Qualifying for a business loan is easier when you know what to expect from the process. This allows you to prepare accordingly, which puts you in position to secure the necessary funds in a timely manner.
There are many steps you can take to position yourself for an approval, with the following among the most important:
Build a Strong Personal Credit Score
Your personal credit score ranges from 300 to 850, with higher scores falling in the very good and excellent range.
In short, your credit score shows your ability to manage your money and repay debts as required.
Small business lenders will evaluate your personal credit score when reviewing your loan application. A good or excellent score works in your favor, while a fair or poor score will raise a red flag.
Building a strong personal credit score before applying is one of the best ways to improve your chance of an approval.
Understand the Lender’s Qualifications
There are minimum requirements in place for any borrower interested in a business loan. For example, you may need a specific credit score to qualify. Just the same, most lenders will disqualify a borrower with a bankruptcy and/or multiple delinquencies on their credit report.
Gather the Necessary Documentation
The business loan application process often takes several weeks (or months) to unfold, as you’re required to submit a variety of financial and legal documents. You can speed up the process by gathering everything you need upfront.
Some of these documents include:
- Personal and business bank account statements
- Personal and business income tax returns
- Business plan
- Business license
- Articles of incorporation
- Photo of your driver’s license and Social Security card
Note: if you’re unable to produce one or more of these documents, it’s likely to bring the process to a halt.
Share Your Business Plan
There is more to securing a business loan than proving that you’re financially responsible. Lenders want to see that you have a clear vision for the future, and a strong business plan is the best way to do that.
Once you create a business plan, work with professionals in your network to make it as strong as possible. Anything you leave out may be questioned by your lender, so you want to make this document as comprehensive as possible.
While not always required, you may need to provide collateral, such as real estate or a valuable piece of equipment, to qualify for a loan.
With collateral in place, lenders have a route for recovering their money should you default on the loan.
Not every business loan requires collateral, so compare the finer details of those that do and don’t.
If the time has come to apply for a business loan, review your credit report and personal credit score to ensure that it’s strong enough to proceed.
When you combine a high credit score with the other details listed above, you’re in the best position possible to apply for and secure a business loan.