the business operates in the adult entertainment, gambling, pawn shops, cannabis, or real estate industries.
Guarantee that you meet credit score specifications for a business loan before beginning your application.
If you are hoping to get approved for an SBA loan, your credit score should be above 650 on the FICO scale.
Your business credit score should also be healthy, with excellent scores falling around 80+.
Determine whether a business loan application asks for a funds proposal and ensure that your proposal meets the lender's standards.
Your loan proposal will include details about the amount you would like to borrow from a lender, why you want to borrow funds, and how you intend to repay funds.
Before considering potential lenders, find out their requirements for collateral.
If the lender requires collateral, determine the type of collateral they expect you to offer to receive funding approval and if you are willing to accept these terms.
Questions You Should Ask a Lender Before Applying for Business Loans
Before you apply for a business loan
, it's essential to follow all loan process steps to guarantee that you are applying for loans that suit your business needs.
Asking lenders questions will help save you time and resources that you can put toward other funding options.
What Kind of Loan or Credit Do You Recommend for My Business Needs?
It's essential to apply for loans with legitimate and transparent lenders.
Asking a lender the kind of loan or credit they recommend for your business will help identify whether or not a lender has your company's best interests at heart.
If you are unsure of the best type of business loan for your company, a lender can help you determine what best suits your organization and guide you along the appropriate path for different loan types.
Can I Apply for a Small Business Loan Online?
Some lending institutions allow you to apply for a small business loan online, which can significantly simplify the application process.
For instance, online business loan options like Camino Financial simplify the application process by allowing you to complete your entire application online.
What Documents do I Need to Gather Before I Apply?
While lenders often require the documents mentioned above, some lending institutions will have different requirements that are more or less strict than standard lenders.
Ensure that you have everything a lender requests of you before applying.
How Long Does Your Lending Process Take From Application to Funding?
Approval times vary from lender to lender, and if you need your loan approved in a specific timeframe, it's essential to guarantee that a lender will get back to you promptly.
Even if you are not on a tight schedule for loan approval, having a timeframe will help you plan your company's future.
What are Typical Rates and Closing Fees for My Type of Loan Request?
Some business loans charge additional fees that could blindside you down the line.
Inquire about rates and closing fees for the loan you want to apply for to guarantee that you won't incur massive sums of debt in closing fees.
Does the Kind of Loan You Recommend Come With Any Annual or One-Time Fees?
Along with closing fees, some lenders will have additional annual and one-time fees that you could overlook during the application process.
Before applying, inquire about any additional fees from a lender to determine if you are comfortable with the additional cost.
Are There Ways I can Lower or Reduce the Interest Rate I May Have to Pay?
Lenders will offer competitive interest rates to consider before deciding where you want to apply for a business loan.
While traditional, government-backed lenders like SBA loans have lower interest rates, unsecured loans often charge higher rates that could cause financial challenges for your business if you aren't prepared.
Is a Personal Guarantee Required for the Loan?
Always ask a lender if they require personal business loan guarantees before applying.
If the lender requires a personal guarantee, determine whether you can meet these standards before applying.
What Does Your Loan Modification or Renewal Process Look Like?
Some lenders will have stricter guidelines for loan renewal than others.
Before you apply for a loan, inquire about the loan modification or renewal process to determine whether it is a realistic option for your business.
At a Glance: How to Apply For a Business Loan
Once you've decided on the type of loan that best suits your needs, it's time to start the application process.
The first step is to collect all of the necessary documents and information for your lender. Depending on the type of loan you're applying for, this might include:
- Business plan or executive summary
- Balance sheet and income statement
- Tax returns
- Cash flow forecast
- Business licenses and permits
- Personal financial statements
- Collateral documents (if applicable)
Once you have all the necessary paperwork, it's time to begin the application process.
This step will involve filling out an application with your lender and providing any additional documentation they request.
