Applying for a business loan is best when you’ve applying way before a crisis hit. But even if a sudden mid-crisis hits, you still have to come to applying for one with everything ready.
Many company owners large or small aren’t able to meet the various requirements for business loans way before stepping foot into an office. At the least, you should know about the specific lender’s guidelines and that mostly revolves around needing the minimum amount of capital required.
To cut short your reading time, all you need are mostly documents and relevant information. If you have those, you’re pretty much halfway there; but if you don’t have any of those prepared, here’s a list of what to prepare prior to your trip to the bank.
1. Credit score
What you commit in the past may very well come back and reflect in your future. Credit scores? Very much so. Lenders mostly rely on personal and business credit scores to reveal your past information. One of the first requirements is for you and your company to have great credit scores, the higher the better.
Once you’ve obtained your credit report through whatever platform you may choose, you should dispute any inaccuracies you may come upon. Businesses can check their scores at various websites, but each case would probably require a fee to see full versions of the report.
Over time when you are able, you should and can improve your credit score by paying all bills on time and having no or low personal deby to credit ratio. Businesses can also improve their scores by constantly updating their data to meet the times and also adding more vendors to business relations to their credit record.
2. Annual revenue
Who doesn’t love seeing positive results from their business? The same thing goes to lenders as a healthy annual revenue is one of the reasons that could land yourself a healthy business loan. Annual revenues show a clear picture of the trends in your business and especially how you’ve managed to work with it to grow your sales and cash flow.
Make sure that you have accurate and also monthly financial statements from the past two years on hand. Lenders mostly keep an eye out for specific metrics such as current ratio, which is simply your current assets divided by current liabilities. A signal that your company is able to pay its bills is If that ratio is greater than one.
To make sure what they’re seeing is in fact true, lenders will also tend to ask for copies of your bank account transactions to confirm cash flows stated in your financial statements. It’s also important to keep in mind that qualifying for a business loan depends more on growth in cash flow than on revenue.
3. Business plan
You need a plan before applying for a loan and after being approved of one. Lenders don’t just give out loans like candy, they’ll want to know why you need it and what you intend to do with it. Other than that, they would have to paint a clear picture of your company’s age, stability and growth.
Be prepared to share a recent copy of your current and future business plans, which includes projected financial statements and plan to how you’re going to be paying your monthly loan installments.
If your company has talented individuals, be sure to utilize them as well. Include resumes of key managers and executives of your company to show how they’ll make a difference. Even companies with the best finances and documents can’t be approve without proof of having the talent to operate.
4. Extra collateral
After all, lenders are still institutions for profit and would reduce the risk when approving a loan every time they get. One of the ways they do this is by getting additional financial collateral from the lenders that secures then loan in case a business fails to meet its payments. This is usually done in the form of a company’s accounts receivable, equipment or any other easy-to-sell assets.
Other additional qualifications for a business loan may be for the company owner to provide personal guarantees or to simply pledge additional collateral like real estate and other financial resources.
There are many other supporting documents you can use to qualify for a business loan. That includes, your driver’s license, any commercial leases, business license, personal and business tax returns, business insurance plans, payroll records, incorporation documents, other affiliated corporate ownership or even current financial obligations.
5. Learn how banks assess you
Before you start applying for a loan, you should understand how any lender is going to evaluate your application and documents provided. Know that lenders approve loans beased upon whether one thing only in the end, and that is if you are able to make each and every periodic payments.
All that influences the decision are credit scores, business credit history, cash flow, time in business, collateral, industry and loyalty. Based on those information, they would also try to figure out what type of loan or financing you need. Make sure have a clear idea of what you want and to communicate it clearly.
They would also consider themselves as in if they are the right lender for whatever your business situation is. Not all lenders provide the same set of services, so you’’ want to narrow down your search to those that actually offers what you’re looking for and would likely approve your loan application.
Time waits for no man, same goes for your business. When you’re ready to expand, there might be times where you find yourself not having sufficient funds. Now that you need land, equipment and more inventory for said expansion, this is where a business loan might work for you.
Finsource Credit not only offers five different loans and financing, but also provides credit counseling from experts in its advisors!
With a clean loan, property loan, 2 in 1 financing, gap financing and invoice financing suited to meet your financial needs, our loan advisors are ready for your questions 24/7, contact us today to learn more about how we can be off assistance to your financing needs.
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