What Do I Need to Qualify for a Business Loan?
When you go to apply for a business loan, you’re just as likely to come away with a complicated set of instructions as what you are really looking for, which is a concrete list of “things the lender wants.”
We thought we’d cut through the business loan application clutter and tell you just how and what you should prepare before you even start looking for business funding.
Update your business plan
A lender will often want to see where you are going and where you’ve been, so have your business plan ready. Don’t have a business plan? Use a service like Enloop to create a professional document lenders will trust.
Prepare a loan elevator pitch
Think of “The 5 W’s.” Who wants this loan? What will you use it for? Why do you want this loan? And why is the money you’re trying to borrow vital to meet this goal? Go over this fact again and again until you can quickly make a pitch to a potential lender.
Minimize risk for your lender
Loaning money is always risky for a lender. Do what you can to let your lender know that you are a prime candidate for a business loan. Beef up your bank account, and be prepared to show lenders detailed documentation of strong annual revenues, assets, and your lack of debt or other black marks.
Scour your credit history
Speaking of black marks, your lender will likely pull your credit score, so check it out yourself just to make sure there are no surprises. You can check all three scores for free once per year at AnnualCreditReport.com. (That’s the official site! Watch out for similar sites that require a credit card.) If you find a problem on your credit report, be ready to dispute it with your creditors or the credit bureaus, or at least to explain it to your potential lender.
Gather evidence of collateral
Since business loans are so risky, some lenders will offer an asset-based loan. You may be asked to offer up a piece of real estate or equipment, or even inventory or purchase orders as assets to secure this loan. Be prepared with information about any assets you may wish to leverage.
Don’t forget a backup plan
Unfortunately, the business-lending climate can be tricky and many lenders are even turning down qualified applicants. Don’t put all your eggs in one basket when it comes to a business loan. And be open to possibilities, such as non-traditional business loans, should you find that one avenue doesn’t work out.
Have you ever applied for a small business loan? What tips do you have for someone who is applying for his or her first one?
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