3 Business Loan Application Details You Shouldn’t Overlook
Rushing through the application process could be a big mistake.
- July 1, 2020
- 3 min read
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As an entrepreneur starting your own business, there will come a time when you must consider getting a business loan. Taking out a loan may seem nerve wracking but with the right tools and knowledge, it can actually be pretty easy to do. Small business loans can provide the capital you need to grow your business to its full potential.
That said, not every business or business owner is qualified to receive a small business loan, but there are things you can do to make your application more appealing to lenders. To get you started, here are three business loan application details you should not overlook:
For some, talking about credit can be a sore subject. Maybe you went a little too crazy with credit cards in college or perhaps you have found yourself drowning in debt. Maybe you have an average to good credit score. Whatever your score may be, it is important to understand how your credit score is calculated and what credit score is typically needed before you seek out a small business loan.
Although it takes years to build good credit, you may be able to make some small but meaningful changes to your credit prior to submitting a loan application. One important factor when calculating your credit score is your credit card utilization ratio, or how much of your available credit you are currently using. Experts recommend you utilize no more than 30% of your available credit limit at any given time. That means if you have $10,000 in available credit, avoid carrying a balance of more than $3,000 to keep your credit utilization ratio below 30%. If you’re considering applying for a business loan in your name, check your credit utilization ratio and if it is too high, consider paying it down before you apply for a loan. This simple action could help you improve your credit score and increase your chances of being approved for a business loan.
A solid credit history shows lenders know that you are responsible at borrowing and repaying your debts, whereas a low credit score could make lenders reluctant to approve your application. Understanding how credit works, as well as how to improve your own credit is a critical business loan application detail you cannot overlook.
Are you trying to open a startup business with little to no business experience or have you been in operation for at least a year? This can sometimes matter when seeking a small business loan. Some lenders, such as the Small Business Administration, require you to have at least a year or more time in business under your belt before you can qualify for a business loan. Strict lenders may want to see your financial statements to see where your business stands — a task simply not possible for a brand new business.
If you are looking to expand your business and the lender can clearly see your growth potential through analyzing your business’s financial data, then this can work in your favor. On the opposite end, if you haven’t started your business yet, getting approved will prove challenging. However, there are alternative lending options for new businesses just getting started.
Whether you are writing up a plan for expansion or writing a business plan for a new business, some lenders will use your business plan as part of its application process. Your business plan should be strategic and should speak to your audience (in this case, lenders).
To ensure your business plan is sufficient, make sure to do your research and review examples of business plans for inspiration on what to cover, as well as formatting. It’s key you demonstrate your knowledge of your business’s potential, products and even your competitors. Also, make sure you write with purpose. If you are seeking a small business loan, your purpose should clearly indicate your financial needs, and your business plan should be written with the audience of lenders in mind. You will also need to include a company profile and a strategic marketing plan. Your company profile should simply describe all aspects of your business. For example, products and services being offered, industry data, expenses and projected financial statements. Make sure you have a colleague, friend or even a professional editor read it over to proofread it for errors and provide general feedback.
To wrap things up, different lenders will of course have different qualifications, but there are some generally universal requirements that can help you decide if you may be qualified for a loan. One of the most popular qualifications would be personal credit scores. Lenders will typically look at your credit score to evaluate your creditworthiness. Some may look at a few other things like age of business, annual revenues, personal debt-to-credit ratio, net operating income and your business plan. Some lenders will have more strict qualifications, while others may be more lenient, especially for those seeking a startup business loan. It is usually best to look at the specific requirements for each lender you are interested in before applying for a business loan. If you think you meet the above requirements, then you should be able to get your business rolling in no time.
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