It takes a lot of money to run a business. Rent, equipment repairs and purchases, and payroll are some of the many expenses you need to consider. Without enough working capital, it’s safe to say that entrepreneurs won’t be able to pay for any of these. For this reason, many entrepreneurs apply for quick business loans even before the need arises.
However, applying for small business loans from traditional lenders is not a walk in the park. Banks are wary of small businesses because of the risk they carry. Nowadays, traditional lending companies like banks often require extensive documentation. Alternative lenders, on the other hand, don’t need too much paperwork, but they’d want to know your company’s current financial situation.
Although financing companies may not ask for the same requirements from borrowers, they do require them to submit the most common ones. Here’s a breakdown of the things you need when applying for a business loan:
- Credit Score Report
A lot of business owners think twice when it comes to borrowing money from lenders because of sky-high interest rates. But for clients with good credit scores, lenders are usually willing to offer flexible rates. It’s important to note that financing companies usually ask for both personal and business credit scores. However, since some businesses usually still don’t have enough credit rating, banks and other alternative lending companies will look at the owner’s personal credit scores, instead.
Lenders usually require their clients to have a credit score of 580 or more. But if your credit score does not qualify for the specific business loan you’re aiming for, other loan options are available for borrowers who don’t meet the standard credit score requirement.
- Balance Sheet
Another important financial requirement is your company’s balance sheet. This document shows the company’s liabilities, assets, and shareholder’s equity, giving lenders a clear picture of how well the business is going. The balance sheet is usually calculated at a specific time in the business, i.e. during the start-up phase, then monthly, quarterly, or annually.
A balance sheet helps lenders determine whether the owners will be capable of fulfilling the full payment within the agreed period. So, to qualify for business loans, lenders usually require business owners need to provide a year-to-date balance sheet.
There is always a risk involved in the lenders’ side when they let other people borrow money. But with collateral in place, lenders would be able to reduce the risk they face. Collateral is a hard asset that a borrower presents to the lender to act as a guarantee in case the borrower fails to meet the repayments. While not every borrower is required to present collateral, it’s an essential one that will help you get a good deal from lenders.
Not all financing options require borrowers to present collateral. But if they’re planning to apply for a term loan like those offered by the SBA, lenders will need to ask their clients to present collateral. That is why before you submit your loan application, you need to be sure what type of guarantee you can offer and how the lenders handle those types of collateral. This way, you’ll be assured that comfortable with the loan agreement you and the lending company come up with.
- Bank Statements
Bank statements allow lenders to determine how much they can lend the borrowers and gauge their capability to repay the loan. It also shows lenders how well you can manage the cash that comes into the business’ or the owner’s account. If you’re not a sole proprietor of the business, lenders will usually ask for all the owners’ bank statements and evaluate each.
With that said, lenders typically ask their clients to present bank statements within the last four months. This will allow them to take a closer look at the finances that your company and serve as proof of your company’s financial history. If you’re planning to apply for an SBA loan, expect to be asked for more bank statements since they’re usually stricter than traditional banks or lending institutions.
- Business Plan
A business plan is an invaluable tool that you need when applying for a business loan. Lenders want to know how entrepreneurs use the financing they obtained to grow their business. And the business plan will tell them that, exactly.
The business plan will serve as the foundation and roadmap of your business. While banks don’t necessarily need a long one, it should contain all the necessary information relating to the business operations. With that said, a good business plan should include the marketing strategies, goals, products, resumes of key managers, and most importantly, the company’s financial reports.
Learn More about Quick Business Loans for Your Business
Business loans are a necessity when it comes to running a business and applying for quick business loans. Having adequate working capital is essential if you want your business to succeed. However, without quick business loans, entrepreneurs will eventually exhaust their working capital and use up all their resources. If left unaddressed, this will force them to file for bankruptcy which leads to business closure.