What can you do to acquire a business loan?
When owning your business, lack of finance can destroy a company. What are your options for acquiring a business loan? When it comes to business finance there are many flexible options available. For example, leasing, factoring, regular loans, etc. Unfortunately if your company is about to complete a deal and a machine broke and you lack to funds for repairing you cannot wait for a leasing contract to be singed in order to replace the equipment. Obtaining a business loan will help your company for emergency expenses and more. You can obtain a business loan through almost any financial institution. What is going to help you get your business loan is preparing for what financial lenders are going to be looking for and what they are going to review before approving your business. The important factors lenders will look at are:
Personal credit
The credit reviewed for a business loan is not limited only to business credit. Your personal credit is reviewed and considered a majority of the time. Minimum credit score requirements will vary over time based on the type of loan requested. Currently the preferred credit score for business loan is 640 or higher.
Time in a business
Lenders want you to be in business for two years or more before they will even consider you for a business loan. Some lenders want 3 to 5 years or more in business and 2 years of profitable tax returns which reflects net income.
Type of business
Some Lenders favor certain industries over others. For example, restaurants, food service, bars, vending companies, and other retail oriented business are not favored by lenders. They will take your application and will give you the same impression that you are just as likely to get a business loan with them. But many traditional lenders in general prefer medical, legal, or large manufacturing companies.
Business credit
When a business applies for a loan, the lender will check to see if the business has a business credit file. The reason lenders check this report is to verify the starting date of the company, the high credit, and look for what is known as a Paydex score. This score is an overall risk score and is used similarly to the bureau score on the personal credit file. Lenders are looking for a Paydex score around 60 or higher depending on the factors.
Amount Requested
If you have requested a loan for a small amount under $50K, then you may be able to apply and receive a decision by completing an application and avoiding providing statements, tax returns, personal financial statements. If you are a large company with $10MM in sales per year and you are seeking $500,000 loan request, then be prepared to provide at least 2 or more years tax returns, accountant audited financial statement and 6 months bank statements for credit review. The higher amount you ask for the more you will be requested to show.
Collateral
The type of collateral you offer when applying for a business loan is an important factor in determining if you will be approved. Types of collateral you can offer are liquid collateral, such as certificates of deposit, corporate savings, etc. You can also use Real estate, such as home with a lot of equity. Equipment is not considered a primary or significant type of collateral by lenders but sometimes it can help.
If you have reviewed all of these factors before applying for a business loan and feel confident that you will be approved then you will have obtained a business loan. But if you do not come prepared you risk the chance of being declined.