You need money for your small business, and you need it fast. Or at least before the note comes due on your equipment loan next month. Businesses, like consumers, borrow money. Unlike consumers, the lending requirements for businesses are usually tougher and your options are fewer. To qualify for a small business loan, three essentials must first be met.
1. Business Credit History
If you have borrowed money previously for your small business, then there is record of that loan maintained by a credit reporting bureau. Know that banks will obtain copies of your business credit reports. Your banker may also request permission to access your personal credit reports.
Several credit reporting agencies maintain information about your business including D&B, Equifax and Experian. Before you apply for credit, obtain these credit reports and review each one. You want to verify that your business credit action is appearing on these reports and that the information is current and correct. Lenders will base your credit request on the information these reports contain and will also obtain your business credit score. The higher your business credit score, the more likely you’ll be approved for a loan.
2. Loan Repayment Capacity
To qualify for a small business loan you must demonstrate to your lender that you are able to repay the loan. That demonstration must be backed up by proof, as in account receivables that show regular and steady income or cash flow.
You may be required to submit bank records including checking account statements to your lender. A small business plan as well as a Profit & Loss (P&L) report may also be required. Any lender can stipulate additional requirements for loan qualification; meet each one and you stand a better chance for approval.
3. Your Personal Guarantee
Your banker may like what she sees. Then again, there could be one more thing that would help them seal the deal. And that would be your personal guarantee.
Bankers are all about evaluating loan ratios and reviewing financial statements, but the ultimate deciding point often has to do with your character, especially your guarantee that the loan will be repaid. Beyond the personal assurance of a guarantee, you might offer collateral to back up your request. Collateral can represent many things including your title on a boat, the equity in your home, jewelry, land, equipment or investments. Should you fail to repay the loan, your banker would seize the collateral to pay off the debt.
Timing your loan is not always possible — you need money when you need it. Still, if you apply for a small business loan when the economy is going through a downturn, your chances of approval have only grown smaller. Thus, it is important for all small businesses to obtain credit when business is good and the economy is stable. A line of credit gives you much flexibility and can be tapped at any time. Especially when that equipment note is coming due!
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