Since money is essential to run a business, personal investment is not always enough to kick start the operations. In this case, business loans are the perfect choice for most of the business owners. Business loans are offered by banks and alternative lenders and can be used for funding business operations, to purchase equipment, or for expansions. Moreover, these funds can be used to purchase equipment, hire employees, and cover other expenses. Unlike traditional personal loans, business loans require more considerations than you think. Still, applying for business loans is not a complicated procedure, but planning is sufficient for getting approval.
At the start, the business owners have to file an application for the specific lender. Along with the application, the business owners are also required to provide the details of the company. All banks and lenders go through a similar process of application and other details to confirm the eligibility criteria of the businesses. Banks are the most common lenders that every business consult whenever they need business loans. However, with the rise of the entrepreneur’s levels, some alternative loan lenders are also introduced with better loan policies. Let us discuss ten things you must have to get your business loan approved.
Security is the primary factor for getting every kind of business loan. Although some lenders provide unsecured loans, however, the large business loans require some collateral for default policies. Still, if you are looking for collateral-free loans, then you will be required to show your repayment capabilities. The repayment capabilities of the business are identified through the sources of income and the assets on hand.
Usually, the banks consider these securities to ensure the risk-free credit. Every startup businesses need to pledge its part of assets as the collateral to get guaranteed business loans. Moreover, the policies of the collateral also vary with the lenders.
2. Personal and Business Credit Score
Every business owner has a separate business account, which does not have the features of the personal account. Meaning the business account is designed to maintain the credit score for the generated income by selling goods and services. In this case, the startup business does not have any credit score. However, some lenders inspect the personal scores for the startup entrepreneurs, since they do not have the business credits. A personal credit score is as same as the business one, but it explains your abilities for running a business.
If your business has multiple partners, then the lenders will check the credit score for each one of them. Some banks also consider the business owner’s transaction history with particular banks to approve the business loan.
3. Business Plan
A business plan is also an important document for getting the business loan approved. Many lenders go through your business plan to see sales and marketing strategies. Lenders may want to see how dedicated you are to run your business. Entrepreneurs are recommended to lay out the company description, market analysis, financial statements, as well as the balance sheet of the business. This document is required to show your lender that you have the capabilities and dedication to make your business successful.
4. Purpose of Loan
If you are applying for a business loan, then you must know why you need it in the first place. Some may even ask you the sole purpose of availing the loan. It must be noted that the hesitating over providing the reason for the loan may result in rejection of your application. It is recommended not to ignore the space of the purpose of the loan in the business loan application.
5. Financial Projections
Apart from the purpose, the financial projection is another important fact that must be added with the loan application. You must tell the lenders about the dire requirement as well as its impact on the business. You can also provide the projected income statement and cash flow statement in the business plan. With that, the lenders will be able to realize the eligibility for getting a loan.
6. Legal Documents
There are some exceptions, but the majority of the lenders will ask for the legal documents of the business. These documents include business licenses, registration, franchise agreement, and commercial leases. Some lenders will want to look at the financial statements of the business too. Also, add the contract copies from the third parties to avoid any hassle in the future.
7. Insurance Details
Your loan lenders require these all documents to minimize the risk of default. In the same way, banks and every other lender will also ask for the company’s insurance details. Banks can easily retrieve the loan amount in case if the owner dies or encounter an unfortunate disability. Moreover, having multiple insurance programs increases the chances of getting your loan application approved.
8. Business Team Details
You might also want to give the team hierarchy details of your company to ensure that the business is functional. It is the common fact that businesses work with multiple partners and management. The same information is sought by the lenders to lay out all the security features for the repayment. Mention your management, operational, and technical team to confirm the business structure.
9. Repayment Requirements
Lenders will also want to know how long will you need the loan. The business plan must include the repayment terms to illustrate your requirement of the loan for specific business operations.
10. Copy of Previous Loans
Some loan applicants might also have the previous debt that has repayment term coming ahead. In this case, it is important to let your lender know about your current state of the debt. A business debt schedule, for instance, explains the lenders about the loan payment and the credit amount. This will allow business owners to apply for loans that have better interests rate and repayment terms.
Considering these things will assist in getting your business loan approved. No matter, what is the size of your business, these essential things are the same for all. There is only one thing that must be noted that traditional banks have strict requirements and applications. It is up to you to decide which lender suits best for your requirements.