Have you heard the good news?
Banks are finally starting to accept small business loan applications at a higher rate than they have since the 2008 market crash!
The economy is strong, and lenders are now starting to feel more confident about backing small businesses and startups.
Does this mean that any small business owner can now get a loan? Not quite.
There are still some minimum qualifications you need to meet before you can get approved for a small business loan.
Read on to learn everything you need to know about small business loans and small business loan qualifications.
Types of Small Business Loans
Before we get into the specific qualifications you need to meet before you can get approved for a small business loan, let’s go over a few of the different types of loans you can apply for.
The following are some of the most popular small business financing options:
- Term loans: These loans provide you with a lump sum of cash that you pay back in monthly installments
- Small Business Administration loans: These loans are backed by the Small Business Administration and have borrowing amounts of up to $5 million
- Equipment loans: As the name suggests, these loans are designed to help business owners obtain new equipment to help them run their businesses more efficiently
You might also want to consider a business line of credit. Instead of receiving a lump sum of cash, this provides you with a credit line you can borrow against as expenses arise.
Minimum Small Business Loan Qualifications
As you can see, there are a few different loan options available to you. Each one has its own specific criteria that you must meet as a borrower. There are also some general qualifications that apply to all of them.
Listed below are some minimum qualifications you’ll need to meet before you can qualify for just about any small business loan:
Personal and Business Credit Score
It would be a serious mistake to go into a meeting with a potential lender and not know both your personal credit score and your business credit score. This is one of the first pieces of information a lender will require before even considering accepting your loan application.
You might be wondering why your personal credit score matters.
If your business is relatively new, you probably don’t have a lot of credit or a long credit history. Your personal credit score can help make up for the short credit history and make it easier for you to obtain the money you need.
In addition to knowing your personal and business credit scores, you should also have a solid business plan in place.
No trustworthy lender is going to provide funding to a company that doesn’t have a business plan. They need to know where you’re at, where you’re going, and what your long- and short-term goals are.
Be prepared to answer questions about your current performance and how you plan to improve moving forward. Be prepared to answer questions about how you’ll spend the money, too.
When you apply for a small business loan, either in-person or online, you’ll need to provide some documentation to prove your business is legitimate.
Some documents you might be asked to show include:
- Business licenses and permits
- Annual profit and loss statements
- Personal and business tax returns
- Commercial leases
- A copy of your driver’s license
- Articles of incorporation
- Financial projections
- Personal and business bank statements
Make sure you have all these documents ready to go in a folder or binder. Don’t let a lack of paperwork stop you from getting your loan.
Finally, you may also need to provide proof of collateral. Collateral is a common requirement for small business loans.
Collateral is usually some kind of valuable asset, such as commercial property, your car, or your home.
Not all business loans require collateral, but many do. If your lender does require, or you think they will, be sure to provide proof of collateral, such as a bank statement or title deed.
Increasing Your Chances of Approval
If you meet these minimum qualifications and have all the necessary documentation, your chances of getting approved for a small business loan increase dramatically.
There are other steps you can take to further increases your chances of approval, including the following:
Raise Your Credit Score
If you know your credit score — business or personal — is not up to snuff, make an effort to raise it as much as you can before you start applying for loans.
Remember, if you apply for too many loans at once, this will negatively affect your score and make it even harder for you to get approved.
Work on paying down your debt and making all your payments on time to raise your credit score.
Fine-Tune Your Business Plan
Take some time to fine-tune your business plan, too.
Consider working with a mentor or visit your local Small Business Development Center to have someone look over your plan and help you fill in any gaps.
Remember, the more details you can provide a lender about the state of your business and your plans for the future, the better of you’ll be.
Only Ask for What You Need
Remember to only borrow what you need, too.
Attempting to borrow more than you need will affect your chances of getting approved (and make it harder for you to keep up with your loan payments in the event that you do get approved).
That’s why this loan company recommends that you limit the loan amount to only what you know you can afford to pay back.
Need More Business Advice?
As you can see, there are a lot of things you need to keep in mind if you want to get a small business loan and keep your company afloat.
From meeting minimum small business loan qualifications to finding the right lender, it’s easy to feel overwhelmed. If you keep this information in mind, though, you’ll likely find the process to be less challenging.
Are you looking for more advice on funding and running your small business? If so, check out the business section of our site today.
You’ll find all kinds of helpful information here on everything from finding the right business location to essential software programs every business owner needs.