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Updated: March 27th, 2020
Most entrepreneurs start their businesses full of enthusiasm and optimism. You have a product that you know will help people and a plan for getting it into the marketplace.
Then reality sets in. The actual costs, both time and money it takes to develop and market a new product. That’s on top of the many other expenses that come with running a startup. A small business loan can be a great way to ease the burden of these expenses so you can focus on what matters most, growing your business.
Have you ever wondered, “What do I need for a small business loan?” If so, this article is for you. We’ll review standard small business loan requirements and four steps you can take to apply.
Entrepreneurs have more options than ever when it comes to small business funding. But small business loans still tend to be much harder to qualify for than other types of loans.
Underfunding of small business loans is especially true if you don’t plan on putting down any collateral because the loan is riskier for the lender. The best way to set yourself up for success is by making sure you meet the necessary criteria.
Here is an overview of what is required to get a small business loan:
Lenders look at your personal credit score to determine whether you’re a candidate for a loan. Your score should be at least 650 or higher to increase your odds of approval.
The longer you’ve been in business, the more favorably lenders will look at your small business loan application. Most lenders require that you’ve been in business for at least 12 months.
Many lenders have a minimum revenue requirement you need to meet. What you also need to show for a loan is that you have enough cash flow to make the payments on time.
The industry you’re in, and your company’s business model will also impact your odds of approval. Some industries are riskier than others, so what you need for a small business loan is to show lenders that your organization has a good chance of becoming profitable.
Collateral isn’t a requirement for a small business loan, but it does help. Additionally, you may qualify for a lower interest rate if you can put down some type of collateral.
Once you’ve answered the question of what you need for a small business loan?” it’s time to get started and apply. Listed below are four steps you can take.
Before you apply for a small business loan, it’s a good idea to have a well-written business plan to show your lender. A business plan will demonstrate that you have a viable business model, and it can show your lender why you need to borrow the money.
Your lender will want to see that you have a solid credit history and the cash flow to repay your loan every month. So before you apply for a small business loan, make sure your financials are in order. Order your free annual copy of your credit report and make sure you have up-to-date financial statements for your business.
When you apply to get a small business loan, you have to fill out a lot of paperwork. So, it’s better to get this ready ahead of time. Make sure you have on hand:
And finally, it’s time to choose a lender and complete the loan application process. If you’re looking for lower interest rates and are okay with a lengthier process, you might apply with a bank, credit union, or even for an SBA loan. If you want more flexible lending requirements and need the money right away, an online lender will probably be your best bet.
Applying for a loan can feel like heavy lifting, but it’s well worth the effort. By knowing what you need for a small business loan, you’ll significantly improve your chances of receiving the funds you need.
Louis DeNicola is the president of LD Money Media LLC and an experienced finance writer who specializes in credit, personal finance, and small business finance. Within the small business sphere, he helps business owners understand their financing options, cash flow management, business credit, and taxes. In addition to Funding Circle, you can find his work on BlueVine, Credit Karma, Experian, Wirecutter, and Lending Tree.