Business loans given by lenders or banks are the financial support you’ll need to grow your small business. In return, you have to repay them with interest and the extra fees they charge for it. No matter which business loan you are applying for, you need to meet the requirements to qualify for it. You might find it challenging to meet all the requirements, and even if you do, it is a long process. It depends upon the bank or lender you are choosing, along with the loan amount and interest rates. The higher the loan amount or the lower the interest rate, means more information will be required by the lender. People waste a lot of time trying to figure out what lenders need to approve a loan. Here are a list of requirements you must be ready with before applying.
1. Financial And Legal Documents
Having your paperwork ready leads to a smooth process of loan approval. Here is a list of standard documents you will need to submit to the lender to approve your loan.
Bank statements (personal and business).
Business and personal tax returns.
Personal financial statements.
Balance sheets.
Collateral documents.
Government-issued identification and business registration.
Business plans and financial projections.
2. Credit Scores – Business And Personal
Lenders run a personal or business credit score to ensure a repayment guarantee. If your company has a credit score history, the lender is interested in how you managed your credit in the past. A poor business credit score could make your approval difficult. Suppose your business doesn’t meet the rules. The lenders will then run a personal credit check. Business loans need a personal guarantee to ensure repayment.
3. Annual Revenue
Lenders might approve a company that makes an excellent annual income. It must be at least 1.25 times greater than the ordinary operating expenses. Apart from this, lenders also check the amount of personal or business debt you carry. They approve loans based on an excellent debt-to-income ratio.
4. Time In Business
Lenders may look at the length of time in business. If you are just starting up, you may find it challenging to get a lender. Yet, online lenders may accept startups or a young business. Banks look for businesses older than 2-3 years to consider approving a loan. You may choose trade credit, merchant cash advances or invoice financing to start. It will help you to get eligible for a better loan.
5. Collateral
Many lenders need collateral to approve a loan with a lower interest rate. With non-secure loans, lenders need to see your business deposits covering your expenses. They need to cover the cost of 10-20% to pay. Lenders also need to see personal assets which requires you to sign a personal guarantee. They will hold you responsibile to repay the loan if your business is unable to. If you have no personal assets, then you might have a tough time getting approved for a business loan.
