Owning your own small business can be a rewarding experience. However, in the beginning, opening your own business can seem daunting. If you’re looking to start a small business and need funding, obtaining a small business loan can be a good option, but before you apply, it’s important to understand the process of how to start an LLC. There are numerous steps you need to take to ensure success. One of those steps includes figuring out your finances. When opening your small business, there is a high chance you will need to take out a small business loan. In that instance, knowing the qualifications to be awarded a loan is essential. There are numerous steps involved in qualifying.
Have High Personal and Business Credit Scores
When a lender is looking into if you qualify for a sba loan, they will look at your personal credit score. Learning your credit score will aid them in determining if they should lend you money. Your credit score is vital because it shows the lenders if you have a good record of repaying personal debts like a car loan, mortgage, or credit card.
A good credit score is usually 700 or higher, while an excellent one is 800 or above. If your credit score is on the lower end, it will be a good idea to raise it before applying for a small business loan. Ensure your bills are paid on time, work on producing some of your debts, and keep your credit card balances low, and you will see your credit score go up.
Once your personal credit score is up, you will want to shift your focus to your business credit score. To establish your business credit, you will want to acquire a federal Employer Identification Number, form an LLC, and open accounts under the business’s name.
Have an Understanding of the Requirements
Next, you will want to clearly understand the requirements so you can raise your chances of getting your small business loan approved. Some lenders are more flexible than others, but most require you to meet a specific annual revenue, minimum credit score, and certain years in business.
Although there are small business loans that can be acquired directly from online and peer-to-peer lending sites, they are not as strict in their requirements. Even if your credit score is in the mid-600s, there is a good chance you will be approved.
Besides a good credit score, other requirements, such as different legal and financial documents, are needed to complete the application for the loan. This will include items such as your driver’s license, bank statements, a voided business check, business and personal tax returns, a business plan, and your profit and loss statements.
Have a Business Plan
Having a business plan is another crucial step to qualifying for a loan. It is a way to show lenders how you plan to use the money from the loan. It is also a way to show how the money would help make your business more profitable. When creating your business plan, you will want to ensure that you have a description of your business and the products or services you are offering. You will also want to include a market analysis, financial plan, management team, and a strategy for your sales and marketing and how those will be implemented.
Have Collateral Prepared
Several lenders will require you to provide collateral or asset such as inventory, real estate, or equipment when you apply for a small business loan. When you offer your collateral, you need to give the lenders the authority to seize and sell it if you are unable to make payments on your loan.
If you are worried about losing an important asset or there is nothing you have that could be collateral, you may want to look into an unsecured business loan. It does not require collateral; however, it does come with some unfavorable terms.
To ensure you are approved for your small business loan, you will want to research and know the options. But to ensure that you qualify for any loan regarding your small business, you will want to meet the proper qualifications.