During this process, your lender will ask questions about your business and its finances, including:
- The purpose of the loan
- How much do you need to borrow
- What will the funds be used for
- Your repayment plan and timeline
- The collateral you will offer to secure the loan
Your lender will also review your credit history, score, and current financial obligations.
Once they have all of the information they need, they'll be able to give you an answer on whether or not your loan has been approved.
If you're approved for a business loan, congratulations!
You'll receive a loan document outlining the loan terms, including monthly payments, fees, interest rates, and all the repayment schedules.
Make sure you read and understand these documents before signing. Once you've signed the loan agreement, you can start accessing your funds.
Tips to Get a Business Loan
If you're ready to get small business financing but concerned about the best way to increase your chances of loan approval, consider some of the following tips on how to get a loan that suits your organization.
- Check reviews for business lenders before applying
- Try to boost your business revenue as much as possible before applying for a loan
- Get up-to-date credit reports relevant to loan applications
- Improve your business or personal credit score
- Start with financial institutions or lenders that you have a relationship with
- Have a comprehensive plan for the future of your business
- Calculate how much you need to borrow
- Speak with a financial adviser
- Determine your eligibility for different lenders
- Have someone review your application before you send it to the lender
What if You Don't Get Approved for Your Loan?
If your loan request is not approved, consider a few steps to improve your chances of being approved. Here are some things you can do:
- Check your credit report for errors and take steps to correct any present mistakes.
- Pay down any existing debts, including credit card bills, auto loans, student loans, etc.
- Build up your savings to show that you have a cushion should something unexpected happen and you need to make payments on your loan.
- Consider getting a cosigner or guarantor who can vouch for you if they have good credit and a solid history of making payments.
- Make sure your income is steady and reliable before applying for a loan, as lenders want proof of regular income.
By taking these steps and being proactive about improving your financial situation, you can increase your chances of getting approved for a loan in the future.
Grow Your Business With Camino Financial
Accessing funding for your small business is challenging, no matter how prepared you are to apply.
However, online lending solutions like Camino Financial can help you access the funds you require to expand your business.
Find out how to qualify for a loan from Camino Financial today and sign up to get started.
Apply for a business loan today
What do I need before applying for a business loan?
Gather the required financial information and documentation. Determine collateral and have a business plan prepared before you apply.
What is the first step to getting a business loan?
The first step to getting a loan approved is determining why you need a loan and how you will use it to grow your business.
Can I get a loan if I just started a business?
Though it might be more challenging, there are alternatives to traditional business loans if you have just started your organization.
Consider personal loans, crowdfunding, or lenders that offer loans to startups.
How do I apply for a small business loan?
After determining the loan type, you can apply per the lender's instructions.
You may have to apply in person for some lenders, while other lenders like Camino Financial allow you to apply online.
How hard is it to get a business loan?
Getting a business loan is more difficult for some businesses than others.
While getting a business loan isn't a straightforward walk in the park, following the guidelines in this article will make it easier to get loan approval.
Additionally, lenders with gentler requirements, like Camino Financial, are easier to get a business loan with than other lenders.
What should I do before applying for a loan?
First, evaluate your credit score and history.
Second, put together a budget and determine how much money you need to borrow based on what expenses have already been accounted for in advance.
Finally, find potential lenders offering suitable offers according to individual needs via online research & comparison tools - comparing several factors such as interest rates, late fees, prepayment penalty, etc.
What 4 things do you need for a loan?
Most lenders will require proof of your income in order to approve your application.
If you have good credit and make timely payments on existing loans, then this could be beneficial when trying to get approved for a new one.
When taking out larger loans such as mortgages, some lenders may require collateral such as property or vehicles as security against nonpayment of the loan amount.
Sometimes, a down payment may be necessary before being approved for a loan (particularly if there is no collateral).
This is essentially money upfront that reduces the amount owed by decreasing the principal balance due upon closing/approval of the loan agreement.