Are You Ready to Apply for a Business Loan?
As your business expands, you’ll often find that you can accelerate sales or growth by securing a small business loan, but the process can be daunting and confusing. One way to smooth the path is to get prepared with the documents you need and an awareness of common mistakes made by your peers. So what do you need to know? Below you can find three proactive tips to help you answer the question, “Am I ready for a business loan?”
1. Your work experience matters.
According to John Seelinger, a mentor with the Orange County, California chapter of SCORE, lenders will want to see proof of strong managerial responsibilities and that the business is in stable hands. Before applying, think carefully about your past experiences leading teams or organizing initiatives, so that you can include details of the positive results. Some lenders will look for a resume, while others may look for this information within your business plan.
2. Your personal credit can be important.
Although you’re applying for a loan for your business rather than for yourself, many traditional lenders will nonetheless look for a personal score above 700. While alternative lenders tend to be significantly more flexible, it is generally a good idea to get check your credit through each of the major reporting agencies (Equifax, Experian, and TransUnion). You’re entitled to a free copy of your report once every 12 months–check the FTC website for details.
Get this report even if it is just to prevent errant mistakes, because they happen more often than you think; one of my colleagues at Fundera recently found out that Equifax had mixed up his score with that of a doctor in Connecticut!
3. Financial document requirements are extensive.
Do you have detailed balance sheets, P&L statements, and tax returns all prepared? In working with small business borrowers every day, Fundera’s VP of Sales, Tom Sauer, finds that this can be the biggest trip-up for applicants. He’s seen that some people will send just the cover sheet, because it contains the balance–but lenders need to see detailed transaction history.
If this sounds like a headache, you might want to start using automation or workflow software, like Quickbooks for accounting, and TurboTax for tax preparation.
Applying for a loan can be a process, and it’s often frustrating for business owners who just want the capital they need to focus on growing. By getting prepared with all the materials you need and by keeping potential pitfalls in mind, you can speed through the process successfully and get back to what you’re passionate about.
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