The Three Checks to Handle Before Applying for Small Business Loans
While there is a wide variety of small business loans available such as short-term loans, small business cash-flow loans, and business working capital loans, a business might not be necessarily eligible for all types of financing.
Like individuals, businesses have accompanying credit scores. Business credit scores fluctuate from 0 to 100, however, that’s just one parameter lenders use to establish borrower eligibility. The following checklist highlights three verification checks designed to help ensure a business qualifies for SBA and similar small business loans.
Establish Clear Goals and Objectives for the Loan
Unlike a personal loan provider, business loan lenders need to know in-depth business details in order to offer a loan. Writing a business plan goes a long way towards reassuring lenders that a plan of action will accompany and financing. Hence, the following needs to be included when applying for a small business loan.
- The intent for the loan money borrowed from the lender as certain lenders might place restrictions or conditions on how the funds should be used.
- The ideal amount for a small business loan amount expected. Bear in mind that the maximum amount is $5 million for SBA loans.
- A business plan including the name, age, SWOT analysis, details and services offered by a business.
Prepare Financial and Legal Documents
Before applying for a small business loan, paperwork that helps value a business should be produced. Besides assembling these documents when learning how to make a business plan, online lenders and banks will request this very documentation before the underwriting process.
- Business licenses should be produced with details about a business.
- The turnover, yearly revenue, balance sheet, debt-to-credit ratio, commercial leases, business leases, tax returns, financial projections, as well as business credit score should be provided too.
- Depending on the creditworthiness of a borrower, a lender may request collateral as security or a guarantee-statement from stakeholders with more than 20% shares in a company, and sometimes both for SBA loans.