Owning a company is different from running it successfully. When you are starting a small business, you need to have a well-thought-out plan that needs to be executed. Anyone with money in hand can kickstart a venture, but for it to be profitable, you need to put a whole lot of effort. Small businesses are no different from the big ones when considering the finance that comes into play. Most people tend to apply for a loan when they want to start their business and fail to repay it due to the lack of profits. Lending money from banks for your business isn’t a bad idea as long as your plan is effective. If you are confident with your business strategies, you can go for the loans, but you need to know how it functions and what the lender’s requirements are. Here are a few steps that you need to follow in order to qualify for a small-business loan.
1. Your Personal and Business Credit Scores
Building your score is crucial in bagging that loan; so, you need to make sure that everything you do contributes to your score. The amounts owed on credit cards, the duration of your credit, recent credit inquiries, type of credit being used, and the payment history are the factors that determine your FICO score. When you apply for a small-business loan, your skills to manage debt will also be assessed by the lenders through your personal credit score. Make sure to pay your bills on time to build your score, and this could go haywire at times as well due to the errors in the credit report. Get a copy of your credit reports every year to check for any inaccuracies. Both personal credit score and business credit score will need to be great for the traditional banks to lend you SBA loans or any other type of loan for your business.
2. Minimum Qualifications of the lender
You always stand a chance in getting the loan sanctioned when all the minimum qualifications of the lender have been met. Underperformance in a particular area and the overperformance in another may offer you the flexibility in some instances. However, it is always best to meet the minimum requirements so that the lender is pleased with your idea. A minimum criterion has to be met by the borrowers in terms of the credit score they earn, and if that falls short of the expectations, the lender is likely to reject the application.
3. Collection of Financial and Legal Documents
Several legal and financial documents will be required during the application for a loan. If they haven’t been maintaining a certain standard, the lenders can reject your application after the qualitative analysis. Business licenses, balance sheet and income statement, income tax returns, commercial leases, personal and business bank statements, and articles of incorporation are some of the documents that are included in this list. If you need the money soon, this method might not work; so, you will have to apply for online loans that pay you faster, unlike the traditional banks that have time-consuming procedures.